Beyond service area, iPhone's hot

In the Soviet days, Russians asked their American friends to bring blue jeans, rock records and other Western goods into the country. Today, Russians can buy almost anything they want here – except for one item: Apple Inc.'s slick iPhone.

The new iPhone went on sale in 21 countries July 11 and will soon be released in 70 nations. Officially, Russia and China are still on hold – 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.

And yet analysts estimate that only the U.S. has more iPhone users than Russia and China.

In both countries, the device enjoys super-exclusive status, thanks to a thriving market for “unlocked” iPhones adapted for local use. Even Russian President Dmitry Medvedev has been seen using one.

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 bargain hunter could find one for about $775.

“They are being brought in in suitcases,” said Eldar Murtazin of Moscow's Mobile Research Group. “No one is paying any sort of customs fees.”

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

Online auction sites in mainland China were offering the new 16-gigabyte model the day of its release for $1,370.

Russian and Chinese buyers aren't all paying astronomical prices for their iPhones. Some buy the phones 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 then pay a fee – around $100 in Russia – to get it “unlocked” for local use on the Russian or Chinese network of their choice.

In the past, customers could buy an iPhone in the U.S. without activating it on a service plan. Analysts estimated that one-third to one-half of iPhones sold in the U.S. never were on AT&T Inc.'s network.

The new iPhone, however, is subsidized by mobile carriers. 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.

Apple expects to sign contracts with Russian and Chinese providers this year. Associated Press Writer Didi Tang contributed from Beijing.