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The iPhone arrives, but is O2 being taken for a ride?

'You want... how much?'

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You'd need to spend another 87 quid on a year's access to Wi-Fi network The Cloud too, if you were trying to emulate the iPhone contract.

We don't know how much O2 is paying The Cloud for that access, but it's probably not a lot as it makes nice publicity for The Cloud, and they'll be hoping to sign up laptop users on the basis of their iPhone experience.

O2 has had to start rolling out EDGE onto its network, and are claiming they'll have 30 per cent of their network supporting the 2.5G technology by the November 9 launch.

Given the internal opposition to EDGE within O2 - understandable when it has spent more than £4bn on a better technology - it's remarkable it's managed any deployment at all. Don't expect EDGE to spread much beyond London - it's only there because O2 would be a laughing stock if it hadn't been seen to be making the attempt, and it will be quietly killed off as soon as the opportunity presents itself.

So it would seem that the high cost of the iPhone tariffs covers the percentage paid to Apple, while money which would normally go towards subsidising the handset will instead pay for The Cloud Wi-Fi access and a limited deployment of EDGE around the smoke. O2 won't make any money on games or ringtones, but they aren't losing anything here either, and when their own customers switch to an iPhone tariff they stand to make a few quid too.

Apple worked very hard to get the revenue split they wanted. Orange has a better EDGE network in the UK, and could have offered a cross-company deployment, but wouldn't agree to Apple's demands.

With this morning's announcement that T-Mobile has the exclusive German rights, at €399, it seems likely an announcement from Orange in France is imminent, unless they are waiting for the 3G version.

Back in January your reporter confidently predicted that no European operator would take on the iPhone without 3G, as to do so would be a slap to their investors who ponied up billions on the 3G license and infrastructure. I stand corrected, the Apple magic is stronger than I imagined.

For O2 this deal actually looks like quite a good thing, assuming the iPhone isn't too successful: they wouldn't want to risk their content-sales revenue. Their risk is minimal, and the publicity has been considerable - as long as Apple don't get too big for their boots then everyone can be a winner.®

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