MOSCOW — Apple Inc. has gained unlikely allies in its bid to boost iPhone sales: Russian smugglers.
The device isn’t sold by Cupertino, California-based Apple in Russia and it 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 Timofei Kulikov, a lawyer and buyer of electronic products for X5 Retail Group NV, Russia’s largest supermarket chain. “If you see two businessmen at lunch in Moscow, they’ll both have iPhones on the table.”
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 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,” Aloission, 47, said last week from his studio in Vienna. “More and more Russian customers visit us here in Austria,” said Aloissen, who started customizing handsets 10 years ago.
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 in Russia each month.
“They arrive in suitcases,” Murtazin said. “Practically every flight from the U.S. brings new iPhones.”
Apple, the world’s biggest buyer of flash memory chips, 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 & Co. 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, released in June, and has deals with carriers in the U.S., U.K., Germany, France, Ireland and Austria. Users have hacked the handset to modify its software so it works on other carriers’ networks, depriving Apple of fees.
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 Yevroset, 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,” Yevroset co-owner and Chariman Yevgeny Chichvarkin, said in a telephone interview. “Import duties and value-added taxes aren’t paid.” Those 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 Yevroset, 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.
The prevalence of the iPhone underscores Russia’s attitude toward licensed goods, which the U.S. has made a sticking point in approving the country’s 14-year quest to join the World Trade Organization. Hackers and sellers of contraband products openly advertise on the Internet.
“You can basically do whatever you like,” said Ivan, 21, after he unlocked an iPhone in a basement office he shares with two friends in one of the capital’s most expensive neighborhoods. “We’re not liable for anything because officially it’s not here,” said Ivan, who declined to give his last name.
That doesn’t worry Maxim Mokeyev, executive director at Evans Property Services, a real estate broker in Moscow.
“It’s radically different from anything else out there,” said Mokeyev, who taught himself how to unlock the phone with special software. “The one I bought in New York took me two hours,” Mokeyev said, pointing to his handset. “The second one I did, for a friend, took about 20 minutes.”
Meanwhile, the online technology journal CNews reported Monday that Apple intends to expand its presence in Russia in the near future. The report said that the online shop iTunes Store would be available to Russian users from April 21st. Yevgeny Chichvarkin, Yevroset’s owner, was quoted as saying that “the given step proves Apple’s interest in legal iPhone sales in Russia.”
According to CNews, billboard teasers designed in the iPhone colors appeared in Moscow on Friday. The billboards display the inscription ‘iSkoro 21.04.2008’ (iSoon 21.04.2008) against a black background, similar to the iPhone packaging.
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