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Chief executive Matthew Key travelled to California late last month to meet with Apple boss Steve Jobs, and the two are said to have discussed how to capitalise on the early success, particularly how they can build on the popularity of the iPhone's data services.

Key said that users are moving an average of 25MB of web pages, media content and email each month, while just 1.8% of O2 customers using traditional mobile phones access that much data. And O2 is only measuring data on its own network - it does not measure Wi-Fi use.

"Here's absolute proof that if you get the proposition right, customers will use data," Key <

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told the Financial Times.

While Apple and O2 have been criticised for the price of the iPhone and its three contract options, there appears little doubt that the provision of unlimited internet access is proving hugely popular with users. The popularity of the handset's fully featured web browser and YouTube and Google Maps applications is a rebuke to those who said that the handset's 2G capability is too slow.

With 2G's reputation having something of an unexpected renaissance, Key is urging telecoms industry regulator Ofcom to alter plans to reallocate some of O2's and Vodafone's 2G spectrum to 3G services. And he has found a powerful ally in Tesco. The UK's biggest retailer leases O2 network capacity for its Tesco Mobile service and fears that the proposed reforms could force it to close the service.

"Tesco Mobile, with its joint venture with O2, may have difficulty in remaining a viable force in the UK market as the services its customers currently enjoy can only be received on competitors' networks," says Tesco Mobile in a previously undisclosed letter sent to Ofcom in November, a copy of which was seen by the FT.