Apple 2.0

Covering the business that Steve Jobs built

In Russia, the iPhone is an expensive flop

July 30, 2009: 10:30 AM ET
Russia iPhone

Map: CIA Factbook

Despite heavy advertising and early black market interest, Apple's (AAPL) iPhone is an expensive flop in Russia, according to a reportposted Thursday by Svetlana Gladkova.

Gladkova, Russian editor of the tech blog Profy.com, writes that Russia's three major carriers cut a deal with Apple last year that requires them to sell a total of 3.5 million iPhones over a period of two to three years.

But in the first 6 months after Apple's phone became officially available, according to CNews Russian, the three carriers -- in conjunction with their Russian retail partners  -- only managed to sell 250,000.

Now, according to Gladkova, one of the largest of those retailers, Euroset, owes the carrier it was working with, MTS, 279 million rubles -- roughly $8.5 million -- for iPhones that it can't unload.

Part of the problem, according to Gladkova, is that the estimated 400,000 iPhones that entered Russia through the back door satisfied much of the initial demand. "Many of the people who wanted an iPhone already had one," she writes.

But the bigger problem is the iPhone's sticker price. Most cell phones in Russia are sold without a contract, and contract-free iPhones were initially offered there for more than $1,000 each. That's since come down to $700 to $800, but even this, says Gladkova, "is definitely not a price that makes it an affordable phone."

The carriers, she says, have stopped buying iPhones from Apple and are now trying to renegotiate for either lower prices or smaller quotas -- demands that Cupertino has reportedly refused. Meanwhile the retailers are stuck with million of dollars worth of inventory they can't move and which the carriers have no interest in taking off their hands.

"To me," writes Gladkova, "this looks like yet another example of how different the Russian market is and how difficult it is to achieve success for foreign players -- even if they find local partners.

"But the worst part is that this disaster will hardly teach Apple anything and I'll expect seeing ridiculously priced iPhone 3GS here as well -- way after everyone who wants to have the latest model manages to buy it abroad."

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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