Mobile TeleSystems will not begin selling Apple’s iPhone five in its retail chain because the companies have not managed to come to terms on a new contract, a source familiar with the negotiations said.

The Russian mobile phone company MTS is not happy with the marketing conditions proposed by Apple, including the requirement for a special advertising fund to promote the iPhone and the retailer’s obligations relative to defective product refunds.

“The negotiations have hit a dead end,” the source said, adding that the talks will nonetheless continue. The Russian company’s head of marketing for subscriber equipment said at a round table on mobile retail organized by Telecom Daily that MTS does not aim to make money directly from the sale of smart phones, as its priority is generating revenue from services used by the users of the devices. As such, MTS will take a pragmatic approach to the negotiations.

An alternative discussed by MTS and Apple was to sign a new contract on the same terms as the old one, providing that the MTS retail chain must sell 1 million Apple devices. MTS was also not happy with this option, the source close to negotiations said. The earlier contract, signed in 2008 for a term of three years, called for MTS to sell 1.5 million iPhones, which the operator was unable to do. MTS vice president Vasily Latsanich said this contract did not reflect market realities.

Rival mobile operator Vimpelcom faced the same problem. Vimpelcom also signed a contract with Apple in 2008 that obligated it to purchase and sell 1.5 million iPhones, but it also was unable to fulfill the agreement. In March 2011, Vimpelcom reached an agreement with Apple to extend the contract until March 31, 2013, promising in this period to buy the 958,540 smart phones that had not yet been purchased under the initial contract.

Mobile phone retailer Svyaznoy, which has a direct contract with Apple, and Euroset, which received a batch of the new phones from Vimpelcom, began selling the new model on its very first day to hit the Russian market. Among Russia’s top three mobile operators, Vimpelcom remains the only distributor of the iPhone in the country. Megafon stopped its contract with Apple in 2009, as it could not fulfill it in terms of sales volume, and began negotiating softer terms. Negotiations are now being held with Apple on the terms of a new contract.

It was reported earlier that Apple will begin selling iPhone five on the Russian market on December 14. The iPhone five is now sold in 47 countries, including the United States, Australia, Canada, France, Germany, Hong Kong, Japan, and the UK. The retail prices for the new Apple phones in the United States are USD199 (for the 16 Gb model), USD299 (32 Gb), and USD399 (64 Gb).