Orange sets up showdown with O2 as it secures iPhone

Operator follows rival as it wins the right to sell Apple's iconic device in the UK

Orange has carried out another coup by becoming the second network operator to win the right to sell Apple's iPhone in the UK, potentially setting up a Christmas price war with rival O2.

It comes just weeks after Orange, owned by France Telecom, agreed a landmark tie-up with T-Mobile. If that deal is approved, Orange will overtake O2 and Vodafone to become the largest operator in the country.

Tom Alexander, the chief executive of Orange UK, was delighted with the iPhone deal, saying: "There is a lot of affinity between Orange and Apple customers."

In a memo to staff yesterday, he added: "It's one of the most sought-after phones by our customers and is widely acknowledged as one of the best devices made in the history of mobile. And now it's on Orange."

Since its UK release in November 2007, the iPhone has been sold exclusively by O2. The group has secured all models including the latest 3GS, which was released earlier this year.

Carolina Milanesi, an analyst at Gartner, said rumours had been rife that Apple would end its exclusive arrangement with O2 and secure a deal with Orange as well. "Talk was of just the older models, so they did well to pick up the 3GS," she said, adding that it would bring more customers to the Orange network.

O2 has sold more than one million iPhones in the UK and yesterday's announcement is expected to spark a price war. Ms Milanesi said: "It all depends on how much the company plans to subsidise the handsets. They can't drop it so low that their margins are wiped out."

A spokesman for O2 insisted it was "business as usual". He added: "The exclusivity was always going to run out. We are really happy we could offer it exclusively for the last two years. We have a good relationship with Apple and will continue to look after our customers who use the iPhone."

He said the device had "revolutionised the industry" and that "with exclusivity, we stole a march on everyone else with it in the UK".

Mr Alexander said it took "months of hard work and dogged determination from a small group of people" to secure the Orange deal, but added that it was not linked to its tie-up with T-Mobile.

The iPhone 3GS will be in Orange shops before Christmas. The exact launch date and price remain a secret although it launched a pre-registration site at 9.30am yesterday. By 2pm, 65,000 customers had signed up. Orange is promoting the device off the back of its 3G network, which covers more of the UK than any other operator. Mr Alexander said: "It's another big day for Orange and another big step towards fulfilling the plans laid out in our agenda last summer."

The O2 contract is a blow for Vodafone, whose chief executive, Vittorio Colao, admitted his interest in selling the handset in July. He said the time: "The UK is clearly the market where the iPhone has the highest impact. O2 is our main competitor and we have our eyes on them because we want to beat them."

Industry experts said Vodafone might still secure the rights to sell the device in the UK. It offers the iPhone in other countries, and the device is sold by more than one operator in some other territories. "This might not be the endgame," Ms Milanese said. "The iPhone changed the industry, completely shifting how many thought about smartphones and browsing the internet. There is little comparison with its branding power."

One way the iPhone overhauled the telecoms industry was by launching a store dedicated to selling applications for the handset. More than two billion applications have been downloaded from the App Store since 2008.

Steve Jobs, the Apple chief executive, said: "The rate of App Store downloads continues to accelerate. It has reinvented what you can do with a mobile handheld device, and our users are clearly loving it."