RIM Averts BlackBerry Ban in India With 60-Day Security Test

Research In Motion Ltd. averted a ban on its BlackBerry services in India that would have affected more than a million users and halted the Canadian company’s expansion in the world’s second-largest mobile-phone market.

India’s telecommunications department will test RIM’s monitoring solution for 60 days to see if it allows security agencies to tap its messenger- and enterprise-mail services, Onkar Kedia, an Indian Home Ministry spokesman, said yesterday. Officials had given the Waterloo, Ontario-based company until today to provide monitoring tools or face a possible ban.

While India accounts for 2 percent of RIM’s 46 million subscribers worldwide, a ban might have set a precedent for other governments. Ehud Gelblum, an analyst with Morgan Stanley in New York, lowered his recommendation on the stock to “underweight” in an Aug. 20 note to investors, in part because of the “ongoing chorus” of countries threatening to shut down BlackBerry service.

“If BlackBerry allows this to happen here in India, it’s not just an Indian effect,” Romal Shetty, executive director of the telecommunications practice at KPMG’s Indian unit, said before the decision. “It’s going to affect them in many other countries.”

The shares fell 40 cents, or 0.9 percent, to $45.59 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has dropped by a third in U.S. trading this year, more than Apple Inc. and Motorola Inc.

Meeting Security Needs

RIM had said it would try to meet India’s security needs while ensuring its clients’ communications are secure, a selling point that’s helped it attract users including President Barack Obama. Saudi Arabian regulators let pass an Aug. 10 deadline to shut down the service without taking action. The United Arab Emirates has said progress is being made in negotiations with RIM to avert a halt of the BlackBerry service from Oct. 11.

The outcome in India may set the tone for how the country deals with services it says it wants to monitor. India intends to find ways to track voice-over-Internet protocol services run by companies such as Skype Technologies SA and Google Inc., a government official, who declined to be identified, said Aug. 13.

RIM needs to persuade customers of the security of its messaging system, Scott Sutherland, an analyst at Wedbush Securities Inc. in San Francisco, said this month.

RIM held talks this month with clients including Goldman Sachs Group Inc. and JPMorgan Chase & Co. to reassure them about the security of the BlackBerry service, two people familiar with the situation said. At least one corporate customer told RIM it wasn’t satisfied with the explanations so far and sought an additional meeting, according to one person.

Lead Forum

RIM offered to lead an industry forum in developing ways to balance India’s security needs with customers’ privacy requirements, according to a statement on Aug. 26. Secure data transmission is an industrywide matter and important to India’s economic development, RIM said.

The company maintains a “consistent global standard” for lawful access to its messaging system, which “does not include special deals for specific countries,” RIM said in the statement. It said it can’t meet requests from governments for codes to users’ data, because the BlackBerry corporate service was designed to prevent RIM, and anyone else, from reading encrypted information.

Marisa Conway, a RIM spokeswoman, declined yesterday to comment.

Gulf State

Nokia Oyj, the world’s largest mobile-phone maker, will set up servers in India by Nov. 5, allowing the nation’s security agencies to monitor its customers’ e-mail, the Indian unit’s Managing Director D. Shivakumar said yesterday.

The UAE is making “good progress” in talks with RIM to resolve the issue, Yousef Al Otaiba, the Gulf state’s ambassador to the U.S., said Aug. 17. Given the “positive development” in meeting Saudi regulators’ demands, BlackBerry service was allowed to continue in the nation, Saudi Arabia said Aug. 10.

The BlackBerry infrastructure was designed to be a global system that works “independent of geography,” and it’s a misperception that locating a network in India would help the government gain access to encrypted information, RIM has said.

To contact the reporters on this story: Ketaki Gokhale in Mumbai kgokhale@bloomberg.net; Santosh Kumar in New Delhi at sthakur10@bloomberg.net.

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