The touch-screen mobile phone, which combines Apple's popular iPod music player, a video player and Web browser, will be sold through O2, Carphone Warehouse and Apple retail and online stores for 269 pounds ($536), including 17.5 percent value-added tax, from Nov. 9.
After months of speculation, Apple on Tuesday finally confirmed what Telefonica-owned O2 called "the worst-kept secret we've had."
It chose the largest British mobile phone operator, which teamed up with Europe's top independent mobile phone retailer Carphone, in a "multi-year" exclusive sales deal.
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Apple's chief executive, Steve Jobs, said the phones, which have been dubbed "Jesus" phones by some Internet bloggers who see them as the ultimate device, would cost more than in the U.S. mainly because of high European taxes, but also because distribution and service costs were higher than in the U.S.
"The price is in the upper end of expectations," said Neil Mawston of research company Strategy Analytics. "For a non-3G [third generation] device in western Europe [it] is quite expensive."
Sporting his trademark jeans and black mock turtleneck, Jobs brushed off suggestions that O2 had won the UK deal because it had offered to pay the innovative U.S. consumer electronics guru the greatest share of handset sales and service revenues.
"It wasn't an economic choice," he told a London news conference. "It was a cultural choice."
Jobs declined to be drawn on sale plans in other European markets and dismissed suggestions that he had enraged European mobile phone operators by playing them off against each other before picking partners.
"It's kind of like getting married," he said. "We dated a few people but didn't get married to them. I guess there are a few upset girlfriends out there."
An industry source familiar with talks told Reuters last week that iPhones, which are being sold for $399 in the U.S. before tax, would be sold for 399 euros ($553) in Germany.
Newspapers have speculated that O2 was so keen to win the iPhone deal that it was prepared to hand over as much as 40 percent of revenues for the unsubsidized handsets to Apple — more than market expectations of 20-30 percent.
"I had heard that they [O2] had gone beyond the comfort zone for pricing and that they were willing to go further than others were," said one source familiar with negotiations.
Matthew Key, the chief executive of O2's UK business, said only: "We only do good deals."
Customers willing to sign up for 18 months can pick a contract for 35, 45 or 55 pounds per month for the phone, which comes with free, unlimited use of 7,500 public Wi-Fi wireless Internet connections — in cafes, restaurants, airport lounges and other locations across the UK.
Carolina Milanesi, an analyst at Gartner, brushed off concerns O2 had yet to upgrade the bulk of its network with EDGE (Enhanced Data for GSM evolution) software, a second-generation software on which the iPhone depends.
"The EDGE issue is not really an issue when you have 7,500 hotspots in the country to fall back on," she said.
IPhones flew off U.S. shelves when they first went on sale in the U.S. amid much fanfare in June. But Apple slashed the price of its $599 model to $399 two weeks ago, sending its stock falling on market concerns that sales were slowing.
However, Apple has sold more than 1 million iPhones in the United States to date — beating its end-September target.
Shares in Telefonica stood 2.3 percent higher by 11:30 a.m. EDT, outperforming a flat European DJS telecoms stocks index (.SXKP).