Smuggled in, the Apple star is in high demand in Russia even though it can't be used legally.
Apple has gained unlikely allies in its bid to boost iPhone sales: Russian smugglers.
Apple doesn’t sell the device in Russia, and the phone can’t be used legally on local networks. Still, about 250,000 people own one, more than any other country except the U.S. and China, according to Eldar Murtazin, chief analyst at Moscow-based Mobile Research Group.
That popularity has turned into a bonanza for traders who sell the phones in kiosks and on the Internet for $1,000 each, more than twice the U.S. price. Hackers say they charge as much as 2,500 rubles ($105) to “unlock” them so they work locally.
“It’s an icon for Russians,” said lawyer Timofei Kulikov, a buyer of electronic products for X5 Retail Group, Russia’s largest supermarket chain. “If you see two businessmen at lunch in Moscow, they’ll both have iPhones on the table.”
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The evolution from Web-surfing, touch-screen gadget to status symbol has been a boon for Peter Aloisson. The jeweler sold a diamond-studded iPhone encased in white gold to a Russian businessman in March for 120,000 euros ($188,000) and is working on a 500,000-euro ($783,000) version that may go to another Russian client.
“There is no doubt that Russia, when it comes to luxury items, is by far the best marketplace,” Aloisson, 47, said last week from his studio in Vienna, Austria.
Notable users include President-elect Dmitry Medvedev, billionaire Alexander Mamut and Boris Yeltsin Jr., grandson of the former president, according to the newspaper Kommersant. Medvedev’s spokeswoman declined to comment.
Murtazin says about 20,000 iPhones arrive each month.
On every flight
“They arrive in suitcases,” Murtazin said. “Practically every flight from the U.S. brings new iPhones.”
Apple hasn’t said how many of the 4 million iPhones sold through Jan. 15 were unlocked to work on unauthorized networks. Analysts including Gene Munster of Piper Jaffray put the figure at 1 million.
About 400,000 of those are in China, CNet News reported in February, citing market-research firm In-Stat.
Apple, which sells the 8-gigabyte version for $399, gets an undisclosed cut of monthly wireless fees for the device and has deals with carriers in the U.S., Britain, Germany, France, Ireland and Austria.
Users have hacked the handset to modify its software to work on other networks, depriving Apple of fees.
Recent shortages of iPhones at Apple stores and long order times through Apple’s online store have analysts debating about whether the company is trying to clear inventory and shelf space before releasing the next version of the iPhone, or if illicit demand in Russia and throughout Asia is the cause.
Chief Operating Officer Timothy Cook said in March that the number of unlocked iPhones used in countries where Apple hasn’t started selling them is a sign of “great demand.”
Spokeswoman Natalie Kerris declined to comment on the use of the product in the former Soviet Union.
The iPhone’s popularity in Russia, home to 101 billionaires by Finans magazine’s count, is an irritation for retailers including Evroset, the country’s largest mobile-phone chain, whose sales are suffering because it can’t stock the product.
“The phones aren’t certified on the territory of the Russian Federation,” said Evroset Chairman Yevgeny Chichvarkin. “Import duties and value-added taxes aren’t paid.”
The taxes equal 24 percent of a phone’s retail price on average, said Murtazin of Mobile Research Group, which advises VimpelCom and MegaFon, two of Russia’s three national mobile operators.
Russia’s economy has expanded about 7 percent annually since President Vladimir Putin was elected in 2000, boosting average wages sixfold and spurring demand for mobile phones and other imported goods.
Handset sales rose 10 percent last year to a record 32.5 million units, according to closely held Evroset, which reported revenue of $5.6 billion in the period.
“In Russia, people want to stand out; even a person with a small income will find the money to buy expensive accessories,” said Sergei Savin, senior analyst at technology research firm J’son & Partners in Moscow.