From Russia With Love: Apple Signs New Deal With MegaFon

Source: Apple.comMegaFon, Russia’s second-largest wireless carrier, signed a new distribution deal with Apple (NASDAQ:AAPL) on Monday after abandoning the iPhone four years ago, reports Bloomberg. Although Apple’s iPhones are already available through the Russian online Apple Store and various resellers, the new deal will make it even easier for Russian smartphone customers to get Apple’s mobile devices. According to Bloomberg, MegaFon signed a contract that will give the company access to Apple’s iPhone 5S and iPhone 5C models for at least three years.

Last year, Apple briefly had no distribution deals with any of the three major Russian carriers after VimpelCom (NYSE:VIP), the country’s third-largest wireless operator, dropped the iPhone in July due to Apple’s stringent contractual obligations. As noted by Bloomberg, Apple requires its carrier partners to sell a certain volume of iPhones. However, VimpelCom signed a new contract with Apple last October. Apple may have eased its sales volume requirements in order to accommodate MegaFon.

On the other hand, MTS (NYSE:MBT), Russia’s largest wireless carrier, still does not have a direct deal with Apple. Instead, MTS acquires its iPhones via deals with other distributors, reports Bloomberg. “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,” MTS Chief Executive Officer Andrei Dubovskov told Bloomberg last year.

According to Euroset data cited by Bloomberg, Apple’s iPhones only account for 9 percent of the total number of smartphones sold in Russia. However, thanks to the California-based company’s premium pricing strategy, it holds a 20 percent share of Russia’s market in money terms. Per cellphone retailer Euroset, Russia’s smartphone market is worth $6.5 billion.

Although Apple is a relatively small player in Russia, CFO Peter Oppenheimer noted that the company was making good progress in the country during the company’s fiscal fourth-quarter earnings call in October. “We were particularly pleased with growth in a number of developing markets with unit sales up sharply year-over-year in Latin America, the Middle East, Russia, and India,” stated Oppenheimer.

Although Apple’s growth in Russia may be hampered by the lack of a direct distribution deal with MTS, another issue may be 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, noted Bloomberg. The Russian market also has relatively high import duties and taxes. Both of those factors make Apple’s new iPhones far too expensive for most consumers in Russia, where makers of lower-cost smartphones like Samsung (SSNLF.PK) dominate.

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