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BlackBerry Challenges May Spread as Governments, RIM Collide

Research In Motion Ltd., maker of the BlackBerry smartphone, faces increasing challenges to its 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 rose to 37 percent of RIM’s $15 billion in revenue in the last fiscal year, up from 23 percent in the fiscal year ended February, 2005.

Security Concern

For RIM, the pioneer in handheld e-mail devices, security is one of the main advantages it touts over competitors. E-mails its customers send are encrypted and sent through RIM’s own servers and network operation centers, with much of the equipment located in Canada. That security has made BlackBerrys popular with companies and government officials including Barack Obama, who kept his BlackBerry after becoming U.S. president.

However, the system also makes it harder for governments to monitor BlackBerry communications than messages from other smartphones, which typically travel across the Internet. That has made RIM’s devices an issue for countries concerned mobile e-mail or messaging could be used to coordinate a terrorist attack or bring down a government.

“RIM respects both the regulatory requirements of government and the security and privacy needs of corporations and consumers,” the company said in a statement. “RIM does not disclose confidential regulatory discussions that take place with any government.” In a separate statement for corporate customers, RIM said each company’s e-mails are encrypted with a unique key and even RIM can’t decode such messages.

Swarovski Crystal

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. Business travelers and other foreign visitors will also be affected, the agency said.

RIM shares slid 55 cents to $56.98 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock had lost 16 percent this year.

“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.”

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.”

Bahrain, Qatar

Saudi Arabia, the largest Arab economy, may be able to resolve security concerns that led authorities to order the suspension of some BlackBerry services from August, Al Arabiya television reported today, citing unidentified officials. Telephone companies met RIM yesterday to discuss concerns that prompted the suspension, Al Arabiya said.

Saudi Telecom Co., the kingdom’s largest telephone company, hasn’t been informed of any such request, said Hisham Ismail, a consultant to the company for technical affairs.

Bahrain is imposing a ban on sharing a local news service via BlackBerry devices to avoid “confusion and chaos,” Gulf News reported April 9. Bahrain Telecommunications Co. hasn’t received instructions from the government to restrict BlackBerry services, Chief Executive Officer Peter Kaliaropoulos said.

Encryption Concern

Qatar Telecom QSC, the country’s largest telecommunication services provider, will soon take steps to stop people accessing “permissive” websites using the Blackberry, Al Arab newspaper said, citing Adel Al Mutawa, an executive director with the company. Qatar isn’t pursuing any plan to ban BlackBerry services, said Meegan Webb, acting assistant secretary general of telecommunications regulator ictQatar.

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,” it said.

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.

A Resolution?

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.

The United States is disappointed with the U.A.E’s decision, said Philip J. Crowley, a State Department official.

“We are committed to promoting the free flow of information,” he said.

“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.”

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.

‘Real Bummer’

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 RIM 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.

Technology companies have confronted other challenges over information access. Google Inc. clashed 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.

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

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