BlackBerry Challenges Set to Spread as Governments, RIM Collide

By Anthony DiPaola, Hugo Miller and Vivian Salama

Aug. 2 (Bloomberg) — Research In Motion Ltd., maker of the BlackBerry smartphone, faces challenges to overseas expansion as developing countries tighten restrictions on mobile e-mail.

The United Arab Emirates, home to Middle East business hub Dubai, said yesterday it may suspend BlackBerry e-mail services in October because of concern the devices could be used in crimes. The move comes days after an official in India said that country may ban BlackBerry e-mail use and reports that Saudi Arabia could take similar steps.

“It’s a reflection of fears of cyber security and espionage that now extend to mobile phones,” said Ron Deibert, director of the University of Toronto’s Citizen Lab, who helped colleagues uncover a plot against the Indian government that involved computers in China. “It’s the type of thing that will become more common for RIM as they grapple with public policy and ethical issues in emerging markets.”

RIM, based in Waterloo, Ontario, is focusing on countries including India, the U.A.E., Indonesia and Brazil as a decade of North American expansion slows. Revenue from outside North America and the U.K. nearly doubled last quarter as U.S. sales, which account for a quarter of revenue, dropped 7 percent.

For RIM, the pioneer in handheld e-mail devices, security is one of the main advantages it touts over competitors. All BlackBerry e-mails are handled by the company’s own enterprise servers, making the devices popular with companies and government officials including Barack Obama, who kept his BlackBerry after becoming U.S. president.


By Anthony DiPaola, Hugo Miller and Vivian Salama

Aug. 2 (Bloomberg) — Research In Motion Ltd., maker of the BlackBerry smartphone, faces challenges to overseas expansion as developing countries tighten restrictions on mobile e-mail.

The United Arab Emirates, home to Middle East business hub Dubai, said yesterday it may suspend BlackBerry e-mail services in October because of concern the devices could be used in crimes. The move comes days after an official in India said that country may ban BlackBerry e-mail use and reports that Saudi Arabia could take similar steps.

“It’s a reflection of fears of cyber security and espionage that now extend to mobile phones,” said Ron Deibert, director of the University of Toronto’s Citizen Lab, who helped colleagues uncover a plot against the Indian government that involved computers in China. “It’s the type of thing that will become more common for RIM as they grapple with public policy and ethical issues in emerging markets.”

RIM, based in Waterloo, Ontario, is focusing on countries including India, the U.A.E., Indonesia and Brazil as a decade of North American expansion slows. Revenue from outside North America and the U.K. nearly doubled last quarter as U.S. sales, which account for a quarter of revenue, dropped 7 percent.

For RIM, the pioneer in handheld e-mail devices, security is one of the main advantages it touts over competitors. All BlackBerry e-mails are handled by the company’s own enterprise servers, making the devices popular with companies and government officials including Barack Obama, who kept his BlackBerry after becoming U.S. president.

Security Concern

Bianca Limwatana, a spokeswoman for RIM based in the U.A.E., said the company did not have any immediate comment and is working on a statement. Tenille Kennedy and Marisa Conway, spokeswomen for RIM in Canada and the U.S., didn’t return messages seeking comment.

Encryption is an issue for some countries looking to beef up rules on information sharing in cyberspace amid concern BlackBerry devices could be used to coordinate a terrorist attack or try to bring down a government.

In the U.A.E., where customers can buy Swarovski-crystal encrusted BlackBerry phones and leather Montblanc carrying cases, the government said it will suspend services it can’t monitor because of the potential for illegal use, according to a statement. BlackBerry’s Messenger, e-mail and Web browsing services will be halted from Oct. 11, the Telecommunications Regulatory Authority said.

“Security concerns trumped commercial considerations,” Eckart Woertz, who manages the economics program at the Dubai- based Gulf Research Center, said of the U.A.E. decision. “They want to control ongoing telecommunications but can’t because of the way BlackBerry manages its data offshore.”

‘Indispensable Tool’

The decision means a “few hundred thousand” BlackBerry users in the U.A.E.’s 30 billion-dirham ($8.2 billion) telecommunications market may have to look for alternative services, Shuaa Capital PSC’s Simon Simonian said.

“The BlackBerry has become an indispensable tool,” telecommunications analyst Simonian said. “Corporate users will have to migrate and find another data plan.”

Saudi Arabia ordered phone providers in the largest Arab economy to suspend BlackBerry’s Messenger service, Reuters reported yesterday, citing unidentified industry sources. Saudi Telecom Co., the kingdom’s largest telephone company, has not been informed of any such request, said Hisham Ismail, a consultant to the company for technical affairs. Bahrain is imposing a ban on sharing local news on to avoid “confusion and chaos,” Gulf News reported April 9.

Encryption Concern

Data from Blackberry handsets is sent in encrypted form to computer servers located outside the U.A.E., the national regulator said in a statement yesterday. “In their current form, certain BlackBerry services allow users to act without any legal accountability, causing judicial, social and national security concerns.”

The U.A.E. informed local phone companies Emirates Telecommunications Corp., known as Etisalat, and Emirates Integrated Telecommunications Co., known as Du, of the pending suspension of BlackBerry services and instructed them to shift clients to other services.

BlackBerry devices, introduced in the U.A.E. in 2006, enable users to send messages that can’t be monitored as allowed under the country’s 2007 Safety, Emergency and National Security rules, the regulator said last week. Encryption allows them to avoid monitoring, it said today.

A Resolution?

“This is going to be resolved,” said Irfan Ellam, an analyst at Al Mal Capital PJSC in Dubai, who has “outperform” ratings on Etisalat and Du. “These are issues that have been brought up in other countries, where they’ve found a solution, and there’s no reason to think they won’t do the same here.”

The Canadian smartphone maker competes with Apple Inc.’s iPhone, with both companies seeking to boost profit through clients who use more expensive data services.

Etisalat and Du said they were informed by the U.A.E. regulator of the pending suspension and would seek to provide users with alternatives.

BlackBerry services may be banned in India unless the Canadian company agrees to resolve security concerns, a government official with direct knowledge of the matter said July 29. India told Research In Motion to set up a proxy server in the country to enable security agencies to monitor e-mail traffic, according to three government officials, who declined to be identified because the information is confidential.

‘Real Bummer’

The company faced obstacles recently in Pakistan, where the national telecommunications regulator said it blocked Internet browsers on BlackBerry handsets, citing concerns over blasphemy.

Technology companies have confronted other challenges over information access. Google Inc. conflicted with China in January after the company said it would no longer self-censor search results in the world’s largest Internet market. Google had its Internet license renewed earlier this month after it stopped automatically redirecting Chinese users to its separate Hong Kong site.

“It’s a real bummer,” said Rob Baines, a freelancer worker who’s one month into a yearlong Blackberry service contract with Etisalat. He said he paid 1,000 dirhams for the phone and would have to pay 3,000 dirhams if he canceled the contract. Baines, who spoke outside an Etisalat service office, said he was still trying to find out what he’d be able to do with the new phones both he and his wife purchased.

“It depends on what their alternative offer is,” said Helen Baines, who works at Algebra Capital. “If we only get half the features working, yeah we’ll shift to an iPhone.”

–With assistance from Camilla Hall in Abu Dhabi. Editors: Peter Elstrom, Sharon L. Lynch

To contact the reporters on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net; Vivian Salama in Abu Dhabi at vsalama@bloomberg.net.; Hugo Miller in Toronto at hugomiller@bloomberg.net;

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net

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