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O2 has agreed a deal which will see a massive 40% of the revenues it makes through its iPhone customers being returned to Apple, according to a report in the Guardian.

The Cupertino based company also maintains the ability to change the price of the handset at any time, as it did last month when it slashed the price by $200 in the US.

O2's profits will also be hit by a revenue

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sharing deal with Carphone Warehouse, which will retail the device on its behalf after Apple expressed concerns that O2 alone did not have a large enough store footprint in the UK.

O2 will need to upgrade its existing network with the Edge technology required by the iPhone, another considerable outlay for the operator.

Analysts are also suggesting that the profitability of the iPhone could be affected by the appearance of the iPod touch, which does almost everything the iPhone does but without the phone, possibly appealing to those looking to upgrade their iPods in favour of the touchscreen technology.

Apple is also reported to have struck deals with T-Mobile in Germany and Orange in France, with official confirmation expected later in the week.

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