Can Apple’s iPhone Overcome Russia’s Smartphone Pricing Obstacles?

Source: Apple.com

Will smartphone pricing restrictions in emerging markets hamper Apple’s (NASDAQ:AAPL) international ambitions? Although Apple’s iPhone 5C and iPhone 5S are now available for sale in Russia, many industry watchers do not expect the Cupertino-based company’s new devices will make much of an impact in this rapidly growing smartphone market.

One major obstacle to Apple’s growth in Russia is the country’s policy on smartphone subsidies. Unlike the U.S. where the cost of a device is usually subsidized by a carrier, Russia requires consumers to pay the full off-contract price of a smartphone, reports Bloomberg. This makes both of Apple’s new iPhones far too expensive for most consumers in Russia. Apple’s iPhone 5C costs approximately $800 in Russia, while the iPhone 5S is $160 more.

Unfortunately for Apple, many emerging smartphone markets operate on similar principles. “Half of the globe is non-operator markets,” noted IDC analyst Simon Baker via Bloomberg. For example, Indian phone makers follow the local convention of subsidizing monthly data plans, rather than subsidizing the cost of the device, reports Bloomberg.

According to IDC data, Samsung  (SSNLF.PK) had a 49.7 percent share of the Russian smartphone market in the second quarter of 2013, compared to Apple’s 3.2 percent share. The gap between Apple’s iOS and Google’s (NASDAQ:GOOG) Android market share is even more dramatic. Android had a 73.3 percent share of the Russian market in the second quarter, while iOS accounted for only an 8.3 percent share. Perhaps even more surprising, Microsoft’s (NASDAQ:MSFT) Windows Phone had a larger share than Apple’s iOS, with an 8.6 percent share of Russia’s smartphone operating system market.

Apple’s growth in Russia may also be hampered by a lack of distribution deals with major carriers. Earlier this year, VimpelCom (NYSE:VIP) became 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. However, VimpelCom will apparently resume carrying the iPhone through deals with other distributors, reports Bloomberg.

CEO Tim Cook pointed out in Apple’s fiscal third quarter earnings conference call earlier this year that, “80 percent of smartphones are sold in retail” in the Russian market. In this sense, Apple is doing well since its devices are available for sale at both the Svyaznoy and Euroset retail chain of stores in Russia. Despite Apple’s slow growth in Russia, CEO Tim Cook also noted in the earnings call that, “We are really happy with how we’re doing there.”

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