Don't Look Now, but Apple Is Failing in Russia

It looks like T-Mobile isn't the only company out there that's had it up to "here" with the high cost of subsidizing iPhone sales.

Over in Russia, market-leading cell phone provider Mobile TeleSystems (NYSE: MBT  ) has just confirmed that, as of 2012, it no longer sells Apple's (NASDAQ: AAPL  ) new iPhone models to its customers directly. The company does still stock, and sell, some older iPhone models. But for iPhone5 and on up, MTS now answers phone calls from Apple with a Spasibo, ne nada. ("Thanks, but no thanks.")

Of course, being in the cell phone business, MTS does have to sell its customers some phones, right? So what are they going with, if not the ever-popular Apple?

Take your pick
After hearing about the Great Russian iPhone Dump, I asked MTS to comment. Its response: "In late 2012, MTS didn't sign a new commercial agreement with Apple as the parties failed to agree on the terms of partnership. As a result, iPhone 5 models weren't available in the MTS retail stores." Today, MTS has agreements in place to promote smartphone choices from Samsung, Nokia, and HTC -- but not Apple.

The reason is simple. For years, MTS has been "unhappy" with the prices Apple charges for its iGadgets. MTS CEO Andrei Dubovskov notes that, because cell phone customers in Russia are generally of the "prepaid" variety, paying Apple high prices for iPhones is no longer economically viable. MTS can't make up the cost of the subsidies by locking customers into long-term, hi-price contracts, as AT&T and Verizon do here in the states. As a result, the iPhone was costing MTS money, and leaving it with a "negative margin" on the product.

MTS was similarly unhappy with an Apple demand that it commit to buy a certain numbers of iPhones in order to gain access to new iPhone models at all. But, as it turns out, MTS may not need that access.

Who needs an Apple a day, anyway?
This week, cell phone tech site BGR.com is reporting that Nokia's new line of Lumia Windows Phones, powered by Microsoft's operating system, have been selling just as strongly in Russia as Apple's iPhones. Indeed, MTS confirms that, around the time it dumped Apple last year, it signed a partnership agreement with Microsoft (NASDAQ: MSFT  ) to promote smartphones, such as the Lumia, that run Mr. Softie's software. The fact that Lumias cost a mere fraction of the iPhone price -- MTS's CFO once told me that iPhones were selling for about $1,000 a pop on the open market in Russia -- probably doesn't hurt the phones' appeal.

Meanwhile, the absence of iPhones on its store shelves doesn't seem to be hurting MTS. As of Q1 2012, Russian market researcher Advanced Communications & Media scored market share among Russia's biggest telcos like this: 

As of today, Bloomberg reports that MTS remains No. 1. So it seems ... MTS doesn't actually need the iPhone to succeed in the marketplace. Apple investors had better hope that other telcos, in other markets, don't reach the same conclusion.

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