What happens after 1st year on iPhone contract,ie if in Month 13 get a prob

I'm thinking of signing upto a new iPhone on an 18month contract in UK
I know everything has a 1year warranty and I know you can pay extra for AppleCare, or mobile phone insurance but I wont be.
So what happens after 1st year if you get a problem with the iPhone? who is responsible? is it Apple or O2? and will it be fixed for free?
bit nervous as its an expensive gadget and if a prob occurs after 1 year?
cheers

"suppose, but just with it being used everyday, in pocket, passed around etc etc think it may go wrong, and Loc's law it will go in month 13 onwards!!"
Still, the warranty is no different than any other warranty on every other product you have ever owned. It is for a specified period (one year being a good length compared to other phones/computers,etc).
Do you worry this much over every other product that you buy?
Do all of the other products that you own break right after the warranty expires?
I always get Applecare and have only had to use it once ( a cd drive on a laptop needed to be replaced).
I have dropped my iphone more than once and it is fine.

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What happens after 1st year on iPhone contract,ie if in Month 13 get a prob

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