RIM May Face Claims as Operators Refund BlackBerry Customers

Research in Motion Ltd. (RIM), after restoring data service to its BlackBerry devices on the fourth day of disruptions, may face compensation claims and reputation damage as network operators refund users hurt by the failure.

Vodafone Group Plc (VOD), the world’s largest mobile-phone operator, is reviewing all options, said Simon Gordon, a spokesman. Telefonica SA (TEF) said its Spanish unit will compensate subscribers according to the hours of service lost. Emirates Telecommunications Corp., the United Arab Emirates’ biggest operator known as Etisalat, said it will refund all BlackBerry customers.

“We definitely understand that we have to look” at the issue of compensation “as soon as we have the system back to where we need it,” Patrick Spence, RIM’s head of global sales and regional marketing, said on a conference call with reporters today.

BlackBerry subscribers across most parts of the world lost data services after a network failure in the U.K. this week halted messaging and Web browsing. RIM Co-Chief Executive Officer Jim Balsillie said today service has been fully restored globally. Co-CEO Mike Lazaridis apologized, saying the company has “let many people down.”

Spence said he understood that customers were frustrated and that the Waterloo, Ontario-based company needed to look at improving how it communicated the problem.

Photographer: Giuseppe Aresu/Bloomberg

The Wind Telecomunicazioni SpA logo is seen on a Research In Motion (RIM) Blackberry smartphone in Milan. Close

The Wind Telecomunicazioni SpA logo is seen on a Research In Motion (RIM) Blackberry smartphone in Milan.

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Photographer: Giuseppe Aresu/Bloomberg

The Wind Telecomunicazioni SpA logo is seen on a Research In Motion (RIM) Blackberry smartphone in Milan.

“We know we’ll have to work to do to build back that credibility,” he said.

‘High-Profile Outage’

The disruptions began in Europe, the Middle East, Africa and India early in the week and spread later to North America, RIM’s largest market. Spence said today that data backlogs may still be occurring and cause potential e-mail delays.

“This has been such a high-profile outage and everyone knows it’s not the operators’ fault but RIM’s fault,” said Ben Wood, an analyst at CCS Insight in London. “The big challenge for the operators is that it’s cost them a lot in terms of managing the problem.”

RIM fell 2.3 percent to $23.71 at 12:13 p.m. New York time. It had lost 59 percent this year before today.

Reputation Hit

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc. (AAPL)’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

Network operators including Vodafone have shifted the blame onto RIM as they deal with a customer backlash. Vodafone said yesterday its primary focus is to ensure RIM does all it can to restore services to customers as quickly as possible.

“The network operators have been deluged with calls” and they will be “most frustrated,” CCS’s Wood said today.

BCE Inc. spokesman Mark Langton declined to comment on whether Canada’s largest phone company would compensate its BlackBerry users or seek refunds from RIM. Patricia Trott, a spokeswoman for Toronto-based wireless carrier Rogers Communications Inc., didn’t immediately return a call seeking comment.

AT&T Inc., the largest U.S. phone company, had no comment and directed questions about the disruptions to RIM, according to spokesman Mark Siegel. Scott Sloat, a spokesman for Sprint Nextel Corp., didn’t immediately have a comment about potential compensation issues. Verizon Wireless representatives didn’t immediately return a call seeking comment.

In Spain and South Africa, operators may be liable by law to refund their customers.

Claims

Customers will be able to claim against the operator who brings the service, said Chris Watson, a telecommunications lawyer and partner at CMS Cameron McKenna in London.

“It will depend on what commitments the network operators have to their subscribers,” Watson said. “In most cases RIM dictates the terms and conditions.”

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

Investor Demands

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem quickly to avoid sacrificing customer data as the backlog grows too great and alienating clients, according to Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, England.

Regions outside RIM’s traditional stronghold of North America account for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. Services were also disrupted in Brazil, Chile and Argentina and South Africa this week.

“There is outrage on the BlackBerry outage,” said Kiran Mazumdar-Shaw, chairman of Biocon Ltd. (BIOS), India’s biggest biotechnology company. If the BlackBerry service continues to be problematic, she said she may be forced to give up her device. “This is terrible timing.”

To contact the reporters on this story: Jonathan Browning in London at jbrowning9@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net

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