RIM Reassures Goldman, JPMorgan Over BlackBerry Concerns

Research In Motion Ltd. is seeking to reassure Wall Street customers about the security of its BlackBerry e-mail service as countries including Saudi Arabia and India press for more access to its network, said two people familiar with the situation.

RIM has held at least one conference call in the past week with clients including Goldman Sachs Group Inc. and JPMorgan Chase & Co. to discuss BlackBerry operations, said the people who didn’t want to be named because the talks were private.

At least one corporate customer has told RIM it’s not satisfied with the explanations so far and is seeking an additional meeting, according to one person. The company needs to persuade customers of the security of its messaging system, said Scott Sutherland, an analyst at Wedbush Securities Inc. in San Francisco, who recommends buying the stock.

The talks underscore the challenges for Waterloo, Ontario- based RIM as it expands in emerging markets as growth in North America slows. Sales 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.

Corporate customers such as Wall Street banks favor RIM’s BlackBerry because its encryption and other safeguards protect communications from prying eyes. Saudi Arabia, the United Arab Emirates and India have pushed for more access to BlackBerry services, out of concern the smartphone could be used to coordinate terrorist attacks or violate national mores.

Loopholes In System?

Saudi authorities decided this week to allow the BlackBerry messaging service to continue in the country, after threatening a ban. RIM and the kingdom’s wireless operators are making progress in implementing a system to allow monitoring of user data, the state-owned Saudi Press Agency said, citing the country’s telecommunications regulator.

Such reports have prompted questions from corporate customers about whether RIM is making concessions on the security of its software, said one of the people familiar with the conference call.

“This whole issue has come up very quickly,” Sutherland said. “Trying to solve something this quickly obviously triggers concerns that there will be loopholes created in the system.”

RIM fell 77 cents, or 1.4 percent, to $53.40 at 4 p.m. New York time in Nasdaq Stock Market trading. Since the U.A.E. said on Aug. 1 that it plans to suspend BlackBerry service, the shares have lost 7.2 percent.

Consistent Cooperation

RIM said on Aug. 4 it cooperates with governments around the world on a consistent basis and any claims it’s providing special access to one government are inaccurate. The company also said it can’t meet requests from governments for codes to users’ data because the BlackBerry corporate service was designed to prevent RIM, or anyone else, from being able to read encrypted information.

Governments have gone public with their demands. The U.A.E. said on Aug. 1 it would ban BlackBerry Messenger, e-mail and Web-browsing services because of security concerns beginning Oct. 11. The Indian government yesterday said RIM and wireless operators had to give regulators access to mobile communications by Aug. 31 or face a shutdown of its service.

Today, a government official said RIM will provide India with the means to monitor BlackBerry instant messages next week. The company may also offer tools to monitor e-mails from RIM’s corporate customers, the official, who declined to be identified in line with government policy, told reporters in New Delhi.

Robert Crow, RIM vice president of government relations, said earlier today he is “still hopeful” of solving security issues concerning BlackBerry services in India, after meeting the South Asian country’s Home Secretary G.K. Pillai.

RIM’s Response

RIM issued a statement yesterday to customers that it said was in response to government comments in India.

“Although RIM cannot disclose confidential regulatory discussions that take place with any government, RIM assures its customers that it genuinely tries to be as cooperative as possible with governments in the spirit of supporting legal and national security requirements, while also preserving the lawful needs of citizens and corporations,” the statement said.

The company also said the “security architecture” of its corporate e-mail system hasn’t been modified for any country.

Tenille Kennedy, a spokeswoman for RIM, declined to comment beyond the statement yesterday. Michael DuVally, a spokesman for Goldman Sachs, and Brian Marchiony, a spokesman for JPMorgan, also declined to comment.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.