They Know Everything

It seems that every week, the market brings us more controversy. First, it was the flash crash and market manipulation. Then it was the infamous BP oil spill. Now, governments around the world are threatening to ban Blackberry services because they can’t spy on its users.

Over the last few weeks, foreign countries have been threatening to ban Research in Motion’s (RIM) (TSX: RIM) (NASDAQ:RIMM) blackberry services such as encrypted email and blackberry messenger (BBM) because the technology made messages too difficult for their governments to monitor.

If you haven’t already heard, India just gave RIM until August 31 to comply with a request to gain access to encrypted corporate email and messaging services or those services will be shut off.

Not long before that, United Arab Emirates, where RIM has 500,000 users, proposed a ban starting Oct. 11 targeting BlackBerry Messenger as well as e-mail and Web browsing. If this happens, don’t expect your blackberry to work when on vacation in Dubai because this ban will also apply to visitors.

The list of countries threatening to ban blackberry services are beginning to pile up. Indonesia, Lebanon, Saudi Arabia, and China have all had issues regarding the tight security behind RIM’s services.

The Blackberry Ban?

RIM made its mark on the smart phone world by offering something that no other smart phone providers could: Security.

In fact, most of the world’s major corporations and governments heavily rely on the BlackBerry’s unbeatable email privacy and messaging system. In addition to that, RIM’s software compresses messages so that they use only about 5 per cent as much bandwidth as an iPhone uses. It is this shrinking that encrypts the message, ensures secure delivery, and saves on bandwidth costs.

Blackberry Encryption

For years, corporations have purchased blackberries in droves because of its ability to make messages extremely difficult for outside parties to monitor due to its strong encryption. But now it seems that RIM has done too good of a job of protecting its users privacy that foreign countries are threatening to ban its services. And we don’t blame them.

You see, unfortunately for RIM, the BlackBerry’s ironclad security has also attracted cohorts of criminals, drug dealers, and terrorists. This makes it near impossible for governments around the world to effectively monitor the messages of these villains.

Remember the Mumbai Terror Attack? It was later found that the terrorists involved in the attack were communicating with Blackberries and the terrorist mastermind controlled events via a BlackBerry server in Pakistan. Regardless, can the governments blame RIM for that?

It’s not impossible for authorities to crack the blackberry messages. Governments can still access the decrypted emails and messages that are being sent. They just have to find the server, as they did with the terrorists from the Mumbai attack. The problem is the servers may be hidden overseas and gaining access is difficult due to legal and political issues.

What does this mean for RIM and its shareholders?

Despite the controversy of its secure services, the market seems to be ignoring the fact that Canada’s leading technology company saw a 40-per-cent rise in BlackBerry sales over the past 12 months and remains one of the top phone makers in the world, topping Motorola earlier this year. Yet, shares of RIM have dropped close to 30% in less than 6 months.

RIM also boasts net profit margins of 16.5%. This is significantly higher than other mobile phone manufacturers who have net profit margins of around 5%.

Even with the introduction of competing smart phone solutions, RIM’s BlackBerry remains prominent amongst large business customers due to its track record of security and reliability. Just ask President Obama.

When the dust settles and the blackberry ban controversy is over, look for RIM to rebound.

We have been a big supporter of RIM for a long time. We own shares. We own blackberries. And we use them every day.

The real controversy is not RIM’s secure service. It’s privacy.

Invasion of Privacy

It’s all around us. If you’re online, someone is spying on you. If you send a message, someone can read it.

Think about this. In a recent study of more than 470,000 Web surfers, 83.6 per cent of them had an instantly identifiable, totally unique fingerprint: Their particular combination of settings and information was unlike that of any other user, increasing the chance they could be personally identified, even though they had done nothing but make a few clicks of the mouse.

If you’ve ever entered your postal code to gain access to a website, the company that operates it probably knows roughly 14,000 things about you – if that company is a client of Toronto-based research firm Generation5 or a similar service, for example.

So while we understand that governments are trying to protect us, they also know security is one of the primary concerns for businesses – especially for those trying to protect their intellectual property and marketing plans from prying eyes.

All it takes is one government employee to leak information that could have disastrous effects on a business and allowing governments to monitor every message is not only an invasion of privacy, but could cause a lot more harm than good. We already witnessed this recently with the Wikileaks debacle when someone leaked the information of secure military documents (see Pentagon’s Take on WikiLeaks).

In the end, banning RIM’s service will do little but help criminals and terrorists find another way to communicate.

RIM has already come up with an agreement that would help the Saudis track BBM messages. However, nothing is clear at this point on how RIM will address this issue with encrypted emails on corporate servers. Recent reports have shown that RIM has complied with India and is giving up codes to decrypt messages in India. Whether or not this is true remains to be seen.

If this is true, we could see many other countries requesting the same level of cooperation and thus, make RIM’s Blackberry service less secure – but still far more secure than other solutions.

This controversy will eventually sort itself out and allow RIM to once again focus on providing consumers with a secure and durable product.

The days of privacy are over. Long gone. In our world of technological advances, the more we use technology, the less privacy we will have.

At this pace, there may come a time where even computers are banned by foreign governments…

Until next time,

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