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RIM’s Woes Partly Based on Canadian Telecom Policy

RIM was never shy about trumpeting its perceived competitive advantages. For years, co-founder Mike Lazaridis promoted the data efficiency of RIM’s BlackBerry, while emphasizing that wireless spectrum is a finite resource (Lazardis in 2006, in 2009, and 2010). From RIM’s perspective, efficient use of data makes its devices more attractive to wireless carriers which incur lower costs when compared with bandwidth hogging devices such as the Apple iPhone.

The emphasis on spectrum scarcity and the value of currying favour with telecom carriers is very much a product of the Canadian marketplace. Bell, Rogers, and Telus dominate our wireless market, resulting in longer consumer contracts than those found elsewhere, among the highest roaming fees in the world, and expensive wireless data costs. Moreover, the government has retained foreign investment restrictions in the telecom sector long after most other developed economies dropped them, and it is years behind the United States in conducting spectrum auctions that could yield new competitors.

Given a Canadian environment where data is expensive, competition limited, and spectrum relatively scarce, it should come as no surprise that RIM viewed data efficiency as a key competitive advantage. On a global level, however, RIM’s positioning has emerged as a disadvantage, since lower data costs elsewhere mean consumers are more interested in using the wireless Internet than in rationing it.

Moreover, telecom carriers are the key decision makers for the availability of devices in uncompetitive markets only where they can dictate what consumers can use. In a fully competitive marketplace, it is consumer demand, not carrier choice that carries the day. Garnering carrier support may have been viewed as crucial through the prism of a Canadian market that until recently featured only one GSM provider, but in more competitive markets consumers and companies that offer “must have” devices hold the upper hand.

The government response to RIM’s troubles should therefore not focus on assisting the troubled, but still-profitable BlackBerry maker. Rather, it should recognize that the policies that resulted in an uncompetitive telecom market have implications that extend well beyond pricey consumer cellphone plans.

For better or worse, RIM is very much a product of its environment. Addressing RIM’s woes requires establishing policies that ensure that the next Canadian tech giant emerges from a more globally competitive market where conserving Internet use and prioritizing carriers over consumers are not viewed as competitive advantages.

39 Comments

  1. Since the Blackberry is primarily a portable email solution and email is not particularly bandwidth intensive then the Blackberry is not particularly bandwidth intensive.

    It isn’t really any more complicated than that…

  2. Mr.
    Primarily an e-mail solution?
    I use mine to stream radio all day, follow twitter, and watch youtube.
    Thank goodness for wifi.

  3. Let’s not forget that RIM and the Crackberry is primarily viewed (by most people I know) as a business tool, not a consumer tool.

  4. You can’t really save a tech company like RIM without keeping its leadership in place.

    And there’s the rub. RIM has outgrown Lazaridis and Balsillie, although their egos don’t allow them to see that.

    RIM has become uncompetitive because they were complacent with their product line. Now they are busy playing catchup with somewhat inferior “me-too” products. The iPhone, and then Android caught them flat-footed.

    Not sure that changing telecom policy is going to help them. Unless the shareholders revolt and force changes at the top, they’re just at the beginning of a long, painful decline.

  5. This is a downright ridiculous analysis of RIM’s self-made problems.

  6. Jim Johannsson says:

    Jim Johannsson here from TELUS. Mr. Geist’s doesn’t cite the research behind his commment, “Bell, Rogers, and Telus dominate our wireless market, resulting in longer consumer contracts than those found elsewhere, among the highest roaming fees in the world, and expensive wireless data costs,” but I suspect his comment about roaming rates comes from the infamous Eurocentric OECD study that looked at just two rate plans from each of Bell and Rogers and extrapolated that to the rest of Canada.

    Just as most Europeans tend to roam to other European countries Canadians tend to roam mostly to the US. TELUS currently charges $1/MB to roam to the US – where it matters most, we are fully 90% cheaper than the international average.

    The comment about longer contracts is misleading. Let’s not forget that contracts, at least with TELUS, are completely optional. Consumers can get very competitive rate plans with no contract at all. But the reality is many consumers choose a term contract in order to obtain a larger discount on a high end wireless device – for example, a high end Samsung Fascinate costs $529 but with a 3 year term a consumer can get it for free. If a TELUS customer wants to terminate their contract early they just pay back the unpaid subsidy on the handset – simple and fair.

