RIM under pressure to cut fees carriers pay for BlackBerry network access
Research In Motion (NASDAQ:RIMM) acknowledged that it is facing pressure from carriers to cut the fees it charges them for access to RIM's BlackBerry data network, another sore spot for the company as it tries to turn itself around.
RIM disclosed the pressure in a filing late last week with the Securities and Exchange Commission. In its fiscal first quarter those fees, or service revenue, made up 36 percent of RIM's $2.8 billion in quarterly revenue, or a little over $1 billion.
In its outlook, RIM said it expects the next several quarters to continue to be "very challenging," and it listed the pressure to reduce the monthly fees among the factors that could hurt its fortunes. RIM also said that "the increasing competitive environment, lower handset volumes, potential financial and other impacts from the delay of BlackBerry 10," and its "plans to continue to aggressively drive sales of BlackBerry 7" smartphones could also have an impact. RIM expects to report an operating loss in the second quarter of fiscal 2013.
"RIM intends to continue generating a revenue stream from the services we offer," RIM spokesman Nick Manning told Bloomberg, while declining to discuss the pressure from carriers to reduce fees.
One of the unique aspects of RIM's business model is that it does charge fees for access to its proprietary network. However, RIM's declining market share and clout could make it easier for carriers to push for reductions, especially if the number of BlackBerry devices their customers own declines. RIM has hinted in the past about the critical nature of its relationships with carriers. Indeed, former co-CEO Jim Balsillie noted last fall that RIM was considering compensating carriers as a result of its three-day BlackBerry service outage, the largest in RIM's history.
Sameet Kanade, a technology analyst at Northern Securities, told Bloomberg that revenue from the monthly fee could drop 17 percent to $3.4 billion this year and another 18 percent to $2.8 billion in fiscal 2014. RIM has 78 million BlackBerry subscribers worldwide.
RIM said last week it will delay the launch of its first BlackBerry 10 devices until the first quarter of 2013, which, along with a weaker than expected quarterly performance, sent its stock price plummeting. RIM also is restructuring its operations in an effort to cut at least $1 billion in costs by the end of its fiscal year, and last week it announced it will lay off 5,000 employees. Earlier this week RIM CEO Thorsten Heins acknowledged that the company is in a very challenging environment, but he pushed back against the idea that the company is in a "death spiral" that it cannot recover from.
- see this SEC filing
- see this Bloomberg article
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