Analysis: Secure data blessing and curse for BlackBerry

CAIRO (Reuters) - The data security prized by corporate BlackBerry users is a headache for governments intent on monitoring chatter, and so is both a blessing and a curse for smartphone maker Research In Motion.

Saudi Arabia and the United Arab Emirates are just the latest countries to fret about BlackBerries and the national security concerns raised by their inability to monitor traffic on them. [nLDE6700AZ]

The spotlight now on RIM is a symptom of its foray into foreign markets as North American growth slows. How it deals with that will determine whether Canada-based RIM retains its reputation as the Swiss army knife of company communications.

Socially conservative UAE, home to Gulf financial hub Dubai, said on Sunday it would block key selling points including email, instant messaging, and web browsing from October 11 until a fix could be found. If introduced, the ban would effectively castrate the powerful devices there.

"This is a well-trodden path for RIM. Security is RIM's core competitive advantage in the western world but it's becoming a frustrating barrier to expansion into more politically and security sensitive markets," said Geoff Blaber from British telecom consultancy CCS Insight.

Russia and China allowed RIM in after long, private discussions, while India says the firm has assured it that security concerns will be addressed.

The Canadian firm, as tight-lipped as its famed 256 bit encryption, has declined to comment at length about its moves to allay security concerns in at least five emerging markets, where shipments have doubled in the past year.

But analysts agree that RIM, as in the past, will seek a delicate balance between state and corporate demands.

The UAE's October 11 deadline would likely be long enough for RIM to strike a deal, said Cairo-based Mike Millar at Naeem.

"Three months is a long time in telecoms, so you have to assume that some sort of solution or compromise can be reached before the cut off date," he said.

"I do not expect RIM will relax its security across the board," Gartner analyst Carolina Milanesi said. "RIM had already gone through similar issues in Russia where they were granted permission to sell only in 2008."

That was after several years of negotiation with security services and did not involve handing over encryption codes.

RIM's encrypted traffic is delivered via network operating centers (NOCs) in Canada, thus attracting more attention than rivals such as Apple's iPhone and Nokia devices which do not offer such secure delivery of data or a foreign locale.

Enterprise clients -- corporations and government agencies signed up to the BlackBerry Enterprise Server -- are assigned encryption keys stored only on individual user accounts.

For such users, any data sent from a BlackBerry is scrambled at source and reconstituted on arrival at the recipient device.

At least one of Russia's operators, Vimpelcom, uses servers based in Russia, but RIM and government officials will not say whether this is part of any deal.

RIM does not have a proxy server in India and it has not been asked to set one up, a source with knowledge of ongoing discussions between the firm and the state said.

Nokia's messaging service is also under scrutiny, an Indian newspaper reported last week.

Gartner's Milanesi said volumes shipped outside of North America and Western Europe, while double year ago numbers, still made up only one in five devices shipped in the last quarter.

"The price point is still a bigger hurdle as far as volumes in emerging markets. They need lower cost devices and lower cost data plans there," she said.

NEEDS CAREFUL RESPONSE

RIM's top-level system is so secure that Britain's intelligence community permits the use of BlackBerry to send and receive information up to a level where release could limit the effectiveness of military operations or compromise law enforcement.

In a statement which did not directly comment on the weekend Gulf threats, RIM said it was impossible for it or any other third party to read encrypted data sent via its enterprise offering and assured corporate clients it would not compromise the integrity and security of the service.

According to industry sources in Saudi Arabia, the government is only concerned by Blackberry Messenger -- a service the sources say it has ordered local telecoms companies to block this month.

Blackberry Messenger is also used by consumers outside the corporate sector via BlackBerry Internet Service and, like corporate Blackberry email, is more difficult for authorities to monitor than traditional offerings.

What any eventual compromise involves, and whether details will be communicated publicly, are still matters of speculation.

"If RIM is seen to waver in line with government demands it risks creating a situation whereby other countries will review their stance on Blackberry," CCS's Blaber said. "RIM need to consider very carefully how they respond to this."

RIM is also present in China, a potentially lucrative market but one whose government employs an army of internet censors to block politically sensitive content and who grappled with search engine Google earlier this year.

RIM recently launched consumer services in China, previously offering mostly corporate service via China Mobile, the world's largest carrier by subscribers.

(Additional reporting by Maria Kiselyova in Moscow, Devidutta Tripathy in New Delhi and Tarmo Virki in Helsinki; Editing by Andrew Callus)