    Nordicity just published a pricing study that showed on combined voice/data plans Canadians pay 12% less than the international average.

  7. But Jim, your own stats proves the difference — the Samsung Fascinate is the same as the Galaxy S line — available for free on only a TWO year contract with O2 in the UK, for instance. A full 33% shorter term obligation than with Telus.

  8. Hahaha…Telus people
    You are very funny mister Jim Johannsson. While I do not know specifics about the wireless marketplace in Canada, I can tell you a thing or two about the internet (which, surprise surprise, is provided by the same companies):
    We, Canada, have one of the worst Internet access in the developed world. You shouldn’t look at Japan, Korea or Hong Kong, those are big, developed countries and surely Canada cannot compete with them. How about eastern Europe? How about Romania? How about Czech Republic? Here’s akamai’s report: http://www.engadget.com/2011/07/26/akamai-sees-internet-speeds-climb-asia-still-dominates-broadban/ .

    Numerous other independent reports show that Canada and US are way behind most developed countries and behind quite a lot of developing countries from all over the world.

    Why is that? Well, for one, is lack of competition. When you can provide a 25Mbps speed with 125GB download cap and block an independent ISP to get to that speed, and remain unchallenged (Rogers, Ontario) i believe that we have a problem. The very concept that IPSs in Canada can get away with download caps signifies that we have a problem. You (yes, all of you ISPs, Telus included) all you care about is how to milk more money from your consumers without providing anything in return. You have bought and paid politicians and governments until you got your way. And when asked about it you spew lies after lies and biased reports and studies.

    So now, you are doing the same thing sir. “Here is a study (that, oh, btw, we knew the results before it was finished) that proves you wrong” when there are 100 other studies that put this one to shame.
    No sir, what you have done to this country is shameful and it should be illegal. It can still be fixed with some proper government regulation, but hey…they havent done anything so far, I lost all faith that they’ll do anything in the future.

    So yes, Telus guy, we DO have the worst internet plans in the developed world and most likely we do have the worst wireless plans in the developed world. Some people have come their senses and are starting to realize it, but since there’s not much choice out there (how come that most plans have the same prices? across multiple carriers? do you guys do price fixing as well?) you still have customers and don’t need to do anything about that.

  9. Dave Charlesworth says:

    I think the title of this article is a little misleading. Maybe replace “policy” with “marketplace”?

  10. There is a little far reaching here in the RIM woes sense but the final conclusion that our competitive and regulatory environment hobbles our digital economy remains true.

  11. Blaming RIMs current struggles on Canadian telecom policy makes no sense at all. They are competing with international consumer electronics manufacturers like Apple, Samsung, LG, Google/Motorola, etc. What is the Canadian government supposed to do with that? Impose some protectionist tariffs to give RIM products a competitive price advantage in our domestic markets?

  12. Reed Solomon says:

    Jim Johannsson, in the USA you can get a Samsung Fascinate for $40 on a two year contract with Verizon. How much does Telus charge for the same phone on a two year contract? $429.99. How much does Verizon charge to buy the phone outright? $449.99. How much does Telus charge? $529.99. Why are there no competitive 2 year contracts?

    If Telus currently only charges the price of the handset and not the monthly fee remaining in a persons contract, then Kudos to you (pun intended, Koodo = Telus) That however would be a recent change in attitude.

    $1/MB is ridiculous. $1000 for a gigabyte of data? Are you building your cell towers out of gold? seriously. As an aside, I believe the practice of high roaming charges within Canada for foreign tourists is bad for tourism. I will grant again that it does seem to be a priority for Telus to address this so there does appear to be progress.

    Anyways, as to RIM vs Google and Apple.. Google and Apple strive to provide as feature complete phones as possible. RIM seems to think making a blackberry with a touchscreen = apple iphone. I choose Android personally because I can get an unlocked Nexus, get fairly useful firmware upgrades that don’t require bloated windows software, and get a pretty good number of apps, many for free or minimal cost.

    But I’m in Manitoba where I can get unlimited data on 3G with MTS. I generally don’t use more than 3 gigs a month, but I pay extra for the peace of mind that I can never go over my data plan because it’s unlimited. I’d drop them in a second if they tried to institute Rogers Wireless type pricing structure instead. I’m likely to switch from Shaw to MTS for broadband for the same reason (UBB) after more than 10 years of being a shaw customer. yay for actual competition.

