Research In Motion pledged to satisfy the security needs both of customers and governments, a day after the United Arab Emirates threatened to cut off some BlackBerry services because authorities could not access encrypted messaging data.
In the latest of several disputes over BlackBerry security, the UAE said over the weekend that it would suspend BlackBerry Messenger, email and Web browser services from October 11 until it could access encrypted messages.
The news drove RIM's Nasdaq-listed shares down as much as 2.7 percent on Monday, before they recovered to trade down less than 1 percent as some analysts said they were optimistic that the security issue could be resolved.
The Blackberry's tight email security has been key to its popularity with businesses, and is RIM's main selling point against Apple Inc, Nokia and other rivals. But governments like the UAE, Saudi Arabia and India are concerned that those same features make it difficult for them to monitor BlackBerry messages for national security purposes.
While the UAE ban would affect less than 3 percent of RIM's more than 41 million subscribers, analysts said investors were concerned that these spats could spread to other regions.
It is a worry, but I don't think it's insurmountable. I don't think governments really want to cut off RIM, said Avian Securities analyst Matthew Thornton.
They had the same problem with China but got past it. They've been in talks with India.
From where I sit right now I've a hard time seeing a material economic impact to them, Thornton said.
RIM made no direct comment on any discussions with the UAE or others, but it sought to reassure customers about the security of their data on BlackBerry networks.
While RIM does not disclose confidential regulatory discussions that take place with any government, RIM assures its customers that it is committed to continue delivering highly secure and innovative products that satisfy the needs of both customers and governments, the company said in a statement to customers.
A RIM spokeswoman could not be reached for comment.
RIM said in its statement that under its security system customers have their own encryption key and only the customer ever possesses a copy of that key.
RIM said it does not have a master key and there is no back door that would let it or any third party gain unauthorized access to the key or corporate data.
The company, started in 1984 by co-Chief Executive Mike Lazaridis, said it would simply be unable to accommodate any request for a copy of a customer's encryption key since neither it nor or any wireless operator ever has a copy.
The dispute erupted days ahead of RIM's expected unveiling on Tuesday, August 3, of a new smartphone, including a new phone operating system.
The United States weighed in on the matter, saying it was disappointed and that UAE was setting a dangerous precedent in limiting freedom of information.
We are committed to promoting the free flow of information, said State Department spokesman P.J. Crowley. We think it's integral to an innovative economy.
Crowley said the United States was seeking more information about the UAE's security concerns.
Rodman & Renshaw analyst Ashok Kumar said RIM has to be wary of tarnishing its reputation for secure communications in its negotiations with the UAE.
They can't be dismissive of these governments, but their raison d'etre is providing secure, reliable communications for their customers. Once you compromise on that, the story falls apart, said Kumar.
If they do compromise the network it will come to light sooner rather than later, he said.
Strategy Analytics analyst Neil Mawston said RIM's practice of routing data via encrypted servers in Canada has not stopped it from growing overseas so far, but a high-profile case could change this. RIM is based in Waterloo, Ontario, Canada.
If there is sustained public attention drawn to this practice over several months, and if international growth starts to slow as a result, then RIM may have to review its policy of routing data via Canada servers, Mawston said.
Any country in the world could potentially raise concerns if they think it will affect their security. Countries that already have relatively tight PC Internet controls are likely to turn their focus increasingly to wireless data services as they become more popular.
Research In Motion's shares closed off 0.96 percent at $57.10 on Nasdaq on Monday. In Toronto, markets were closed for a Canadian public holiday. RIM's Canadian shares had closed 2.5 percent higher at C$59.15 on Friday.
(Additional reporting by Ryan Vlastelica in New York, Alastair Sharp in Cairo, and Deborah Charles in Washington; Editing by Maureen Bavdek and Richard Chang)