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Apple's iPhone dumped by 'big three' Russian carriers over subsidies, marketing costs

post #1 of 87
Thread Starter 
Within the past week, three major Russian wireless providers have stopped carrying Apple's iPhone, with the largest telecom, MTS, dropping the handset due to the high subsidy costs associated with being an Apple partner carrier.

Russian Market
Russian telecom share. | Source: AC&M consulting via Fortune


While the Russian market is not yet a huge source of revenue for the smartphone market, Apple's loss of support from MTS, VimpelCom and Megafon will negatively impact its reach in the burgeoning market, reports Fortune

As Bloomberg reported last week, Russia's largest provider by subscribership, MTS, announced that it would be dropping the iPhone from its lineup, saying subsidies and marketing costs were to blame.

?Apple wants operators to pay them huge money, subsidizing iPhones and their promotion in Russia,? said MTS CEO Andrei Dubovskov. ?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.?

Russian iPhone
The price of a 16GB unlocked iPhone in Russia amounts to $925 with current rates. | Source: Apple


Fortune's Philip Elmer-Dewitt speculates three factors played a part in the "big three's" decision to ditch Apple's handset. First, Russian carriers are limited by the federal agency Rospechat, which does not allow subsidies on the same level as seen in the U.S. For example, MTS is not able to offer an iPhone 5 for $199.

Duties and taxes are also higher than normal for Europe, with an unlocked 16GB iPhone 5 selling for roughly $925 on on the just-opened Russian Online Apple Store, or $276 more than an identical U.S. variant. Apple says $140 goes to Russian VAT, while the remaining $129 is for foreign exchange rates, import duties, and channel mark-up.

Finally, Apple's contract requirements, specifically those pertaining to marketing, are said to be extremely stringent. Because the contract terms are unknown, it is impossible to tell whether Russian carriers are subject to any special clauses.

The future of the iPhone in Russia is unclear, though estimates from IDC suggest that demand for the handset was already on the decline, dropping to 8.3 percent in the second quarter of 2013, down from 9 percent in 2012.
post #2 of 87

iPhones will now be an even more elite status symbol in russia.

 

 

The russians really love their iPhones.  Or at least they love apps.  I'm privy to some info I can't go into, but let me just say that the AppStore is a huge success in russia. 

post #3 of 87
Isn't it interesting that all three dropped the iPhone around the same time? Maybe they are trying to gain some leverage by working in concert.

I wonder how the Russian consumer will react to this. Perhaps they'll switch carriers in droves.
post #4 of 87

Obvious collusion.

Mac user since August 1983.
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Mac user since August 1983.
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post #5 of 87
Russians illegally imported and used the first-gen iPhone when it wasn't available in their country.

They'll do the same now.

The telecoms have only screwed themselves. So screw 'em. Who cares?
post #6 of 87
In Russia you don't get cell phone, cell phone gets you!
post #7 of 87

I wonder if they will change their tune when the "low cost" iPhone gets released later this year?

 

Of course there may still be marketing costs, but the subsidy would be greatly reduced.

post #8 of 87
Quote:
Originally Posted by mcarling View Post

Obvious collusion.

Not necessarily, it could just be a domino effect, one carrier stepping up and others following with relief.  And if the carriers were genuinely making a loss on every iPhone sold then it's good sense for the health of the overall ecosystem.  If consumers want iPhones they can buy them from Apple direct, maybe Apple will start offering their own financing if that's a big enough customer draw.

 

Or maybe Apple will decide the carrier model is worth enough for them to renegotiate.  That'd be risky though, other markets will latch onto the weakness.

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post #9 of 87

Maybe treat Russia like the backwater it is and roll out the India market strategy? Having a different strategy for questionable economies has some attraction.

post #10 of 87
Quote:
Originally Posted by Crowley View Post

Not necessarily, it could just be a domino effect, one carrier stepping up and others following with relief.  And if the carriers were genuinely making a loss on every iPhone sold then it's good sense for the health of the overall ecosystem.  If consumers want iPhones they can buy them from Apple direct, maybe Apple will start offering their own financing if that's a big enough customer draw.

Or maybe Apple will decide the carrier model is worth enough for them to renegotiate.  That'd be risky though, other markets will latch onto the weakness.
Of course it does. If all my competitors drop the iPhone, I now have a unique competitive advantage to attract those customers! This also smells of Samsung foul play of buying marketshare...
post #11 of 87
"No iPhone? Is no problem. Sergy haf new Samsung phone for you! It look like iPhone and haf bigger screen. When people see you with this phone, they think you have big house near the Caspian Sea."

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
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post #12 of 87
Quote:
Originally Posted by FreeRange View Post


Of course it does. If all my competitors drop the iPhone, I now have a unique competitive advantage to attract those customers! This also smells of Samsung foul play of buying marketshare...

A unique competitive advantage to sell a product that loses you money is not much of an advantage.

 

It doesn't smell of anything.

