Why Is Russia Abandoning the iPhone?

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MoscowThe three biggest Russian wireless carriers have all recently stopped selling Apple’s (NASDAQ:AAPL) iPhone. Last week, a Hi-Tech Mail report via PhoneArena noted that VimpelCom’s (NYSE:VIP) Beeline brand was the third major Russian carrier to abandon the iPhone after MTS (NYSE:MBT) and MegaFon also failed to renew their 5-year contracts with Apple. Hi-Tech Mail chief analyst Dmitry Ryabinin noted that this decision was most likely due to the stringent contractual obligations that Apple imposes on carriers of the iPhone.

“Apple’s conditions are harsh, especially in the marketing department, and are not always beneficial for its partners. That’s why Vimpelcom’s decision looks logical,” stated Ryabinin. Earlier this month, Bloomberg reported that MTS — Russia’s largest carrier — also stopped carrying the iPhone owing to Apple’s draconian requirements.

“Apple wants operators to pay them huge money, subsidizing iPhones and their promotion in Russia. Now it’s not beneficial for us. It’s good we stopped selling the iPhone as these sales would’ve brought us a negative margin,” stated MTS Chief Executive Officer Andrei Dubovskov via Bloomberg.

Although Apple’s tough contract requirements may be one reason why Russian carriers are dropping the iPhone, Fortune’s Philip Elmer-DeWitt identifies two other reasons why Russia is saying “nyet” to Apple. He notes that Russia’s government doesn’t allow for the same type of mobile phone subsidies that enable North American carriers to sell smartphones for a low upfront cost.

Besides missing the advantage of phone subsidies, the Russian market is also hampered by high import duties and taxes. This makes the iPhone prohibitively expensive in the Russian market. For example, an unlocked iPhone 5 that costs $649 in the U.S., costs $918 in Russia after various taxes and other fees are added to the price.

Although Apple fans can still easily find the iPhone in Russia at the Svyaznoy chain of stores, Apple’s share of the Russian smartphone market has noticeably declined over the past year. According to IDC statistics, Apple’s market share dropped to 8.3 percent in the first of quarter of this year, from 9 percent in the same period last year.

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

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