O2 finds Apple revenue-sharing to its taste

O2, the mobile phone company, laid the groundwork yesterday for an announcement of a tie-up with Apple to sell the US firm’s iPhone handset.

Peter Erskine, the O2 chief executive, defended Apple’s insistence that it receives a share of revenues from calls made on iPhones.

Apple has struck an unconventional deal with the network operator AT&T in America, under which the iPhone has sold more than one million units since its launch on June 29.

Apple is expected to reveal that O2 will be its British network within the next few days.

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Mr Erskine defended Apple’s insistence on sharing subscriber revenues with network operators, saying that such agreements were still advantageous.

Revenue-sharing deals with handset manufacturers are unheard of within the mobile industry. Manufacturers such as Nokia usually receive no cut of the calls made on their devices.

Vodafone is thought to have pulled out of the bidding war for the iPhone in Britain because of its reluctance to give 10 per cent of revenues from calls to the California-based company.

Asked about the revenue-sharing deals that Apple is expected to adopt with European mobile operators, Mr Erskine said: “If sharing revenue brings a bigger pie to the table, then we’ll be happy to share that pie . . . The revenue-sharing model will play an increasingly important role in the future of converged communications.”

Losers in the converged world, he said, would be “the network operators, service providers and device manufacturers who don’t pay particular attention to understanding and reacting to what customers value”.

Mr Erskine also praised the iPhone as an “iconic device with unique features that have proven to have tremendous appeal to large numbers of customers in the US”.

It is expected to go on sale in Britain in time for the key Christmas trading period. He stopped short of confirming O2 as the winning operator and a spokesman for the mobile group said that “nothing yet has been announced as to who Apple may partner with in the UK”.

As well as the deal with O2, Orange is expected to be unveiled as Apple’s chosen partner in France, with T-Mobile the winner in Germany.

The fight for the rights to sell the iPhone in Britain has been one of the most fiercely contested battles since the 3G auction in 2000.

Losing operators have scrambled to find alternative deals. Vodafone hopes that a tie-up announced this week with MusicStation, which offers subscribers access to one million tracks for less than £2 a week, will limit the damage.

Handset operators such as Sony Ericsson have also rushed out handsets designed to be “iPhone killers”.

Ben Wood, a director of CCS Insight, the telecoms research group, said: “Some operators feel [revenue-sharing deals] set a dangerous precedent on the way they deal with handset manufacturers. History has shown that doing deals with Steve Jobs inevitably results in Apple being the ultimate winner.”

Many analysts feel the edge was taken off the iPhone announcement by Apple’s recent decision to slash the price of the device in the United States by a third just 68 days after its launch.