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Russian smugglers boost Apple Inc's iPhone sales

Scott Forstall, vice president of iPhone software, speaks at the Apple headquarters in Cupertino, California, on March 6. Sales of the iPhone have been boosted by Russian smugglers. PHOTO: AFP

Apple Inc has gained unlikely allies in its bid to boost iPhone sales — Russian smugglers.

The device is not sold by Cupertino, California-based Apple in Russia and it can not be used legally on local networks. Still, about 250,000 people own one, more than any other country except the US and China, said 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 US$1,000 each, more than twice the US price. Hackers say they charge as much as 2,500 rubles (US$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 Internet-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 (US$188,160) and he is working on a 500,000 euro 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 Russian president-elect Dmitry Medvedev, billionaire Alexander Mamut and Boris Yeltsin Jr, grandson of the former president, the newspaper Kommersant reported.

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 US brings new iPhones.”

Apple, the world’s biggest buyer of flash memory chips, has not 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 US$399, gets an undisclosed cut of monthly wireless fees for the device, released in June, and has deals with carriers in the US, UK, 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 last month that the number of unlocked iPhones used in countries where Apple has not 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 prevalence of the iPhone underscores Russia’s attitude toward licensed goods, which the US has made a sticking point in approving the country’s 14-year quest to join the WTO. Hackers and sellers of contraband products openly advertise on the Web.

“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 the capital.

“We’re not liable for anything because officially it’s not here,” said Ivan, who declined to give his last name.

That does not worry Maxim Mokeyev, executive director at Evans Property Services, a real estate broker in Moscow.

“It’s radically different from anything else out there,” Mokeyev said.

“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.”
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