Apple Deals: Operators Won't Bite

A third mobile operator in Russia has ended its contract with consumer electronics manufacturer Apple for its popular iPhone devices. VimpelCom is the latest player to cancel its deal with Apple over the devices company's refusal to soften the terms of the distribution deal. MTS and MegaFon have previously ended their deals with Apple. Despite the popularity of the device BMI believes that the operators have made a smart move given that the majority of iPhones in Russia are likely to have been acquired on the grey market.

Apple Has Small Share Of Growing Pie
Russia Mobile Device Sales

The iPhone continues to be an aspirational item for many consumers. However, the device carries a high price tag that prevents lower income mobile subscribers from acquiring one. This has been particularly challenging for operators in Russia, where handset subsidies are banned, preventing the operators from making the devices more attractive with a long term view of generating greater revenues from the expected high data usage from iPhone owners. Local website Mobile Review claims that Apple holds around 4-5% of the Russian smartphone market, with around half of the devices acquired believed to have been purchased on the grey market.

Apple's global smartphone market share is closer to 25%, highlighting the difficulties it has had in reaching Russian consumers. This will not be helped by the refusal of the market's three largest mobile operators to sell the devices. While details of the operators' contract terms with Apple have not been publicised, Apple has been strict with the majority of its network partners, requiring handset sales targets over the duration of the contract as well as shared marketing costs. From the launch of the very first iPhone, Apple has kept firm control of partnerships with network operators, reaching contractual agreements over subsidies and sales volumes, reports the Financial Times. In the European Union, this has led to an investigation led by the European Commission.

In February 2013, Apple announced it was close to opening an online store for its products, meaning those Russians able to afford the company's products will still have access. Overall, BMI does not expect the operators' decision to have a significant impact on Russia's smartphone market growth, nor Apple's position in the market. Apple's brand still retains a certain cachet among consumers, and those that want to have an Apple device will find a way to afford it, in BMI's opinion, as the cost will not significantly change as a result of VimpelCom, MTS and Megafon refusing Apple's contract terms. However, the operators may see improvements to their bottom lines if the costs of offering the iPhone are removed. BMI would not be surprised to see operators in other markets seek to challenge Apple's stronghold over its devices, although we expect the handsets to remain among the top devices in the global handset market.

This article is tagged to:
Sector: Telecommunications, Consumer Electronics
Geography: Russia, Russia, Russia, Russia

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