While many of us have been watching the Winter Olympic Games in Sochi, Russia for the past two weeks, there’s one thing we haven’t seen much of: iPhones being used by ordinary Russians. There’s a pretty good reason for this, and it involves an ongoing squabble that Apple has been having with major Russian mobile phone service providers.
The analyst group IDC found that iPhone (News - Alert) sales in Russia doubled last year to 1.57 million. While this may seem like a lot, consider that the population of the Russian Federal is about 143.6 million. Part of the reason for this low penetration is that as of the middle of last year, none of Russia's top three wireless carriers were selling iPhones, according to a recent article by Bloomberg (News - Alert). The lack of iPhone choices are due to Russian law and Apple business policies not rubbing well together.
“Apple wanted carriers in Russia to cover the costs of subsidizing and promoting the iPhone, like they do in the U.S. and other developed markets,” wrote Ilya Khrennikov for Bloomberg. “However, Russia has laws preventing phone companies from discounting devices in exchange for longer contracts. Wireless operators in the country deemed Apple (News - Alert)'s terms, which included minimum sales requirements, to be too onerous.”
The majority of the 1.5 million iPhones sold in the country last year were the result of Apple doing a tricky end-run around the phone carriers: they sold iPhones directly through Russia’s largest electronics chain, Svyaznoy. The carriers, who are beginning to see missed opportunities, are now relenting. MegaFon, Mobile TeleSystems (News - Alert) and VimpelCom all began selling iPhone last fall. This is clearly good news for Apple, as market penetration of smartphones in Russia is still below 50 percent. This, coupled with the fact that Russians have good discretionary spending power, means the nation is a rich, green field for Apple, which currently owns only eight percent of the Russian smartphone market.
Apple does have a hurdle to overcome, and that’s talking Russians into spending more on its expensive iPhone 5C and 5S models, especially since Russian law prohibits carriers from discounting the phones. (Americans signing a wireless phone contract with a provider can purchase iPhone 5s for as little as $100). Most Russian iPhone sales to date have been for cheaper iPhone 4S, which is priced around $500. The iPhone 5 models, which will set Russians back nearly $1,000, may be a tougher sell.