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post #13 of 87
Quote:
Originally Posted by jfc1138 View Post

Maybe treat Russia like the backwater it is and roll out the India market strategy? Having a different strategy for questionable economies has some attraction.

 

I could see Apple implementing some of their "India strategies" in more markets. Those strategies caused a decent sales uptick for them, so maybe payment plans and buyback recycling programs will help the Russian market?

post #14 of 87
Quote:
Originally Posted by Jessi View Post

iPhones will now be an even more elite status symbol in russia.

 

 

sad day If the people who gave us Constructivism and Tchaikovsky now think that a piece of electronics made in China can be an elite status symbol

post #15 of 87
Quote:
Originally Posted by agramonte View Post

sad day If the people who gave us Constructivism and Tchaikovsky now think that a piece of electronics made in China can be an elite status symbol

The ones who gave us vodka and communism, too, so don't chick your hatching before they're counted.

Oh, and knock off the FUD.
post #16 of 87

Every time I travel to Russia, my friends and relatives there ask me to bring them iPhone.  

They can only buy one for $1k there while the unlocked iPhone is only $700 including tax in my local Apple store.

post #17 of 87
Somehow I think Snowden will sneak in some iPhones.
post #18 of 87
Great news %u2014 I'll list my iPhone in a Russia-only eBay auction and get enough to buy myself out of the contract *and* an new iPhone 5s!
post #19 of 87
I have a feeling this is going to happen in America by 2015. With rumors of Verizon not meeting their sales quota on the iPhone (and I have a feeling Sprint isn't either), I think they won't have much of a choice but to take a stance against Apple.

Apple really needs to start offering more variety with their iPhone lineup. I really hope those rumored, ugly colored, budget iPhone pics are fake. They don't need to make a budget iPhone. They need to make a small, medium, and large iPhone for people who feel like size matters. Then, we can take those new iPhones and make them whatever color we want with a case/bumper.

Can you imagine if the only Mac you could pick from was the Mac Pro 2012, 2010, and 2009 models? Or the 15" MacBook Pro 2012, 2011, and 2010 models - NO 13" option, NO MacBook Air models. That is essential what are options are with the iPhone right now - models 2012, 2011, and 2010.
post #20 of 87
Quote:
Originally Posted by MrENGLISH(TM) View Post

I have a feeling this is going to happen in America by 2015. With rumors of Verizon not meeting their sales quota on the iPhone (and I have a feeling Sprint isn't either), I think they won't have much of a choice but to take a stance against Apple.

Apple really needs to start offering more variety with their iPhone lineup. I really hope those rumored, ugly colored, budget iPhone pics are fake. They don't need to make a budget iPhone. They need to make a small, medium, and large iPhone for people who feel like size matters. Then, we can take those new iPhones and make them whatever color we want with a case/bumper.

Can you imagine if the only Mac you could pick from was the Mac Pro 2012, 2010, and 2009 models? Or the 15" MacBook Pro 2012, 2011, and 2010 models - NO 13" option, NO MacBook Air models. That is essential what are options are with the iPhone right now - models 2012, 2011, and 2010.

Nice FUD.
post #21 of 87

Merely more evidence of Apple's impending doom.  ROTFLOLAPIMP!!

post #22 of 87
Quote:
Originally Posted by MrENGLISH(TM) View Post

I have a feeling this is going to happen in America by 2015. With rumors of Verizon not meeting their sales quota on the iPhone (and I have a feeling Sprint isn't either), I think they won't have much of a choice but to take a stance against Apple.

Apple really needs to start offering more variety with their iPhone lineup. I really hope those rumored, ugly colored, budget iPhone pics are fake. They don't need to make a budget iPhone. They need to make a small, medium, and large iPhone for people who feel like size matters. Then, we can take those new iPhones and make them whatever color we want with a case/bumper.

Can you imagine if the only Mac you could pick from was the Mac Pro 2012, 2010, and 2009 models? Or the 15" MacBook Pro 2012, 2011, and 2010 models - NO 13" option, NO MacBook Air models. That is essential what are options are with the iPhone right now - models 2012, 2011, and 2010.

I doubt it'll happen here. If anything, maybe the carriers will go the TMobile route.

As for multiple current models? Maybe the flagship and 5" "plus" model and low cost, off contract model but older models still sell. What's the point in designing a new phone and putting last years parts in it. Apple would have to differentiate it from the current flagship.
post #23 of 87
Quote:
Originally Posted by Tallest Skil View Post

The telecoms have only screwed themselves. So screw 'em. Who cares?

Sounds more like they saved themselves. It's a simple business decision to cut out a product line that lowers margins, especially if it takes them negative.
post #24 of 87
Quote:
Originally Posted by Tallest Skil View Post

Russians illegally imported and used the first-gen iPhone when it wasn't available in their country.

Illegally imported? It was against Russian law to import a first gen iPhone? Wow, that is interesting, can you provide a link for this?
post #25 of 87
Quote:
Originally Posted by Crowley View Post

A unique competitive advantage to sell a product that loses you money is not much of an advantage.

