No Rush in Bringing iPhone to Russia

APA model showing the new iPhone at a release event July 11 in Hong Kong. They officially went on sale in 21 countries.
Unauthorized sales of unlocked iPhones in Russia and China are flourishing, but Apple seems in no hurry to make deals with operators to sell the device in these huge markets officially.

Despite the iPhone being set for launch in 49 more countries, including Honduras and Guinea-Bissau, Russia and China -- home to almost half the world's mobile users -- aren't on the list.

Operators in those countries have proved reluctant to hand over part of their iPhone-related revenues to Apple -- a model Apple succeeded in imposing in early deals it made with carriers in other countries, who got exclusive sales rights in return.

Traders importing iPhones into these markets are often buying in the United States, boosting Apple's sales in this key market, while costs are minimal.

"Right or wrong, Apple needs to show good sales volumes. Russia is extremely profitable for it, all the more so because an iPhone shipped from the U.S. market is not serviced under warranty. That saves Apple around $70 per unit," said Eldar Murtazin, at Mobile Research Group.

Others say Apple is losing out.

"While having the cracked phones certainly helps Apple with marketing because of the buzz factor, they are losing a lot of money," said Shaun Rein, managing director of China Market Research Group. "Since the revenue split is a huge part of the profit ... it is critical that Apple begin to sell in China."

As many as 1 million "cracked" iPhones may be in use on China Mobile's network, In-Stat China analyst Kevin Li told Interfax this month.

In Russia, monthly sales of cracked iPhones are estimated at around 20,000, Murtazin said.

"China and Russia, in terms of the black market in iPhones, are probably the two top markets," said Andy Hargreaves, analyst at Pacific Crest Securities, adding that concerns over piracy of music and other content was likely also a big issue for Apple.

The new third-generation, or 3G, model was released July 11, featuring faster Internet access and embedded satellite navigation. Its sale drew crowds in the United States plus 20 countries in Europe and Asia.

The total number of iPhones brought into Russia in suitcases or sent by courier is seen rising to 600,000 to 700,000 units by the end of 2008 from 400,000 by the end of June -- a significant number in the context of worldwide iPhone sales.

"I believe there is still huge potential," said Sergei Rumyantsev, chief operating officer at No. 2 phone retailer Svyaznoi.

In Russia and China, the 3G devices are eagerly awaited despite the fact that buyers there cannot exploit many of the new advantages. Russia issued licenses for 3G last year and the service is available only in a few cities, while in China there is no usable 3G standard at all.

In Russia, old iPhone models can sell for as much as 25,000 rubles ($1,100) -- more than three times the carrier-subsidized U.S. price.

Sergei Isakov, an Apple spokesman in Russia, declined comment because Apple does not sell the iPhone there.

Apple CEO Steve Jobs has said the company will roll out the iPhone in Russia later this year, but Murtazin expects it no earlier than February or March 2009. Apple has not even applied to certify the 3G phone in Russia, he said.

Pacific Crest's Hargreaves said: "I would expect a deal in China probably in the next six months or so. Having a deal in Russia is probably a lot less likely because the market is so fragmented."

For now, Apple has given tacit consent to the informal supply chain by adding Russian and Chinese language options. Svyaznoi and No. 1 handset retailer Yevroset both say they are ready to discuss cooperation with Apple.