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UPDATE 1-Apple, MTS agree on iPhone sales in Russia-source

(Adds analyst comment, competitors, context)

MOSCOW, Aug 21 (Reuters) - Apple Inc AAPL.O has agreed a distribution deal with carrier Mobile TeleSystems MBT.N on the sale of iPhones in Russia, one of the world's fastest growing markets for mobile telephone handsets, a market source said.

“MTS has made an agreement with Apple on the sale of iPhones,” the source said. “Sales are likely to begin in October.”

Apple declined to comment as did a spokeswoman for Mobile TeleSystems (MTS), Russia's largest mobile phone operator which is controlled by Russian services conglomerate Sistema SSAq.L.

Apple’s iPhones are not yet sold officially in Russia, but they have swiftly become a status symbol in Moscow with soaring unauthorised sales of phones brought into Russia in suitcases or sent into the country by courier.

Monthly sales of these phones in Russia are estimated at about 20,000 and industry experts say the number of iPhones operating in Russia could total 700,000 by the end of 2008.

MTS Chief Executive Officer Mikhail Shamolin recently said the company was interested in selling the iPhone in Russia and that talks with Apple did not concern sales in other former Soviet countries where the carrier operates.

Apple Chief Executive Steve Jobs has said the company will roll out the iPhone in Russia later this year. In July, the company rolled out a 3G iPhone, which offers faster Internet access and improved e-mail features, in more than 20 countries.

Russia's top three mobile carriers -- MTS, Vimpelcom VIP.N and MegaFon -- have been trying to seal a deal with Apple but none of the operators had disclosed details about talks.

Both Vimpelcom and MegaFon declined to comment when asked at what stage of negotiations there were in with Apple.

“...the news is positive as MTS is promoting 3G networks, and this is a toy for advanced users who will become the main consumers of the services which the company is going to offer within these networks,” said Konstantin Belov, an analyst at Moscow investment bank Uralsib.

Industry experts have said the biggest hurdle in talks with Apple was that Russian operators were reluctant to hand over part of their iPhone-related revenues to Apple in return for exclusive sales rights.

“The devil is in the detail,” Belov said.

“We need to know on what conditions the companies have reached an agreement, whether they are exclusive. But it is not such a trigger for the company which will radically influence its results,” he said. (For a story on iPhone sales in Russia and China, please click on [ID:nL17691569]) (Writing by Maria Kiselyova; editing by Elaine Hardcastle)