Telefonica's O2 UK hails "iPhone halo" effect

By Kate Holton

LONDON, Feb 28 (Reuters) - Mobile operator O2 UK was a "star performer" in 2007 for its Spanish owners Telefonica (TEF.MC), boosted by customers entering its stores to either buy or look at Apple's iPhone, a senior executive said on Thursday.

Matthew Key, the chairman and chief executive of Telefonica O2 Europe, told reporters on a conference call the iPhone had delivered as hoped, with customers driving up data revenues by surfing the Internet and sending emails.

"The pleasing thing we've seen on the iPhone (and) starting to see across the business is that mobile data is finally coming of age," he said, after Telefonica reported good 2007 results.

Analysts had speculated that the iPhone -- which combines Apple's (AAPL.O) popular iPod music player, video player and Web browser -- would force other operators and handset makers to improve their mobile Internet offerings.

"The good news was each customer ... is exceeding our expectations in terms of the revenue they're driving for us (and) the level of customer satisfaction. But (what) is particularly pleasing is the halo effect the iPhone has clearly had on our business," he said.

"It clearly drove more traffic into our stores. Yes the iPhone was important to us, but actually we drove some significant sales on our other products, so very pleased with the iPhone."

O2 UK added 483,000 net customers in the quarter including 276,000 on a contract, the highest number ever. Around 60 percent of those who bought iPhones were from other networks.

O2 and retailer Carphone Warehouse (CPW.L) secured the deal to sell the iPhone in Britain in September, fighting off competition from other operators to bring the touch-screen mobile phone to the market.

But both have been reluctant to divulge any sales figures since the iPhone went on sale in November, with Key only saying that sales were broadly in line with their target to sell a "couple of hundred thousand by the middle of January".

Away from mobile, O2 UK has also entered the competitive broadband market and Key said the group was on track to net one million customers by 2010. It has about 100,000 customers signed up already.

Key said the group would start marketing the product more heavily in the second quarter after a relatively soft launch.

Key was named head of Telefonica O2 Europe in November after helping propel O2 UK to the top spot in terms of revenue and subscribers. He took up the job in January, replacing Peter Erskine. (Editing by Catherine Evans)