RIM, Saudi Carriers in Talks to Avoid BlackBerry Ban

Research In Motion Ltd. and Saudi Arabia reached an agreement that will allow BlackBerry services to continue in the country after the government was given the ability to monitor messages, the Associated Press said today.

The deal involves installing a server inside Saudi Arabia that will let authorities check BlackBerry users’ data, averting a ban on the service, the AP said, citing an unidentified Saudi regulatory official. Marisa Conway, a RIM spokeswoman in New York, declined to comment when contacted by Bloomberg News.

“This whole story was getting annoying for RIM only as it could end up pushing users to go for an alternative brand in order to avoid problems if the service were actually shut off,” said Pierre Ferragu, an analyst at Sanford Bernstein in London. He has an “underperform” rating on RIM. “The sooner they reach such agreements and publicize them, the better.”

RIM, based in Waterloo, Ontario, faces growing scrutiny over its BlackBerry e-mail and messaging services as governments in countries including the United Arab Emirates, India and Indonesia express concern with how they may be used by terrorists or to violate national mores. The deal with Saudi Arabia may serve as a model for future settlements.

“Similar solutions will be offered in Indonesia, India, etc.” said Ferragu. The only negative implication for RIM will be a “slight extra cost,” he said.

48 Hours

Saudi Arabia had said on Aug. 3 that it would order the country’s three mobile-phone operators to shut off BlackBerry instant messaging starting yesterday. The government today extended that deadline by 48 hours, the state-run Saudi Press Agency reported.

The reprieve was granted “to test proposed solutions, as service providers make efforts to meet regulatory requirements,” the agency said, citing a statement from the Communications and Information Technology Commission, Saudi Arabia’s telecommunications regulator.

Sultan al Malik, a spokesman for the commission, and Etihad Etisalat Co., the service provider known as Mobily, didn’t respond to e-mails today seeking comment on the reported agreement.

“From a user’s point of view, it is definitely great that the service will continue,” Khalid al-Bihlal, an associate vice president at EFG-Hermes in Saudi Arabia, said in a telephone interview from Riyadh today.

“If the main reason is about preventing terrorism, we can’t do anything about it,” al-Bihal said. “The Internet is monitored, and terrorists are still using it.”

‘Free Use and Access’

Saudi Arabia’s wireless operators include Saudi Telecom Co., Mobily and a unit of Kuwait’s Mobile Telecommunications Co., known as Zain KSA. The carriers had been told to stop messaging services after a yearlong consultation with RIM failed to bring BlackBerry functions in line with Saudi Arabia’s telecommunications laws, the regulator said this past week.

“There is a legitimate security concern,” U.S. Secretary of State Hillary Clinton said this past week, “but there’s also a legitimate right of free use and access.”

Turkey’s telecommunications regulator yesterday said there are “serious” security weaknesses related to BlackBerry services in the country, adding that it has set up a committee to look into the matter.

The U.A.E. said in a statement this past week that it wouldn’t be changing its decision to ban BlackBerry service in October and that it was open to discussions aimed at achieving a solution to the issue.

RIM rose $1.22 cents to $53.45 in Nasdaq Stock Market trading yesterday, ending four days of declines. The stock has dropped almost 23 percent this year.

‘Overblown’

RIM said Aug. 4 that it couldn’t meet requests from governments that it reveal codes for reading some users’ communications. The BlackBerry corporate service was designed to prevent RIM, or anyone else, from reading encrypted information and any claims that RIM provided “something unique to the government of one country” are unfounded, it said.

“In some sense, the Saudi drama has been overblown as the government is already monitoring every other handset maker in the region offering SMS and e-mail, which it can monitor,” said Tero Kuittinen, an analyst with MKM Partners in Greenwich, Connecticut. He has a “buy” rating on the stock. “It’s only a question of whether RIM is going to go the level of other vendors, or if RIM is going to be particularly accommodating.”

The Indian government is still in talks with RIM over BlackBerry services in the country and is hopeful an agreement can be reached, Telecommunications Minister Andimuthu Raja said this past week. India may ban RIM services unless the company agrees to resolve security concerns, a government official with knowledge of the matter said this past week.

RIM has about 1.2 million subscribers in Indonesia, 1.1 million in India, and a combined 1.2 million in the U.A.E. and Saudi Arabia, said Mike Abramsky, an analyst at RBC Capital Markets in Toronto. RIM had 46 million subscribers globally at the end of May.

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

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