BlackBerry's Growing Popularity Led To Privacy Debate

MONTREAL — The growing popularity of BlackBerry smartphones in emerging markets like India is raising Research in Motion's international profile and bringing it new, well-publicized challenges to the way it protects customers' data.

U.S.-based analyst Tavis McCourt said RIM has quietly compromised in the past with governments in countries like Saudi Arabia, Russia, China and India, or found ways to keep its system secure for business users.

"They're very tight-lipped, obviously, on what exact access they provide and what they don't provide," said McCourt of Morgan Keegan & Co. in Nashville, Tenn.

But the popularity of BlackBerrys has "absolutely exploded" in these emerging markets in the past year, McCourt said, citing the popularity of the low-priced, entry-level BlackBerry Curve 8520.

"It has been a home run in the Middle East. It has been a home run in Latin America. It has been a home run in India. Things aren't a problem until they become successful," he said.

On Monday, there were reports out of India that Research In Motion (TSX:RIM) had agreed to provide that country's security agencies with partial access to its BlackBerry instant messaging services by Sept. 1.

RIM didn't comment Monday on its negotiations with India.

The Waterloo, Ont., tech company has said it will not compromise its users' security. RIM has also said it doesn't have access to encrypted data sent on the devices and won't provide "something unique" as a solution to any particular government.

Countries such as the United Arab Emirates have threatened to shut off some BlackBerry data services, as have Saudi Arabia, Lebanon and Indonesia.

Indian officials have cited the use of BlackBerrys in the November 2008 terrorist attacks in Mumbai.

If RIM is ultimately shut down, "there's going to be 100 third-party instant messaging platforms to take its place," McCourt said.

Some analysts have suggested that RIM could put nodes, or network points, in some of the countries in question to allow email and other data to pass through local carriers before going to one of RIM's overseas servers, but without providing access to any encrypted data.

William Blair & Co. analyst Anil Doradla said the negotiations RIM is currently having were typically backroom discussions over the last decade.

"It has become more of a consumer play," Doradla said in a recent interview from Chicago.

"It's growing fast in each of these countries, so it is coming up on the radar of many of these governments," he said of RIM.

Analyst Kevin Restivo said the smartphone market in the Middle East and Africa is expected to grow 62 per cent this year compared to 2009.

"It's a good opportunity for RIM, given the younger market there," said Restivo, senior research analyst with IDC's mobile phone tracker unit.

"That's why the countries they're in are so important," he said of RIM's efforts in these markets.

RIM is one of the world's top five mobile-phone makers but faces increased competition in North America from Apple's iPhone and from smartphones with Google's Android operating system.

Co-CEO Jim Balsillie has said RIM's success in international markets has been driven by first-time smartphone buyers who can buy pre-paid phones that can be adapted to local markets, as well as by young people who like to send text messages.

RIM's security negotiations have hit the company's stock, sending it down by about 10 per cent over the past month.

"I think it has hurt the stock in a sense that a lot of their growth is coming from these markets and so, obviously, it's a fear with investors," McCourt said.

RIM shares closed at $53.02, down $2.57 or 4.6 per cent, Monday on the Toronto Stock Exchange.