Bloomberg News

BlackBerry Holdup Threatens U.S. Customers as RIM Apologizes

October 13, 2011

(Updates with RIM comment starting in first paragraph.)

Oct. 13 (Bloomberg) -- Research In Motion Ltd. said customers in Canada and the U.S., its largest market, still face delays after disruption to its BlackBerry network, while data services are now more accessible in other parts of the world.

RIM last night apologized for the network failure that halted messaging for three days in Europe and spread to the U.S., Canada and Latin America.

“Right now we’re letting you down,” Chief Information Officer Robin Bienfait said in a statement on the company’s website yesterday.

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc.’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

The disruptions began in Europe and Asia early this week as the Blackberry Messenger service and Web browsing failed. BlackBerry users continue to have problems accessing data services as RIM works to clear the backlog of data, U.K.-based mobile-phone operator Vodafone Group Plc said yesterday.

“We are taking this very seriously and have people around the world working around the clock to address this situation,” Bienfait wrote. “We believe we understand why this happened and we are working to restore normal service levels in all markets as quickly as we can.”

RIM, based in Waterloo, Ontario, fell 2.2 percent to $23.88 at the close in New York yesterday. It has lost 59 percent this year.

Data Backlog

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

That network concentration “has always been a risk to the service,” Dillon said. BlackBerry “is still the most robust e- mail system.”

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

The company believes it has identified the root cause of the problem, though it will do further tests to make sure, David Yach, RIM’s chief technology officer of software, said yesterday on a conference call.

The problem is centered on its U.K. hub and service disruptions in North America were primarily caused by the backlog, not by technical faults there, Yach said.

Race Against Time

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem quickly to avoid sacrificing customer data as the backlog grows too great and alienating clients, according to Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, England.

“They cannot afford to have the problem for one more day, because the data backlog will just be massive,” Saadi said. “It’s really a race against the clock.”

Yach said the company has no plans to erase data to cut through the backlog.

Regions outside RIM’s traditional stronghold of North America are accounting for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. BlackBerry users in South Africa that use local carrier Vodacom Group Ltd. received a text message yesterday telling them about a disruption in Blackberry services.

Services were also disrupted in Brazil, Chile and Argentina this week.

--With assistance from Hugo Miller and Sean B. Pasternak in Toronto, Antony Sguazzin in Johannesburg and Adi Narayan in Mumbai. Editors: Anand Krishnamoorthy, Robert Valpuesta.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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