A Hamburg court has ruled on Tuesday that T-Mobile Germany, a unit of Deutsche Telekom AG, need not sell an unlocked version of Apple's iPhone. The court decided that T-Mobile could lock its iPhone customers into an exclusive, two-year contract in Germany, and could block buyers of Apple Inc.'s iPhone from using the handset on competitors' networks.

Pronouncing ruling in the case 315 O 923/07 at the Regional Court of Hamburg, the court articulated in a statement today it lifted an injunction obtained by Vodafone that stopped Deutsche Telekom's T-Mobile unit from selling the device only with exclusive contracts or software that restricted use on competitors' wireless systems.

The ruling reinforces Bonn-based Deutsche Telekom's efforts to boost its customer base and client spending with the iPhone. Vodafone, the world's largest mobile-phone company, trails market leader T-Mobile in German wireless subscribers.

Chris-Oliver Schickentanz, head of research at Dresdner Bank AG in Frankfurt, said, “It's very important for Deutsche Telekom to win this ruling; exclusivity is the key to a product like the iPhone because Deutsche Telekom's business model is to sell it at an unsubsidized retail price.''

Thus, the court reversed an injunction issued at the request of Vodafone Deutschland GmbH in mid-November barring T-Mobile - which has an exclusive deal with Apple Computer Inc. to sell the phone in Germany - from marketing it in the country with only a 24-month contract and a so-called SIM lock that prevents users from switching to any other operator's network. T-Mobile successfully appealed that injunction and said it reserves the right to consider seeking damages.

The court said Newbury, England-based Vodafone can appeal the ruling within one month. The company will analyze the written judgment and will then decide on further steps. Vodafone spokesman Jens Kuerten, said, “These sales terms are to the detriment of consumers and we wanted a court to review them.”

T-Mobile made the phone available to customers in Germany, France and the U.K. on Nov. 9. In Germany, 10,000 iPhones were sold on the first day alone, which Deutsche Telekom Chief Executive Officer Rene Obermann called a ``promising start.'' T-Mobile had 34.5 million customers in Germany at the end of September, compared with Vodafone's 32.5 million. In Germany, T-Mobile required IPhone customers to buy a two-year contract and use the SIM lock. Such contracts and cards are designed to reduce "churn" - customers moving to other providers and are common among mobile phone operators.

T-Mobile, the exclusive distributor of the iPhone in Germany, had changed the terms for selling the combined handset and iPod music player to comply with the Nov. 21 injunction. The company will now scrap an unrestricted 999-euro ($1,500) iPhone offer it introduced following the initial court order.

Once Vodafone won a restraining order from a regional Hamburg court, T-Mobile told customers who had already bought the phone that they could unlock their SIM cards. T-Mobile also sold the iPhone without a contract, for EUR999. Previously, with contract, the phone sold for EUR399.

The Tuesday decision leaves the German operator free to sell the phone for €399 (US$585) including tax, tied to its network and with a two-year service contract, just as it proposed at the phone's German launch on Nov. 9.

Rival Vodafone filed suit against T-Mobile on Nov. 19, alleging that the sale of locked phones tied to a two-year contract breached German consumer protection laws.

More importantly for Vodafone, T-Mobile's exclusive deal with Apple, combined with the locking of the phones, meant that Vodafone stood to lose customers attracted by the device.

In response to Vodafone's suit, the court temporarily ordered T-Mobile to sell an unlocked version of the phone, with no restrictive contract, while it decided the case. T-Mobile sold the unlocked iPhones without a service contract for €999 while waiting for the court's final ruling.

U.K.-based Vodafone spokesman Simon Gordon said, "The intention of the legal action was to ensure clarity on the commercial position in the German marketplace."

Gordon said Vodafone hadn't received a written ruling, but "we will be examining it closely to decide on any future actions. ... Vodafone Germany does not believe that the pricing model is in the best interests of the German consumer."

T-Mobile Managing Director Philipp Humm told Dow Jones Newswires that the sale of the handset without a T-Mobile contract hasn't hurt the business and that he is satisfied with iPhone sales so far. He said he also expects good Christmas sales for Deutsche Telekom's Mobile unit overall.

Now the court has thrown out Vodafone's complaint, and T-Mobile is once again selling only locked phones, T-Mobile said Tuesday.

T-Mobile offers three service contracts for the iPhone, with monthly costs of €49 for 100 voice minutes and 40 text messages, €69 for 200 minutes and 150 messages, or €89 for 1000 minutes and 300 messages. There is no charge for cellular data traffic, access to T-Mobile's Wi-Fi hotspot network or use of the Visual Voicemail service. Unlike their U.S. counterparts, European mobile phone users do not pay for incoming calls. All the contracts run for a minimum of 24 months, after which customers can ask T-Mobile to unlock their iPhone for free, the company said.

Vodafone said it will analyze the ruling before deciding what action to take.

T-Mobile spokesman Klaus Czerwinski said, “From the beginning we were very convinced that this was an offer that's absolutely fine from the legal side, and a really good offer for the customer.”

Customers will now only be able to buy the phone under the original 399-euro offer with a binding two-year contract. After two years, users can have the iPhone unlocked so they can switch to other providers, T-Mobile said.

Marco Hartmann-Rueppel, a competition lawyer at law firm TaylorWessing, said, “The ruling is no surprise and I don't think Vodafone can change things on appeal.” Unlike France, Germany has no law requiring companies to sell cell phones without contracts, he added.

Hartmann-Rueppel said, “Two-year contracts are very common and it certainly helped that T-Mobile told the court that it will unlock the device at the end of that period.”

In June, shoppers lined up outside Apple's store on Fifth Avenue as many as three days before the iPhone went on sale in the U.S. Consumers also drove from out-of-state for the handset.

Customers wanting an unlocked iPhone can still cross the border to France, where France Télécom subsidiary Orange sells phones without a contract for €649, plus a €100 unlocking charge. (The charge is waived if the customer waits for six months from the purchase date.) The phones sold by Orange can be configured to present menu options in French, German, English or Italian.