David Prosser: O2's coup is a gamble

It looks like O2 is about to pull off another coup, landing, we hear, the UK rights to the Palm Pre, the touchscreen phone that many in the mobile-technology industry think is a genuinely credible threat to Apple's iPhone.

O2, of course, also has exclusive rights to the iPhone here. But while you can see the attraction of such deals to O2 and its rivals, why would a handset maker choose to limit potential sales by selling only to the customers of one network?

Interestingly, Palm's boss, Jon Rubinstein, used to work at Apple, so he's following the distribution model of his former employer. One rationale is technological – neither Apple nor Palm is a phone specialist, and as each network requires tweaks to the handset, partnering with just one makes life simpler.

The more compelling argument, however, is about commercial risk. Apple partners such as O2 pay the company a licence fee to sell its phones, guarantee a certain level of sales and sometimes even offer a cut of revenue from data traffic. Palm has been negotiating very similar deals.

For a new venture, this strategy limits the fallout if it proves to be an expensive flop. In other words, O2 will be taking the gamble on the supposed iPhone killer, rather than on Palm.