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Apple Has a Russian iPhone Problem

NEW YORK ( TheStreet) --In Soviet Russia, iPhone buys you.

Okay, enough bad Yakov Smirnoff jokes. Apple (AAPL - Get Report) has a real Russian problem, and I don't mean Ivan Drago from Rocky IV.

Russia's top three cell phone carriers, MTS (MBT - Get Report), VimpelCom (VIP - Get Report) and Megafon have recently made clear that they're not going to continue selling the iPhone. The three Russian carriers claim that Apple's exceptionally stringent terms over purchases, subsidies and marketing, no longer make it financially feasible to carry the iPhone.

While the decision could change at any time, it's hard to see how this doesn't negatively impact the upcoming iPhone 5S. Apple is expected to launch the phone either next month or September.

Apple officials couldn't be immediately reached for comment.

The subsidy issue is a major one, as the mobile phone federal agency in Russia, Roskomnadzor, doesn't allow the iPhone 5 to be subsidized to $199. When you factor in import duties, taxes and other associated fees, customers are paying serious money for an iPhone. A look at Apple's Russian website shows an unlocked iPhone 5 costs $918, versus $649 in the United States. Again, a huge disparity in pricing, and it's becoming not financially feasible anymore for the carriers because of lower margins.

The carriers, particularly MTS, are turning to alternative phones, including Microsoft's (MSFT - Get Report) Windows Phone. While the iPhone has never been a huge seller in Russia, as research firm IDC estimates it had just 8.3% of the Russian market in the second quarter of 2013, that's still a major problem for Apple. These carriers combined have a few hundred million subscribers, with Vimpelcom alone having more than 200 million subscribers as of the end of March. That's a serious figure, and something Apple, and investors, have to be aware of.

While Russian consumers can still get the iPhone on either the black market or other means, it's still going to impact Apple's market share in the country, and iPhone sales overall.

Apple reports fiscal third-quarter earnings on July 23 after the close of trading. Analysts surveyed by Thomson Reuters are expecting $7.32 per share on $35.1 billion in revenue.
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