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Apple Inc. in Russia: iPhone Sales Under Threat as Antitrust Case Hits Major Retailer


Already trailing Google and Microsoft, Apple faces the risk of losing its current sales channel in this major market.

Apple Inc. (NASDAQ:AAPL) has a long record of troubles in the Russian market and the list has just grown longer.

Apple's largest partner in Russia -- handset retail superpower Svyaznoy -- found itself under antitrust scrutiny after its competitor, another tech retail giant, Euroset, filed a complaint with the country's Federal Antimonopoly Service (FAS).

Since the last of Russia's major carriers dropped their wholesale contracts with Apple in July (over subsidies and marketing costs), the company has had to rely on Svyaznoy almost exclusively to sell iPhones in Russia. Its share of iPhone sales could grow to almost 70% by September, according to analyst estimations. The FAS has the right to order companies to break a contract if the agency concludes that a company leads to the control of more than 20% of a market.

While major carriers and other powerful Russian players such as Euroset would have embraced the opportunity to sell Apple products, the companies have been deterred by Apple's unwillingness to negotiate mutually acceptable terms.

Apple CEO Tim Cook reached out to potential Russian partners himself, reinstating the same offer, but was rejected "in an extremely unpleasant manner," Eldar Murtazin, the leading analyst of Mobile Research Group, noted in a blog post.

Earlier this summer, in a conference call with analysts, Tim Cook said that the iPhone activations in Russia set a record last quarter and that the company was "really happy" with how it was doing there. The market share of iOS devices is surprisingly small in Russia, according to an IDC report. With a 8.3% market share in the second quarter, it trails not only Google's (NASDAQ:GOOG) Android (73.3%), but also Microsoft's (NASDAQ:MSFT) Windows Phone (8.6%).

Cook downplayed the loss of carrier partnerships, but confirmed that Apple is seeking a workaround for the situation.

"We're continually looking for other relationships to both add and enhance the ones we have got," said Cook to analysts. Some Russian media reported that Apple has chosen Merlion and diHouse as its Russian distributor, but the companies have not yet confirmed this as fact.

With a population of 143 million, Russia remains an important global market for handset makers, and it is the biggest online market in Europe. Some 9.7 million smartphones were sold there last quarter, according to the IDC.

The market's growth potential looks promising: Smartphone sales account for 40% of total mobile phone sales in Russia, compared to the global average of 55%, a report by J'son & Partners Consulting reveals.

However, there are a sizeable number of iPhones that get into the country illegally, only to be subsequently sold through alternative retail channels. In 2012, Russia's "gray market" was estimated to account for almost 20% of the total mobile phone sales. Some experts argue that the current crisis affecting official shipments might significantly extend the gray market.

For Apple, revamping the official distribution network in Russia no later than December, when iPhone 5C and 5S should hit the local market, could be crucial.

For more about Apple:

Tech News: Best Buy's Free iPhone 5 Deal, and Intel's Latest Artificial Intelligence Buy

Good News for Apple and Samsung: Tablets Will Overtake PCs This Year

Apple Is the Least Worst, and That's Why It's the Best
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