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January 15, 2011

BlackBerry maker Research In Motion (RIM) says it has granted India access to its proprietary smartphone network. However, there is a condition: the ability to monitor secure customer emails has been removed.

RIM has confirmed Friday that the Indian government now has the means to access its Messenger service.

"Research In Motion has delivered a solution that enables India's wireless carriers to address their lawful access requirements for our consumer messaging services, which includes BlackBerry Messenger Server (BBMS) and BlackBerry Internet Services (BIS) email," RIM said in a statement.

However, the Waterloo, Ontario-based company insisted that the access doesn't include the ability to monitor emails on its BlackBerry Enterprise Server (BES), which it sees as a secure virtual private network (VPN) solution for corporate customers.

The company also maintained its position that the emails on its BES system are fully encrypted and that it has no means and has no intention to unencrypt any of that data. RIM is very stringent when it comes to corporate security.

Since last year, RIM has been under a lot of pressure to satisfy the Indian government's demand for access to the BlackBerry network. The company averted a ban on BlackBerry services in October by providing an interim solution to the country and promising a permanent solution by the end of January 2011.

"This enablement of lawful access does not extend to BlackBerry Enterprise Server, which is essentially an enterprise VPN solution," said RIM in its statement. "No changes can ever be made to the security architecture for BlackBerry Enterprise Server customers since, contrary to any rumors, the security architecture is the same around the world and RIM truly has no ability to provide its customers' encryption keys."

But RIM's latest efforts still seem a bit foggy to some Indian officials. Friday, a senior interior ministry official said that the Indian government still hadn't seen the new solution provided by RIM and therefore the country hasn't yet changed its position on access to corporate email.

"I cannot respond without seeing their reply to the government of India," the ministry official, Eugene Bansal said.

Research In Motion has faced numerous demands from a variety of Asian countries requesting the ability to monitor BlackBerry emails in the name of national security. The Canadian BlackBerry maker has had to walk a difficult line, trying to avert bans of its service but at the same time not acquiescing to the demands for outright access to its customers' secure data.

In December, RIM reported slightly higher third-quarter revenue and profit that topped wireless industry analysts’ projections, helped partly by consumer demand for phone models such as the Curve and touch-screen Torch.

Still, some analysts were expecting higher sales and profit numbers for the Waterloo, Ontario-based company.

Overall, sales rose about 39.7 percent to almost $5.48 billion, the company said today in a statement. Analysts had predicted $5.41 billion. Earnings per share were $1.74 compared with an average estimate, excluding some costs, of $1.65. RIM added a little over 5 million new subscribers, while analysts estimated 5.25 million.

Research In Motion is counting on a new version of the BlackBerry Bold and the Torch, which has a slide-out Qwerty keyboard and better Internet browser, to lure customers away from Apple’s iPhone. RIM is also tapping demand in markets such as Brazil and Indonesia for cheaper models like the Curve, which incorporate its free instant messaging system, to fend off the challenge from a slew of new phones based on Google’s award-winning Android operating system.

Net income grew to $911 million from $628.5 million a year earlier. Revenue this quarter will be about $5.4 billion to $5.6 billion and earnings per share will be about $1.72 to $1.78, according to some analysts that follow the company.

Three months ago, they projected revenue of $5.45 billion and profit of $1.60 a share.

“The gains they’ve made with the Bold and the Torch have closed the gap a bit with Apple and Android,” said Paul Taylor, chief investment officer of BMO Harris Private Banking in Toronto, which holds both RIM and Apple shares.

“We can’t lose sight of the franchise building that RIM has done in some key emerging markets, which create meaningful barriers of entry to Android and iPhone,” added Taylor.

But not everyone agrees with such an optimistic view, however. RIM still faces major challenges in 2011 as it tries to make its tablet handheld compete head-on with Apple's iPad, currently the most popular tablet. Apple is largely expected to get most of the corporate tablet market for 2011 and 2012 according to market research firm ChangeWave.

