Indian demands are giving a new headache to BlackBerry maker Research in Motion after New Delhi threatened a shutdown that could affect one million of the smartphone's 41 million users.
India, worried about national security, could ask mobile phone operators to block BlackBerry messaging and email until RIM provides them with access to data transmitted over the handset, a senior government official said on Wednesday.
If a shutdown takes effect, BlackBerry users in India would only be able to use the devices for phone calls and Internet browsing.
If they cannot provide a solution, we'll ask operators to stop that specific service. The service can be resumed when they give us the solution, said the Indian official, who asked not to be named.
The Indian demands follow a painful deal with Saudi Arabia, where a source said RIM has agreed to give authorities codes for BlackBerry Messenger users. The United Arab Emirates, Lebanon and Algeria are also seeking access.
By and large BlackBerry will hope for a solution... given India's potential. They wouldn't want to lose traction at a time when competition worldwide is stiff, said Kamlesh Bhatia, an analyst at technology research firm Gartner.
India, recently a growing market for RIM, fears the BlackBerry could provide cover for subversive activities. In 2008, a Pakistani-based group used mobile and satellite phones to coordinate attacks in Mumbai that killed 166 people.
RIM stock has ebbed about 2.8 percent since the international flap exploded two weeks ago. The Waterloo, Ontario-based company has declined to comment on the talks.
The company has long been one of Canada's most successful, and Trade Minister Peter Van Loan said he had called Saudi officials to discuss the importance of the BlackBerry.
Analysts say the relative buoyancy of the stock suggests that the government demands are not an immediate threat.
Investor attention is focused more on whether the new BlackBerry Torch, a touch-screen model unveiled last week to compete against Apple's iPhone and handsets using Google's Android software, will live up to its hype.
The controversy comes at an inopportune time for the Canadian-based company, even though analysts say it is likely to resolve the broad issue quickly and quietly.
Competitors have eaten into RIM's once-dominant share of the North American smartphone market, pushing the company to look to places like India and Saudi Arabia for growth.
The BlackBerry image could suffer if users feel RIM has compromised its Enterprise email system -- long valued by business executives and politicians for secure communications. Corporate and consumer customers both use its BlackBerry Messenger instant messaging.
India seeks access to both email and Messenger, while Saudi Arabia has only targeted the instant messaging service.
RIM is alone among its competitors in facing such demands. Unlike rivals Nokia and Apple, it operates its own network through secure servers in Canada and elsewhere.
RIM has said BlackBerry's Enterprise system lets customers create their own key, and the company has neither a master key nor a back door to allow it or any third party to access crucial corporate data.
India's security establishment wants RIM to give it access to encrypted messages in a readable format. Officials say RIM has proposed helping India track emails without sharing encryption details, but that is not enough.
Internal security chief U.K. Bansal said the government plans to meet with telecoms operators on Thursday to press for a deadline to be set for RIM to share its encryption details. It was not clear if RIM would take part.
Bharti Airtel and Vodafone's India unit are the largest providers of BlackBerry services in India.
India authorities are particularly sensitive to the potential for the BlackBerry as a tool for violence and political instability.
India cracked down on the entire mobile phone market after the Mumbai attacks. Authorities banned pre-paid phone subscriptions and still won't allow text messages in the volatile region of Kashmir.
While national security appears to be India's main concern, Middle Eastern countries are concerned that BlackBerry users may spread pornography or violate restrictions on contact between unrelated men and women.
(Writing by Paul de Bendern and Frank McGurty; Editing by Lincoln Feast and Janet Guttsman)