Don't Look Now, but Apple Is Failing in Russia

It looks like T-Mobile isn't the only company out there that's had it up to "here" with the high cost of subsidizing iPhone sales.

Over in Russia, market-leading cell phone provider Mobile TeleSystems (NYSE: MBT  ) has just confirmed that, as of 2012, it no longer sells Apple's (NASDAQ: AAPL  ) new iPhone models to its customers directly. The company does still stock, and sell, some older iPhone models. But for iPhone5 and on up, MTS now answers phone calls from Apple with a Spasibo, ne nada. ("Thanks, but no thanks.")

Of course, being in the cell phone business, MTS does have to sell its customers some phones, right? So what are they going with, if not the ever-popular Apple?

Take your pick
After hearing about the Great Russian iPhone Dump, I asked MTS to comment. Its response: "In late 2012, MTS didn't sign a new commercial agreement with Apple as the parties failed to agree on the terms of partnership. As a result, iPhone 5 models weren't available in the MTS retail stores." Today, MTS has agreements in place to promote smartphone choices from Samsung, Nokia, and HTC -- but not Apple.

The reason is simple. For years, MTS has been "unhappy" with the prices Apple charges for its iGadgets. MTS CEO Andrei Dubovskov notes that, because cell phone customers in Russia are generally of the "prepaid" variety, paying Apple high prices for iPhones is no longer economically viable. MTS can't make up the cost of the subsidies by locking customers into long-term, hi-price contracts, as AT&T and Verizon do here in the states. As a result, the iPhone was costing MTS money, and leaving it with a "negative margin" on the product.

MTS was similarly unhappy with an Apple demand that it commit to buy a certain numbers of iPhones in order to gain access to new iPhone models at all. But, as it turns out, MTS may not need that access.

Who needs an Apple a day, anyway?
This week, cell phone tech site BGR.com is reporting that Nokia's new line of Lumia Windows Phones, powered by Microsoft's operating system, have been selling just as strongly in Russia as Apple's iPhones. Indeed, MTS confirms that, around the time it dumped Apple last year, it signed a partnership agreement with Microsoft (NASDAQ: MSFT  ) to promote smartphones, such as the Lumia, that run Mr. Softie's software. The fact that Lumias cost a mere fraction of the iPhone price -- MTS's CFO once told me that iPhones were selling for about $1,000 a pop on the open market in Russia -- probably doesn't hurt the phones' appeal.

Meanwhile, the absence of iPhones on its store shelves doesn't seem to be hurting MTS. As of Q1 2012, Russian market researcher Advanced Communications & Media scored market share among Russia's biggest telcos like this: 

As of today, Bloomberg reports that MTS remains No. 1. So it seems ... MTS doesn't actually need the iPhone to succeed in the marketplace. Apple investors had better hope that other telcos, in other markets, don't reach the same conclusion.

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Read/Post Comments (11) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 15, 2013, at 2:26 PM, techy46 wrote:

    Apple's devices are overpriced glam toys for parents and their teenie booper brats.

  • Report this Comment On July 15, 2013, at 2:29 PM, investinsight wrote:

    Thanks for the breaking news from 2012 (last I checked that was 1 1/2 years ago)!

    The model in Russia is different, people buy their own phones and get pre-pay, so you are comparing apples to oranges vs the US.

    This looks like a Microsoft propaganda piece because their smartphone sales with Nokia have generally been considered a dud worldwide, except somehow they are doing great in Russia...yeah right. Are you working for some Microsoft grassroots propaganda campaign!

  • Report this Comment On July 15, 2013, at 2:38 PM, CalvinballPro wrote:

    Apple has been riding a deceptive wave of sales figures ever since the iPhone came out. Without the subsidization by the telecoms, such a ridiculously expensive pocket computer would never have caught on the way iPhone did. As this market grows towards the back end of the maturity phase, Apple is going to find it impossible to ink the same kind of sweetheart deals that made it so profitable to begin with, and their reliance on iPhones for profits is going to hurt the company. HARD.

  • Report this Comment On July 15, 2013, at 2:40 PM, demodave wrote:

    Rich, I was in arussia for two weeks on vacation last month. The iPhone is don't just fine there. I saw lots of them. The reason they aren't on MTS' shelves is that people are too busy using them in the wild.

    If you want to see the impact of dropping the iPhone in MTS' stores, you're going to have to wait a quarter or two, not look back at Q1 2012 (sic).

  • Report this Comment On July 15, 2013, at 2:44 PM, demodave wrote:

    Looks like the "a" button swapped out with my Shift button. arussia = Russia, of course. Don't =

    doing. Typos are fun, aren't they? Let's hope 2012 is really 2013.

  • Report this Comment On July 15, 2013, at 3:03 PM, mdl00 wrote:

    @techy46: Actually the iPhone is for anyone who's not a blind-sighted fandroid, and who likes to be productive on their phone instead of posting useless comments on tech articles.

    How's that Android web traffic share doing?

  • Report this Comment On July 15, 2013, at 3:41 PM, TexasNeuron wrote:

    Statcounter has iPhone going from 13% of web traffic in Jan 2012 to 28% in July 2013. Seems like the iPhone is gaining market share just fine.

  • Report this Comment On July 15, 2013, at 4:46 PM, st0815 wrote:

    So here is the actual data behind this article (sourced from IDC):

    "Windows Phone accounted for 8.2 percent of smartphones sold in Russia in the first quarter, or 315,000, compared with 5.1 percent a year earlier, while Apple’s share dropped to 8.3 percent from 9 percent"

    So Apple lost a bit, but Russia wasn't a strong market for them before, either. Not exactly a devastating blow.

    Still it shows that Apple's negotiating power is reduced and going forward that will mean that they will have to balance market share and margins, there is more pressure now.

  • Report this Comment On July 15, 2013, at 6:58 PM, vernr75 wrote:

    The global mobile market overwhelmingly operates on prepaid plans. While in the US and some Western countries postpaid services are the norm for most, the overall global picture has always been the exact opposite - prepaid is used by billions while postpaid is niche.

    It's just a matter of time before these multiple Russian carrier rejections of the iPhone are repeated across the developing world markets as the iPhone increasingly becomes an financial liability over time and iOS an increasingly irrelevant platform within most geographical regions.

    I suspect the iPhone mini may eventually prove to be the catalyst for many of the developing world carriers to finally turn their backs on the iPhone for good. Most of them have been struggling to move iPhones from the very beginning and if they feel they are being forced via contractual obligations into accumulating stockpiles of yet another iPhone model that is too expensive to be moved in large numbers, they will rebel.

  • Report this Comment On July 15, 2013, at 8:23 PM, holybull4 wrote:

    I predict Apple to fail completely within the next decade. now that Jobs is dead, the company is floundering and their products way too expensive. They are not worth it.

  • Report this Comment On July 19, 2013, at 6:23 AM, StratTalking wrote:

    Great post... inspired me to write something about the world without Apple... would be interested in any comments or thoughts you have on it - http://strat-talking.com/what-if-apple-fell/

    Greg

    http://Strat-Talking.com

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