Nevertheless, an improved BlackBerry 6 operating system, a strong ad campaign and AT&T’s price cut to $99.99 in the U.S. made the Torch a strong selling product last quarter, Wunderlich Securities analyst Matthew Robison wrote in a Dec. 10 note.

However, RIM still continues to lose market share globally to the iPhone and Android mobile handsets. RIM’s share of the global smartphone market dropped to just 14.9 percent in the third quarter from 20.2 percent a year earlier, according to researcher firm IDC.

Apple’s market share was unchanged at 17 percent while Samsung, which uses the Android operating system, actually jumped to 9 percent from 2.9 percent.

RIM CEO Jim Balsillie said his company will price its upcoming PlayBook tablet at less than $500. However, with an entry level at $499 for Apple's very popular iPad, some are now questioning whether Balsillie’s price estimate will do enough to excite potential buyers. Chad Berndtson, a tech blogger with CRN, wrote that Balsillie’s "vague pronouncement still leaves more questions than answers, such as how the PlayBook will help win over enterprise business users in the market for a tablet device."

Then ZD-Net tech blogger Larry Dignan wasn't surprised at the news either. He wrote that any tablet that doesn’t start at $499 or less is doomed in today’s very competitive market.

"RIM seems to be positioning the PlayBook as a best-in-class option for mobile app developers and a showpiece device for lovers of Adobe Flash. But despite its platform, the PlayBook still appears to lack the connectivity options of rivals like the Samsung Tab, and given the long-awaited updates to iOS contained in Apple's 4.2 release, much of what the iPad lacked in comparative features appears to have been resolved," said Dignan.

“I’ve been pretty vocal that Android tablets need to sell at a discount, especially with 7-inch screens. RIM, which will sell the PlayBook as an enterprise device, may have more leeway on pricing, but not much,” he wrote. “After all, RIM’s PlayBook still features a tiny 7-inch screen.”

Going forward, the bigger question for Dignan is whether RIM’s use of Adobe Flash and AIR will be a success for the company.

“RIM will rely heavily on Adobe’s software to deliver apps and other platforms. Without Flash, RIM’s Playbook might as well be a baby toy.”

“The downside to this equation, however, is this: If the Flash implementation on the Playbook is botched by RIM, Adobe will take a hit. RIM has been so outspoken about the PlayBook’s ability to handle Flash that it won’t be the only one dinged if things go wrong.”

Another blogger, Stewart Meagher, also picked up on that theme. He wrote that despite the PlayBook’s near-enterprise 'pedigree', RIM still seems to be making too big of a deal over the fact that it can play Flash videos and animation, and now it probably has way too much riding on that. In the end, RIM now faces a zero-tolerance margin of error-- not a good thing when you operate in a field as risky and unpredictable as IT and mobile communications.

“We could be wrong here, but we don't think that being able to watch YouTube videos of piano-playing cats is an essential requirement in the average boardroom,” said a defiant Meagher.

Lately, RIM has had its own share of concerns and harsh press.

A few days ago, it was learned that the company has completely removed its popular chat application called Kik from all its Blackberry smartphones. Worse, RIM said it doesn't want anything to do anymore with the young company that created the software.

The decision is seen by some observers in the wireless industry as very bold, and could have some strong negative consequences for RIM going forward.

Dow Jones has learned that at least five members of Research In Motion Ltd.'s enterprise sales team have been hired by Apple in the last 1 1/2 year. If there was any doubt left as to Apple's realization of the importance of the enterprise segment for wireless services, this should probably dissipate all of it.

RIM has been facing increased pressure for its popular BlackBerry line of smartphones for many years now and it has lost some big enterprise customers recently, one of them being Dell.

And there's more to come, if the trend is any indication.

It's a bit difficult to gauge whether or not these new hires were high level enough to negatively impact RIM as much as they served to bolster Apple's push into the corporate market, however. The respective top executives at Apple and RIM have been taking public stabs at each other almost ever since the iPhone came on the market more than three years ago.

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Source: Research In Motion.