Client exodus to push BlackBerry fees down: analyst

Mon Mar 5, 2012 3:11pm EST
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By Alastair Sharp

(Reuters) - Research In Motion will be forced to slash the fees it charges carriers for BlackBerry service this year, an analyst said on Monday as another U.S. government customer edged away from the service, cutting into a pillar of the struggling smartphone company's business model.

RIM runs its own network infrastructure, enabling it to encrypt, compress and push data to BlackBerry phones via a cellular network. The Canadian company brought in almost $1 billion from this high-margin service last quarter, one-fifth of its total sales.

But a second U.S. government agency in as many months, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), said on Monday it would remove its BlackBerry servers in favor of a nimbler alternative that offers support for a wider variety of devices.

According to Northern Securities analyst Sameet Kanade, RIM - once the only option for secure mobile communication - has moved too slowly to counter the threat posed as companies and governments increasingly allow employees to use their own mobile devices for work. Meanwhile, carriers have soured on paying the BlackBerry service's fee, he said.

"We now firmly believe that RIM does not have the luxury of time on its side," Kanade wrote in a note to clients in which he cut his rating on RIM stock to "sell" from "speculative buy" and chopped his target price for RIM shares to $7 from $24.

RIM's shares fell 4.3 percent to $13.20 on Nasdaq on Monday afternoon, 75 cents above an eight-year low they hit in December. They have shed 80 percent of their value since February 2011 due to RIM's falling U.S. market share, botched product launches and dismal earnings.

Several analysts predict another dire earnings report later this month.

The stock was down 3.4 percent at C$13.13 on the Toronto Stock Exchange.   Continued...

A BlackBerry handset is displayed in Washington, December 15, 2011.  REUTERS/Jonathan Ernst