Apple in no rush to bring iPhone to Russia, China

By Maria Kiselyova and Sophie Taylor - analysis

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.