UPDATE 1-Telefonica to sell iPhone in Spain this year

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MADRID, June 4 (Reuters) - Spanish telecoms company Telefonica (TEF.MC) will start selling Apple's (AAPL.O) popular iPhone in Spain this year, it said on Wednesday.

Telefonica's mobile unit O2 has been selling the iPhone -- a touch-screen device combining the iPod music player, videos and Internet -- in Britain since last November.

At the end of March, Telefonica had 23 million mobile phone clients in Spain, where it is the leading phone company by a long way.

"The phone should go on sale before the summer," a sector source said, adding that Telefonica should have exclusivity as its two main rivals Vodafone (VOD.L) and Orange (FTE.PA) have already said they will not sell the phone in Spain.

Apple started selling the iPhone in exclusive agreements with companies like AT&T (T.N) in the United States and O2 in Britain but in Italy has broken that model, selling both via Telecom Italia (TLIT.MI) and Vodafone.

(Reporting by Robert Hetz; Writing by Jane Barrett; Editing by Erica Billingham)