UPDATE 1-O2, Telstra end DoCoMo's i-mode Internet service

(Adds TOKYO dateline, Telstra

LONDON/TOKYO, July 17 (Reuters) - UK-based O2 and Australia's Telstra Corp. (TLS.AX) said on Tuesday they would end NTT DoCoMo's (9437.T) i-mode Internet phone service, in a setback to the Japanese company's overseas expansion plans.

Mobile phone operator O2, which is owned by Spain's Telefonica (TEF.MC), said the limited range of devices that carried the service had restricted its growth.

O2 will continue to support the service for the next two years but will not launch any new i-mode handsets from July 2007, it said.

In a separate statement, telecoms carrier Telstra said on its Web site it would pull the plug on the service on Dec. 10, explaining that many of the features of i-mode were available on its "BigPond" mobile service.

Telstra would be the first carrier to quit i-mode.

I-mode helped jump-start Japan's mobile growth when it was launched in February 1999 as well as helping DoCoMo secure its leading position in the industry. In Japan, about 48 million subscribers, or about one-third of the population, use i-mode.

O2 launched the i-mode service less than two years ago, and its customers pay depending on how long they use the Internet or how much they download.

John Delaney, principal analyst at Ovum, said O2 was wise to call a halt to the service as it runs counter to trends that are emerging in the mobile Internet market.

"In the i-mode business model, operators keep only a small amount of content revenue, making most of their money by charging for data network usage," he said in a note to clients.

"But regular users of the Internet on mobiles will become increasingly dissatisfied with 'having the meter running' while they surf, and the trend is already moving in favour of flat-rate data tariffs."

On Tuesday 02 said it had around 260,000 active users.

((Reporting by Kate Holton and Nathan Layne, editing by Erica Billingham/Jane Baird; Reuters messaging: nathan.layne.reuters.com@reuters.net; +81-3-3432-8231, nathan.layne@reuters.com)) Keywords: O2 IMODE/

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