O2 UK digs deep for iPhone advertising splash

The new Apple iPhone is displayed at the Apple store in central London, September 18, 2007.

LONDON (Reuters) - Spanish-owned O2 UK (TEF.MC) and Apple (AAPL.O) plan to launch a multi-million pound joint advertising campaign later this month as they get ready to bring iPhones to Britain.

O2 UK, which is owned by telecoms group Telefonica (TEF.MC), declined to divulge the size of its marketing budget for the television and poster campaign, which kicks off two weeks before iPhones go on sale in Britain on November 9.

O2 UK Chief Executive Matthew Key told a journalists on Tuesday it would be the company's "most significant campaign" in the run-up to the key Christmas trading period -- but that it would cost well short of 20 million pounds ($40.8 million).

In remarks embargoed for Tuesday Key said he believed 80 percent of O2 UK's high-value customers wanted an iPhone, while 40 percent of the higher-spending customers on rival networks would be prepared to switch operators to get the handset.

Apple, which broke into the cell phone market when it unveiled its iPhone in January, has flouted European telecoms conventions by not allowing its handsets to be subsidized and by demanding a share of voice as well as data revenues.

The terms of the deal between the two companies have not been published for commercial reasons.

But analysts speculate O2 was prepared to give away 20 to 30 percent of voice and data revenues in return for clinching an exclusive, "multi-year" contract to sell iPhones, which combine Apple's popular iPod music player, a video player and Web browser in a slick, touch-screen device.

However, Key also noted "it would make sense" for Apple to also give a revenue share to O2 UK in return for using its network.

He said the phones, which will be sold for 269 pounds ($548.8) including tax to customers willing to sign up for an 18-month contract with O2, would "absolutely" secure a profitable deal for O2 UK.

O2 UK, which has declined to divulge customer targets, is banking on iPhones helping to fuel customer demand for non-text mobile data services such as music and video, which currently account for only 5 percent of annual group revenues.