Apple has a Russian iPhone problem

The top Soviet cell phone carriers say purchasing and marketing terms are too stringent.

By TheStreet Staff Jul 17, 2013 1:03PM

copyright AppleBy Chris CiacciaTheStreet logo

 

In Soviet Russia, iPhone buys you.


Okay, enough bad Yakov Smirnoff jokes. Apple (AAPL) has a real Russian problem, and I don't mean Ivan Drago from "Rocky IV."


Russia's top three cell phone carriers, MTS (MBT), VimpelCom (VIP) and Megafon have recently made clear that they're not going to continue selling the iPhone. The carriers claim that Apple's exceptionally stringent terms over purchases, subsidies and marketing no longer make it financially feasible to carry the iPhone.


While the decision could change at any time, it's hard to see how this won't negatively impact the upcoming iPhone 5S. Apple is expected to launch the phone either next month or in September.


Apple officials couldn't be immediately reached for comment.


The subsidy issue is a major one, as the mobile phone federal agency in Russia, Roskomnadzor, doesn't allow the iPhone 5 to be subsidized to $199. When you factor in import duties, taxes and other associated fees, customers are paying serious money for an iPhone. A look at Apple's Russian website shows an unlocked iPhone 5 costs $918, versus $649 in the United States. Again, a huge disparity in pricing, and it's becoming not financially feasible anymore for the carriers because of lower margins.


The carriers, particularly MTS, are turning to alternative phones, including Microsoft's (MSFT) Windows Phone. (Microsoft owns and publishesTop Stocks, an MSN Money site.) While the iPhone has never been a huge seller in Russia -- research firm IDC estimates it had just 8.3% of the Russian market in the second quarter of 2013 -- that's still a major problem for Apple. These carriers combined have a few hundred million subscribers, with Vimpelcom alone having more than 200 million subscribers (vimplecom.com) as of the end of March. That's a serious figure, and something Apple, and investors, have to be aware of.


While Russian consumers can get the iPhone on either the black market or other means, it's still going to impact Apple's market share in the country -- and iPhone sales overall.


Apple reports fiscal third-quarter earnings on July 23 after the close of trading. Analysts surveyed by Thomson Reuters are expecting $7.32 per share on $35.1 billion in revenue.


It'll be interesting to see if Apple lowers its fourth-quarter guidance based on this news. Hopefully, analysts will press Apple CEO Tim Cook and his team on the issue so that some questions can be cleared up.


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1Comment
Jul 17, 2013 2:59PM
avatar

copyright AppleBy Chris CiacciaTheStreet logo

 

In Soviet Russia, iPhone buys you.


Okay, enough bad Yakov Smirnoff jokes. Apple (AAPL) has a real Russian problem, and I don't mean Ivan Drago from "Rocky IV."


Russia's top three cell phone carriers, MTS (MBT), VimpelCom (VIP) and Megafon have recently made clear that they're not going to continue selling the iPhone. The carriers claim that Apple's exceptionally stringent terms over purchases, subsidies and marketing no longer make it financially feasible to carry the iPhone.


While the decision could change at any time, it's hard to see how this won't negatively impact the upcoming iPhone 5S. Apple is expected to launch the phone either next month or in September.


Apple officials couldn't be immediately reached for comment.


The subsidy issue is a major one, as the mobile phone federal agency in Russia, Roskomnadzor, doesn't allow the iPhone 5 to be subsidized to $199. When you factor in import duties, taxes and other associated fees, customers are paying serious money for an iPhone. A look at Apple's Russian website shows an unlocked iPhone 5 costs $918, versus $649 in the United States. Again, a huge disparity in pricing, and it's becoming not financially feasible anymore for the carriers because of lower margins.


The carriers, particularly MTS, are turning to alternative phones, including Microsoft's (MSFT) Windows Phone. (Microsoft owns and publishesTop Stocks, an MSN Money site.) While the iPhone has never been a huge seller in Russia -- research firm IDC estimates it had just 8.3% of the Russian market in the second quarter of 2013 -- that's still a major problem for Apple. These carriers combined have a few hundred million subscribers, with Vimpelcom alone having more than 200 million subscribers (vimplecom.com) as of the end of March. That's a serious figure, and something Apple, and investors, have to be aware of.


While Russian consumers can get the iPhone on either the black market or other means, it's still going to impact Apple's market share in the country -- and iPhone sales overall.


Apple reports fiscal third-quarter earnings on July 23 after the close of trading. Analysts surveyed by Thomson Reuters are expecting $7.32 per share on $35.1 billion in revenue.


It'll be interesting to see if Apple lowers its fourth-quarter guidance based on this news. Hopefully, analysts will press Apple CEO Tim Cook and his team on the issue so that some questions can be cleared up.


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