Apple in no rush to bring iPhone to Russia, China
MOSCOW/SHANGHAI (Reuters) - Unauthorised sales of unlocked iPhones in Russia and China are flourishing, but Apple Inc seems in no hurry to make deals with operators to sell the nifty device in these huge markets officially.
Despite the iPhone being set for launch in 49 more countries including Honduras and Guinea-Bissau, China and Russia -- home to almost half the world's mobile users -- are not 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.
Talks between Apple and China Mobile, the country's top mobile operator, stalled for that reason. China Mobile says Apple has now dropped its insistence on revenue-sharing but still has no timetable for a launch.
In any case, 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," says analyst Eldar Murtazin at Mobile Research Group in Moscow.
Others say Apple is losing out.
A MILLION CRACKED IPHONES IN CHINA?
"While having the cracked phones certainly helps Apple with marketing because of the buzz factor, they are losing a lot of money," says 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."
In China, as many as a million "cracked" iPhones may be in use on China Mobile's network, In-Stat China analyst Kevin Li told Interfax this month. Some estimates indicate that 40 percent of all unlocked iPhones are in China.
In Russia, monthly sales of cracked iPhones are estimated at about 20,000, says Murtazin.
"China and Russia in terms of the black market in iPhones are probably the two top markets," says 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 (3G) model was launched last Friday, featuring faster Internet access and embedded satellite navigation. It drew crowds of buyers when it went on sale 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 600,000-700,000 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," says Sergei Rumyantsev, chief operating officer of Russia's No. 2 phone retailer, Svyaznoi.
Apple says it sold 1 million new 3G iPhones over the first weekend and aims to have sold a total of 10 million iPhones, including the older version, by end-2008. But analysts expect the new iPhone alone to sell more than 10 million by then.
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 licences for 3G last year and the service is so far available only in a few cities, while in China there is no usable 3G standard at all.
Rein says: "Consumers want the hot factor, not so much the 3G part because they cannot use it." He says some status-obsessed Chinese buyers will hand over more than a month's salary for a cool phone, while in Russia old iPhone models can sell for as much as 25,000 roubles ($1,081) -- more than three times the carrier-subsidised U.S. price.
Apple would not comment on iPhone issues because Apple does not sell it there.
So when will Apple start selling it officially?
Apple Chief Executive 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 says.
Pacific Crest's Hargreaves says: "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 Russia's No. 1 handset retailer, Euroset, both say they are ready to discuss cooperation with Apple.
"It's a huge market and Apple is doing everything to support it," says Murtazin. But when Apple finally brings the iPhone to Russia and China, it may have to find a new sales model.
Apple's current campaign to target a bigger market with lower prices is made possible by handset subsidies from its partner carriers, which they recover by signing up customers for service contracts -- a practice avoided by Russian carriers.
Russia's top three mobile operators -- Mobile TeleSystems (MTS), Vimpelcom and MegaFon -- have not disclosed any substantive talks with the iPhone maker.
Dalibor Vavruska, a telecoms analyst at ING, says: "Since Russia is largely a pre-paid market, this model was not very suitable for Russia. I would expect this to change."
(Additional reporting by Sinead Carew in New York and Georgina Prodhan in London; Editing by David Holmes)
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