iPhone finally arrives but it's neither cheap nor G3

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Consumers clamouring for one of the UK's first iPhones this Christmas are set to pay substantially more than their US counterparts after Apple revealed that its first mobile phone will cost £279 when it goes on sale in November.

Despite already selling one million handsets in the US since it launched in June, Apple has already cut the price of the iPhone in the region by a third to about £200. Buyers will also have to sign up to an 18-month contract costing, between £35 and £55 a month, pushing the cost of signing up for an iPhone to more than £1,000 for some customers. That makes it a very expensive stocking filler yet analysts remained confident the handset will fly off the shelves across Europe.

At a relatively low-key event held at Apple's Regent Street store in London, the company's chief executive officer Steve Jobs confirmed that the handset would be available from 9 November and that O2 had won exclusive network and sales contracts for at least two years. The handset will also be available from Carphone Warehouse on the O2 network.

It is yet to be seen whether UK consumers will opt to pay more than £250 on top of a contract to have an iPhone when they can get similar music-oriented devices for free from makers such as Nokia. The cost is higher as O2 will not be subsidizing the device and will instead share revenue made on calls with Apple. Neither company would comment on the level of revenue that is to be shared. Dresdner Kleinwort estimated that if O2 traded 10 per cent of its call revenue to do the deal with Apple, it would be positive for the operator.

Matthew Key, head of O2 UK, said he expected consumers to take to the iPhone as it was "leagues ahead" of equivalent devices and demand is strong. Mr Jobs said: "Sometimes you get what you pay for." They dismissed concerns that Apple's similar iPod Touch may reduce the iPhone's appeal. Mr Jobs described the new iPod as "training wheels for the iPhone" while Mr Key reckoned the two products will appeal to different parts of the market.

Answering criticism that the new handset is not leading-edge enough, given it is not a 3G device, Mr Jobs said a 3G version is likely to be available late next year and in the meantime, customers can download music, and access the internet via wifi and Edge network technology.