LONDON (Reuters) - British broadband and mobile operator Virgin Media O2 lost 118,400 mobile contract customers in the second quarter, reflecting weakness in the top-end of the market where innovation in new iPhones and competing devices has slowed.

The company, jointly owned by Liberty Global ( LBTYA ) and Telefonica, said it now had 15.9 million customers on monthly contracts.

It also saw a 13,600 decline in its fixed-line customer base, with losses on its existing network largely offset by growth in its fibre network expansion.

Chief Executive Lutz Schüler said the group had continued to invest in its networks and services despite a tough trading environment.

"Our fibre deployment has gathered significant pace, with the Virgin Media O2 fibre footprint now hitting 5 million premises as we push forward towards creating the UK's largest national fibre challenger," he said in a statement.

BT, VM O2's larger rival, said on Thursday its Openreach networks arm had lost 196,000 broadband customers in the quarter as more defected to competitors.

Price rise helped VM O2's average revenue per user on its fixed network rise by 3.1% to 48.49 pounds ($62.40) a month, it said on Friday.

Revenue in the quarter fell 1.4% year-on-year to 2.7 billion pounds, driven by the weak mobile handset market, while adjusted core earnings fell 1.6% to 998 million pounds.

($1 = 0.7771 pounds)