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Apple Drags Russia's Mobile Carriers Kicking and Screaming Into the iPhone Era

Apple Bets on Russia as China Saturates in Smartphones
Laptop computers advertising Apple Inc. iPhone 5 smartphones inside a Euroset Holding NV mobile phone store in Moscow, Russia, on Dec. 13, 2012. Billionaire Alisher Usmanov's OAO MegaFon resumed contract to sell iPhones in Jan. 2014 after a three-year hiatus. Photographer: Andrey Rudakov/Bloomberg

After years of wooing, Russian mobile carriers are finally coming around to the iPhone — not that they have much choice.

IPhone sales in the country doubled last year to 1.57 million, bringing in $1 billion, according to researcher IDC. That's despite the fact that at midyear, none of Russia's top three wireless carriers were selling Apple's phones.

Apple wanted carriers in Russia to cover the costs of subsidizing and promoting the iPhone, like they do in the U.S. and other developed markets. However, Russia has laws preventing phone companies from discounting devices in exchange for longer contracts. Wireless operators in the country deemed Apple's terms, which included minimum sales requirements, to be too onerous .

The carriers' own stores account for less than half of all handset sales in Russia. So Apple went around the phone companies by distributing iPhones through electronics stores such as Svyaznoy. That chain probably sold about 700,000 Apple phones last year, with most of them being the older iPhone 4 and 4s models priced below $500, said Eldar Murtazin, an independent analyst in Russia.

Apple’s plan B did the trick. Carriers have begun restoring ties with Apple in the past few months. MegaFon resumed its contract to sell iPhones last month after a three-year hiatus. Mobile TeleSystems and VimpelCom brought iPhones back to their shelves in October.

IPhone sales in the country are set to grow further this year as Apple's last big BRIC market, China, approaches smartphone saturation. Last year, 85 percent of Chinese mobile phones sold were smartphones, while that figure was just 47 percent in Russia, said Simon Baker, a Moscow-based analyst at IDC.

"Seeing flattening sales in the developed world, Apple is looking into the richer emerging markets," Baker said. "Despite a slowing economy, Russians have a fairly good income and high propensity to spend it."

That's music to Apple's ears.

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