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Demand for the iPhone forces O2 to increase handset prices...

O2 have doubled costs to customers who wish to be privileged to a top of the range handset in a move designed to bring down subsidies.

The cheapest monthly line rental for a FREE Nokia N95, Sony Ericsson C902 and Samsung Tocco is now a shocking £75 per month, instead of average £35, which has been the industry level for the last two years. The new prices also apply to upgrades as well as new connections.

Senior management at O2, led by CEO Ronan Dunne, have decided to try to lead the market by cutting handset subsidies in the hope that rival operators will follow suit, Mobile understands.

A source close to O2 said: ‘The industry is in a spiralling situation where top-end handset prices are going up, and we are giving away more and more for £35.’

O2 believes it is ideally placed to carry the risky move to slash handset subsidies because its subscriber base will continue to grow given its exclusivity with the iPhone and O2’s faith in sustained demand for the product.