The ad, created by VCCP, aired in February, and was one of the first to feature a Narnia-inspired landscape to promote its products and services.
A Faun stood beneath a tree and said: "Welcome to O2's mind. What am I doing here? Well, they thought of me and here I am.
"Being here I get to see everything O2 thinks about and they think a lot about you."
A woman was introduced. "Take Mel. Hi Mel. Mel's an O2 customer and O2 thought, what if Mel was out shopping around one day and she spots an offer for new customers that's better for the deal she's on?"
At this point, the image darkened and the character Mel was transformed into a demon-like figure with horns and wings.
The Faun continued: "Oh dear! So, O2 thought, we'll make sure our existing customers always get our very best deals when they stay with us." The demon is transformed back into 'Mel' and the Faun concluded: "And everyone can get O2 rewards. You see? They're always thinking of you. And me, apparently."
Eight complained that the woman's transformation was distressing and not suitable to be seen by children. A further three chellenged O2's claims that it offered the best deals.
In its response to the ASA, O2 said it had expected Clearcast to highlight any restrictions on transmission times to minimise the risk that children would see any ads which might distress them, and had followed Clearcast's advice as it had not been its intention to upset children.
Clearcast had passed the ad to be viewed at any time and added that it had alerted broadcasters to tell them the ad may not be appropriate for children under nine.
On the second point, O2 said it felt that they had made the point clearly that customers get the best deals "when they stay with us", and so did not mislead, and Clearcast agreed.
In its statement the ASA acknowledged: "Some very young viewers might find the theme unsettling, [but] we did not consider that the content or scheduling of the ad was likely to cause distress to very young children," and did not find it in breach.
The ASA also considered that viewers would understand that "when they stay with us" meant that the "very best deals" referred to in the ad were only available to O2 customers at the end of their O2 contract, and concluded the ad was not misleading.