NEW DELHI/TORONTO India added Google and Skype to its electronic security crackdown on Wednesday and began accessing some of the traffic carried on its initial target, Research In Motion's BlackBerry.
In the latest salvo of a campaign driven by fear that unmonitored email puts Indian security at risk, Home Secretary G.K. Pillai said notices were being sent to Google and Skype asking them to set up servers in India and allow officials access to web data that militants could misuse.
A Google spokeswoman based in India said the company had not yet received any such government request. "If and when we do, we will review and respond," she said.
Analysts said a crackdown that includes Google's email and software services, or internet phone company Skype could end up helping RIM, which was India's initial target in its efforts to monitor electronic messages.
It could push corporations to think twice before ditching their BlackBerrys.
"It probably makes enterprises realize there's not much benefit in trying to go elsewhere because the same situation applies to everybody," said Matthew Robison from Wunderlich Securities.
Other countries, mostly in the Middle East, also fear consumers might use the BlackBerry to aid terrorism or peddle pornography. RIM has insisted it cannot decode the encrypted corporate email that is at the heart of its business.
It's unclear exactly what BlackBerry traffic India is accessing. But any change could impact the shape of India's mobile phone market, the world's fastest-growing, and possibly hand gains to Apple Inc and Nokia, BlackBerry's two biggest smartphone rivals in India.
Data sent from non-RIM devices are easier to intercept and only require the approval of the carrier, whereas RIM says carriers have no access to its encrypted data.
Few analysts see an Indian ban for RIM as likely and most expect a relatively quick resolution at a marginal expense.
"The only near-term concern, and it is probably going to be a temporary thing, is distributors, carriers, customers and retailers may hold off on purchasing if there is concern a ban could go into effect," said Avian Securities analyst Matthew Thornton.
India's Home Minister Palaniappan Chidambaram said RIM had begun giving India access to its secure data from Wednesday.
"Discussions for technical solutions for further access are continuing and the matter will be reviewed within 60 days," Chidambaram said in a statement.
Shares in RIM were up almost 2 percent in Toronto, just above a 20-month intraday low. The shares lost more than 18 percent of their value last month as growth in its marquee secure email services came under pressure.
Analysts said a complete shutdown of BlackBerry or Google may not be in India's economic interest, nor would it necessarily help track militants, who can easily switch to more ad-hoc methods.
In addition, India is keen to retain its position as a leading information-technology nation and a BlackBerry ban would jeopardize its status and limit the efficiency of Indian and international businesses that rely on the smartphone.
"There could be various ramifications for this. If this happens, every other country may want a similar thing and then the whole issue of efficiency and management of the services and data will become difficult," said Romal Shetty, director at consultancy KPMG.
A BlackBerry shutdown would affect about 1 million users in India out of a total 41 million BlackBerry users worldwide.
Analysts see no easy final fix as RIM says it has no way of intercepting the data that countries want to access. RIM has denied media reports that say it provided unique wireless services or access to any one country.
(Additional reporting by Sumeet Chatterjee and Devidutta Tripathy; Writing by Krittivas Mukherjee and Alastair Sharp; Editing by Janet Guttsman)