March 7 (Bloomberg) -- Secusmart GmbH has sold thousands of secure smartphones used by top government officials such as Germany’s Angela Merkel. As privacy concerns grow, Secusmart is predicting that regular citizens will also become big buyers of its 2,000-euro ($2,770) devices.
The German company is among makers of cryptophones, which encrypt calls to thwart eavesdropping, that are betting on growing sales to banks, law firms and other companies concerned that their conversations might be monitored. At least four such devices have been introduced in recent months or will hit the market soon, helping to make privacy a top theme of the CeBIT technology fair next week in Hanover, Germany.
“Voice encryption used to be a niche that only intelligence services were interested in,” Secusmart Chief Executive Officer Hans-Christoph Quelle said. “That niche is widening now. We want to look at private customers, but we definitely have to go after companies this year.”
Revelations of spying by the U.S. National Security Agency and other authorities, including reports that Merkel’s phone conversations had been tapped, have prompted a surge in products and services that help companies and consumers protect themselves. The challenge for cryptophone makers trying to expand their share of the $338 billion smartphone market is to convince buyers the added security won’t make the device more difficult to use.
Deutsche Telekom AG, Germany’s largest phone company, plans to unveil a secure-call application targeted at companies at CeBIT it developed with Berlin-based cryptophone maker GSMK. A device called Blackphone was introduced last week for $629 by Spain’s Geeksphone SL and Silent Circle LLC, based near Washington, D.C.
Bull SA, a French maker of software and technology used by the military and sensitive industries, started selling the Hoox m2 cryptophone in January. In addition to voice encryption, the 2,000-euro device offers secure Web access and e-mail.
Customers include government agencies, financial companies, law firms and large enterprises, especially those with teams involved in international activities, said Franck Greverie, Bull’s executive vice president of security solutions.
“We’ve been getting 50 calls a week,” Greverie said, though he declined to disclose order numbers. “Bankers or lawyers will be proud to pull it out of their pocket and put it on the table to show it off at dinner.”
Secusmart’s technology was designed to work with several recent BlackBerry Ltd. models including Merkel’s Z10. Its key component is a microSD card, a chip smaller than a postage stamp that fits a slot found on many phones. That card acts as a separate hard drive for confidential information that can’t be accessed by attackers who infiltrate the operating system.
The company last year shipped more than 2,000 BlackBerrys with its chip to German authorities, including Chancellor Merkel, and it supplies governments in northern Europe, South America and the Middle East.
At CeBIT, Dusseldorf-based Secusmart plans to show products designed for non-government customers, Quelle said in an interview last week in Barcelona. The company plans to expand its offering to Android phones and Apple Inc. devices, said Quelle, who founded the company in 2007 with a former colleague from Nokia Oyj.
The biggest obstacle is to protect phone calls and data transfer without making the device too unwieldy for daily use, Quelle said. Deep integration with the device maker is required to make the system more convenient, so users don’t need to continually switch between the secure and non-secure portions of the phone.
Former BlackBerry CEO Thorsten Heins, a German who personally met with Merkel, backed the cooperation with Secusmart, Quelle said. And with BlackBerry’s sales declining in recent years, the Canadian company had a strong incentive to cooperate, he said.
“The fact that BlackBerry wasn’t doing so well surely helped us,” Quelle said. “If Samsung aims to ship 100 million new Galaxy devices and we tell them the German government wants 2,000, they have little reason to tweak their software.”
The cooperation with Secusmart is “very important” for BlackBerry, said Carsten Titt, a spokesman for the device maker.
While cryptophone technology has so far been available only on devices costing more than $1,000, cheaper alternatives will likely spur demand, according to Mitchell Baker, Chairman of Mozilla Corp., which has developed software that boosts privacy on smartphones.
“Clearly people are aware of government surveillance, even more so outside the U.S.,” Baker said. “Concern on the consumer side is growing, as well as on the commercial side.”
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