With the imminent launch of iTunes Radio, Pandora has announced that it will remove the 40-hour monthly limit on free listening on mobile devices from September 1st.

Pandora had introduced the limits earlier in the year, and had cited rising royalty rates that have gone up by 25% in the last three years as the reason.

Users who wish to listen to more than 40 hours per month have an option to pay $0.99 for unlimited listening on mobile devices for the remainder of that month or continue listening on their computer or subscribe to Pandora One. Pandora One is the company’s premium music subscription service, which costs $3.99 per month, or $36 per year for unlimited listening and no advertising.

During today’s earnings call, Pandora CFO Mike Herring said that strong growth in advertising revenue has helped them remove the 40-hour monthly limit:

Our investment in advertising infrastructure and implementing smart levers such as reducing song skipping and limiting mobile listening have helped us drive monetization and manage content costs, as reflected by the increase in RPM and a decrease in content costs as a percentage of revenue 

As our results have shown, the continued strong growth in our advertising revenue allowed us to cover the increased royalty costs with dollars left over to invest back into the business. With these tools in hand, and insight into how they work, we are resetting our levers in September. Notably, Pandora plans to eliminate the blanket 40-hour-per-month limit on free mobile listening effective September 1st.

Pandora CEO Joe Kennedy also told AllThingsD that the company is not worried about iTunes Radio:

“We’ve now been around for eight years. We’ve seen competitors large and small enter the market and, in some cases, exit the market. I’ve never seen an analysis that identifies an effect from any competitor … we don’t see the picture changing.”

We don’t expect Pandora to admit it, but it is quite clear that they have been forced to remove the limit due to the iTunes Radio, which is expected to launch in September when iOS 7 is released. The ad-supported version of iTunes Radio will be available for free to all iOS users (initially in the U.S.). The ad-free version will be available to iTunes Match subscribers, which costs $25 per year making it much cheaper than Pandora One.

It is good to see iTunes Radio putting pressure on other music streaming services to either remove such limits or improve their service.

Note: This article was first posted on AndroidBeat’s sister site, iPhoneHacks.