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iPhones Are Big Business on the Black Market

Posted on: Saturday, 19 July 2008, 00:50 CDT

Apple’s sleek new iPhone 3G went on sale in 21 countries last week, but countries like Russia and China have yet to, officially, get there hands on them. Neither last year's original iPhone nor the updated model have been launched in those countries because Apple is still negotiating with mobile service providers.

However, research analysts estimate that only the U.S. has more iPhone users than Russia and China.

How can it be?

IPhone enjoys super-exclusive status in Russia and China thanks to a thriving market for "unlocked" iPhones that have been adapted for local use. Even Russian President Dmitry Medvedev has been seen using one.

Cities like Moscow and Beijing have become an iPhone trader's paradise. Russian Web sites were offering the new 3G iPhone for about $1,200, six times the $199 base price in the U.S. Even Apple's first-edition 8-gigabyte iPhone was going for almost as much at Moscow's Gorbushka electronics market this week, though Moscow iPhone owners said a skilled bargain hunter could find one for about $775.

Eldar Murtazin of Moscow's Mobile Research Group, said people are bringing them over in suitcases. "No one is paying any sort of customs fees."

Over 400,000 iPhones have been brought into Russia since the first model was released in June 2007, he estimates. China is believed to have at least twice as many.

In China, online auction sites, such as taobao.com, were offering the new 16-gigabyte model the day of its release for $1,370. However, dealers at Beijing's Nurenjie shopping complex predicted it would go for about $735 once it arrived.

Buyers in Russia and China aren't all paying astronomical prices for their iPhones. Some buy the phones for themselves when abroad, while others request them from friends traveling in the U.S. or Europe. The iPhone is also sold legally in Hong Kong.

They must pay a fee of around $100 to get it "unlocked" for local use on the Russian or Chinese network of their choice.

Their new unlocked iPhones can't max out on their Internet connectivity in many cities in Russia and mainland China because of the absence of so-called "3G" high-speed networks.

"I knew I wanted to buy it right when it came out, but I didn't have an opportunity to," said Moscow resident Ruslan Kashapov, 28. He said he would buy the new iPhone if he could get it at U.S. prices.

However, Russian and Chinese owners of the new iPhone face another problem.

In the past, customers could buy an iPhone in the U.S. without activating it on a service plan, and analysts estimated that one-third to one-half of the phones sold in the U.S. never made it onto AT&T Inc. (ATT)'s network.

Now, mobile carriers subsidize the new iPhone. This accounts for the drop in price from $399 to $199 for the base model, but it also means that buyers will be forced to activate service contracts before leaving the store.

Zhu Shuang, 27, who works at an Internet search engine in Shanghai, said she paid $399 for a first-edition iPhone.

"At that time, you could buy the phone without signing a contract," she said. Zhu said she wants to buy the new iPhone, but the new regulations are "troublesome." She has yet to decide if she will purchase a smuggled phone or buy one outside of China with a contract.

Apple has yet to comment on the use of its phones in places like Russia and China, although CEO Steve Jobs has said the company expects to sign contracts with Russian and Chinese providers this year.

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On the Net:

www.apple.com

Source: redOrbit staff and wire reports

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