RIM reportedly will block porn sites in Kuwait, allow monitoring of encrypted data in India

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Earlier this week, the UAE said the BlackBerry's messenger, e-mail and web browsing services will be suspended from October 11 as "certain Blackberry applications allow people to misuse the service, causing serious social, judicial and national security repercussions." The ban will also extend to visiting BlackBerry users, the UAE said.

The telecom regulator in the oil-rich kingdom of Saudi Arabia also said they have directed local operators not to support the messenger function for BlackBerry users, starting this month.

Besides the UAE and Saudi Arabia, the telecom regulator in Kuwait has also voiced concerns over national security and the pornographic sites that were accessed by BlackBerry users.

Bahrain has also warned RIM against allowing BlackBerry users to use Messenger to distribute news.

Similarly, the Indian government has warned that unless RIM allowed government authorities to monitor BlackBerry services, it would be forced to make a decision prejudicial to the smartphone maker.

The Indian government said that as the encrypted data sent by BlackBerry devices cannot be detected easily, terrorists targeting the country can use Blackberry services to coordinate their attacks.

Concerns raised by the government authorities forced RIM to make a choice - agree to concede to some of their demands or face exit in the world's most lucrative, developing markets.

Unverified reports claim RIM decided to give in to some of the demands. The company has reportedly agreed as an "initial" measure to block 3000 pornographic sites by the end of the year, at the request of Kuwait's communication ministry. It has also said it would allow Indian security authorities to monitor BlackBerry services.

Though government authorities did not confirm the news, sources close to the development said RIM has offered to share with Indian security agencies its technical codes for corporate email services, open up access to all consumer emails within 15 days and also develop tools in 6 to 8 months to allow monitoring of chats.

Kuwait's government also did not confirm whether RIM has acceded to its demands. However, it said that it is working with the Ontario, Canada-based company on "legal controls that would guarantee national security on the one hand, and the rights of citizens...to use the device's services on the other."

However, RIM said, Tuesday, that it was impossible to monitor data transmission on BlackBerrys. In a statement, Tuesday, the company said the "BlackBerry security architecture for enterprise customers is purposefully designed to exclude the capability for RIM or any third party to read encrypted information under any circumstances."

The company said it "respects both the regulatory requirements of government and the security and privacy needs of corporations and consumers" and added that "Governments have a wide range of resources and methodologies to satisfy national security and law enforcement needs without compromising commercial security requirements."

Market analysts said the uncertainty has caused concerns to RIM investors.

Analysts said the Middle East and India are key markets for RIM's growth.

While in the Middle East, there are over half a million BlackBerry users, in India, which is the world's fastest growing telecom market and the second largest after China, there are an estimated 1 million BlackBerry users. Overall, there are over 2 million BlackBerry users in the UAE, Saudi Arabia and India or about 5 percent of the 41 million device users worldwide.

According to the analysts, exit from these markets means a decline in earnings and market share for the Ontario, Canada-based company and a rise for its rivals.

Already service providers in the UAE have begun offering free alternatives such as the rival iPhone to affected BlackBerry users.

Hence, it wouldn't be surprising if RIM accedes to the demands of these countries.

However, succumbing to the pressure means compromising on the high-level encryption feature that has made BlackBerry so popular, allowing RIM to compete against the likes of Nokia and iPhone maker Apple.

If RIM allows the government to monitor data transmission on its devices, BlackBerry will lose its appeal, analysts said.

According to Dubai-based investment bank Shuaa Capital's telecom analyst Simon Simonian, "BlackBerry has become an indispensable tool" for corporate users because of its high-level encryption feature and giving in to the demands of the governments could result in an exodus of customers.

However, Avian Securities analyst Matthew Thornton, international market accounts for over 40 percent of RIM's revenue and the company cannot take the concerns of these countries lightly. Especially with corporate headquarters in the Middle East crowding in Dubai, the UAE is a key growth market for RIM, Thornton said.

According to Thornton, the threats of ban will not affect RIM materially as the company will resolve the issues quickly. "They had the same problem with China but got past it," the analyst said.

Agrees Jonathan Zittrain, a professor at the Harvard Law School and co-founder of the Berkman Center for Internet and Society. According to Zittrain, none of the governments want RIM to exit their markets as it would upset BlackBerry users and unnecessarily trigger the debate on freedom of information.

The threat of bans is a "way to get negotiations going with RIM," Zittrain said. Especially in the case of the UAE,"saying that the restrictions will not kick in until October is a form of saber-rattling," the professor said.

At 11.55AM (EDT), shares of RIM were trading 0.54 percent down at C$58.83.