Who says they are losing money?

 


Quote:
Originally Posted by wakefinance View Post


Sounds more like they saved themselves. It's a simple business decision to cut out a product line that lowers margins, especially if it takes them negative.
 
Losing the customers they are pissing off will undoubtedly take them into the negative.
post #26 of 87
Quote:
Originally Posted by MikeJones View Post

Who says they are losing money?
Negative margin means they're losing money on the average iPhone sale. The MTS CEO said it.

Some sales just aren't worth it.

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post #27 of 87
Perhaps Sergey Brin has something to do with this?

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #28 of 87

Sweet. I know who I'll be selling my iPhone to when it's time to upgrade in the fall. 

post #29 of 87
Quote:
Originally Posted by MikeJones View Post

Losing the customers they are pissing off will undoubtedly take them into the negative.

 

Where are those customers going to go?  The top three carriers are no longer selling the iPhone, so it's not like people can jump ship from one to the other.  Had only one of them done this it would be a different story.

post #30 of 87
The Russian excuses have nothing to do with the decisions being made to drop Apple contracts. The decisions likely were made for the carriers by the government. The issue provoking the decisions has to do with security and financial issues, not marketing costs.

NSA could explain their culpability but likely won't. Russia has agreed to exchange currency with China directly, without exchanging their funds into dollars first. China also has such an agreement with South Korea. Russians can probably get Samsung cellphones for a third the cost of iPhones, maybe even less.

Whether we like it or not, the iPhone has become an instrument of war. Any nation worthy of defense must establish their own operating system as a defensive measure first and as a internal security measure second.

Should the dollar fail, we won't be worried about iPhones anymore.

A new law allows Voice of America to be broadcast within the U.S. now. That's a propaghanda mechanism, mind you.
post #31 of 87
Quote:
Originally Posted by wakefinance View Post


Sounds more like they saved themselves. It's a simple business decision to cut out a product line that lowers margins, especially if it takes them negative.

I just sounds like they run their businesses poorly to begin with if they are running a negative when the consumer is paying back the subsidy via monthly payments.  On the other hand, if the phone manufacturers follow this they will only have Samsung left to sell because all of the others should stop selling smart phones because they are losing money hand over fist.

post #32 of 87

I suspect this has more to do with Huawei than Samsung, as Samsung has higher costs than Apple, relations are warming between China & Russia, Huwai is partially owned by the Chinese government, so I'm sure Huawei offered a killer deal on helping build out Russia's networking infrastructure with it's products, and it's phones, which are pretty decent Android phones, at least the flagship devices are.

post #33 of 87
Quote:
Originally Posted by jfanning View Post

Illegally imported? It was against Russian law to import a first gen iPhone? Wow, that is interesting, can you provide a link for this?

Oh, it's entirely possible I'm misremembering. Perhaps it was something else about the process that was illegal...

Here's an article about it, but it doesn't clarify whether it was the importing or the fact that they were unlocking the iPhones that was illegal...

Mea culpa in advance, if necessary.
post #34 of 87
deleted...
Edited by BuzDots - 7/16/13 at 7:32pm
OMG here we go again...
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OMG here we go again...
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post #35 of 87
Apple should buy one of the carriers if this becomes a longer term issue. Buy a carrier, ensure market distribution and direct access to cosumers

Ditto for China and India if they run into the same issues

Windows survivor - after a long, epic and painful struggle. Very long AAPL

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Windows survivor - after a long, epic and painful struggle. Very long AAPL

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post #36 of 87
The areas in Asia seem to attacking iPhone most. Russians, Koreans, Chinese (not sure of but assume). Are there other Asian nations like Japan and middle eastern included?
post #37 of 87
Quote:
Originally Posted by jason98 View Post

Every time I travel to Russia, my friends and relatives there ask me to bring them iPhone.  
They can only buy one for $1k there while the unlocked iPhone is only $700 including tax in my local Apple store.

This.

The problems with Russia Carrier dropping them has absolutely nothing to do with iPhone demands. They are simply far too expensive compared to black market ones.

There are only two kind of people in this world.

Those who dont understand Apple and those who misunderstood Apple.

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There are only two kind of people in this world.

Those who dont understand Apple and those who misunderstood Apple.

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post #38 of 87
Did Snowden leak something about Iphone shared information?
post #39 of 87
I can understand them baulking at the advertising component. However, as a retailer they have full control over the price to the consumer. There is nothing stopping them from adjusting the plan, the upfront fee or the monthly repayment on the handset such that every sale would result in a profit.
 
All Apple needs to do play them off against each other:"OK there are now three tiers; the first carrier to sign gets the best deal, the second gets a slightly worse deal and the third gets the worst deal of the lot. How long can you afford to hold out while all your customers go to your competitors?"
post #40 of 87

And therefore making the Russian mafia and criminals extremely happy to charge a high cost premium for black-market iPhone's and increasing iPhone thefts from those who have 'em.

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