apple store russia

Russia is one of the BRIC countries mentioned alongside Brazil, India and China as areas where demand for smartphones is increasing rapidly. Yet, recently, the last of Russia’s big-three carriers stopped selling the iPhone, leaving it up to resellers and Apple’s new online store to meet demand.

Why are Russian carriers saying no to the iconic handset – and adopting competitors, such as Samsung and Microsoft? The answer could be as simple as 1-2-3…

The Russian market for smartphones is large: 180 million mobile phone owners subscribe to one of the nation’s three carriers. Reselling mobile phones made 36-year-old Maxim Nogotkov a billionaire, according to Fortune.

However, less than a year after a black-market iPhone 5 was selling for $3,700, none of the three top carriers offer the iPhone. The news site’s Philip Elmer-DeWitt points to three potential reasons: subsidies (or lack thereof), import fees and claims of what one carrier – Beeline – described as “draconian contracts” from Apple.

Beeline logo (medium)

Mobile phones in Russia are licensed by the government agency Rospechat.

The agency doesn’t allow subsidies of mobile phones, which would allow an iPhone 5 to be sold in America for $199 – much more palatable than the $649 full price. While a stumbling block, Apple has had to work in other countries which do not permit subsidizing the end-cost of smartphones.

Russia mobile phone share
Chart via Fortune.

In India, consumers are offered payment plans which stretch the cost over time, as well as discounts and other techniques to defray the price.

Russia’s import duties and taxes add $269 to the $649 unlocked iPhone 5 available at Apple’s online store, according to the report.

Apple says $140 of that $269 is Russia’s value-added tax, while $129 is import duties and a questionable channel mark-up. This is last item is odd, since it would mean Apple is paying a fee to sell its own handset in an Apple-owned site.

iPhone 5 (Beeline 001)

As Elmer-DeWitt writes, the question “may be one of those mysteries only Apple’s Irish subsidiary can answer,” which is a reference to Apple’s technique of filtering profits through an Irish unit that then charges Apple a fee which can be written-off.

A third potential reason why no Russian carriers are opting to sell the iPhone is one we’ve heard before: onerous contracts.

Russia’s Beeline, a unit of VimpleCom, cited the “harsh conditions.” VimpelCom is the sixth largest wireless carrier in the world.

In a Bloomberg interview, the CEO of MTS – Russia’s largest carrier – said “Apple wants operators to pay them huge money subsidizing iPhones and their promotion in Russia.”

MTS commands more than a hundred million subscribers. Together, Vimpelcom and MTS count more than 300 million subscribers.

Closer to home, we recently heard that Verizon might be on the hook to Apple to the tune of $14 billion for unsold iPhones it had contracted to buy. The contracts also restricts carriers placing their own apps on the iPhone’s homescreen and logos on the device.

As a result of the opening given by carriers, rival smartphone makers have increased their Russian market share. Microsoft, for instance, saw its influence rise to 8.2 percent, up from 5.1 percent in 2012

When MTS dropped the iPhone, it added Microsoft’s Windows Phone. By contrast, Apple’s share of the Russian market has slipped to 8.3 percent, down from nine percent.

If you’re from Russia and frequent this blog, I’d love to hear from you down in the comments about the Apple situation in your country.