  13. @giony

    Interesting rant but wrong topic. Your also beating up the wrong company. Telus is one of the good guys with some of the best priced plans, huge caps (500 GB), don’t charge UBB, and they aren’t fighting with their resellers over UBB either.

  14. I agree with Michael
    I think people are too reluctant to take a look at things the way Michael has, and I for one commend him. In an age where people seem to be afraid of making any sort of conclusion, here we have someone making one that is perfectly reasonable to consider.
    Yet some readers & commenters are reflexively dismissing it. Not because it contains a detailed correlation between the insatiable greed of the industry and the failure of a company that pandered to it. But because it was simply an assertion greater than 140 characters.

    I think what really has people like Jim scared is that the public is finally starting to react. These quasi facts and bold statements about the Telus product line are made to sound good in short bytes. But scratch the surface even just a little bit, and what’s underneath is plainly obvious. There is nothing wrong with what the OECD study concluded as it can be confirmed in less than twenty minutes with a little bit of googling and some exchange rate calculations.

    Politicizing the data won’t add to your credibility, it just proves to everyone reading how desperate the telecom companies are to skin us even harder still than they already are.

    “$1/MB to roam to the US” is a slap in the face. I’d like to know how you can expect to impress anyone with such a blatantly prohibitive cost. A data rate like that would break my trip’s budget before I could even make it to the border! To compound this is the statement: “Consumers can get very competitive rate plans with no contract at all.” Totally omitting that by taking such an option, several others disappear. No matter how many different price options you see, they all have people pegged for a certain amount, no matter which carrier you go with.

    The Nordicity reference is totally negated by the fact that these people answer to the highest bidder. I doubt they’re going to produce an accurate report out of good will if they’re capable of producing a bad one on the clock!
    Even if they had any sort of reputation, in this situation it wouldn’t stack up against the twenty minutes it just took you to look up wireless plans elsewhere in the world.

    Let me help you understand the only thing that will ever constitute wireless competition in Canada: A company that is going to offer unlimited, un-capped – because you guys have word-gamed unlimited to mean something completely different – data transfer for a flat rate of roughly $40 a month. That means that at the end of the month, if my bill is anything other than $40, you did it wrong.

    Until such a point, please spare the nation your marketing, pride and circuitous excuses. We’re sick of it.

  15. @Alex T
    Michael Geist has tried to connect the telecom policy driving spectrum scarcity in Canada with RIMs current competitive challenges.

    Whether you want to believe it or not RIM is a global player in the smartphone game and the entirety of Canada is but a tiny fraction of the global market. RIMs sales of BlackBerrys in Canada is almost irrelevent to their future success. RIMs success is actually more dependent on what happens outside of Canada than within.

    With all due respect Michael Geist got it wrong. There is nothing the Canadian government can do with our domestic Canadian telecom policy that will make Americans, Asians or Europeans buy more BlackBerrys.

    RIM got to market first with a great product and has had a terrific run but their competitors are catching up – let’s hope they can keep outrunning them.

  16. Jim Johannsson says: “The comment about longer contracts is misleading. Let’s not forget that contracts, at least with TELUS, are completely optional. Consumers can get very competitive rate plans with no contract at all. But the reality is many consumers choose a term contract in order to obtain a larger discount on a high end wireless device – for example, a high end Samsung Fascinate costs $529 but with a 3 year term a consumer can get it for free. If a TELUS customer wants to terminate their contract early they just pay back the unpaid subsidy on the handset – simple and fair.”

    So Jim I can save $529/36 =~15/month If I alreeady have a phone then? No I didn’t think so

  17. http://www.zdnet.co.uk/news/networking/2006/06/06/rim-chief-cautious-about-unlimited-wireless-data-plans-39273351/

    You are correct in that RIM is a global player and the bulk of their sales/income comes from foreign markets. The amount Canadian telecom policy shaped RIM was probably only at the early stages until they expanded internationally.

    This linked article is telling on the shortsightedness of RIM to focus on data efficiency over capacity and innovation. True, it predates the release of the first iPhone but it looks like Apple anticipated what the market wanted and went for it, meanwhile RIM is telling the Canadian telecoms to hold back less their phone minutes be squeezed away.

    I see this as more of a failure of RIM to innovate but does not excuse the telecom industry from seeming to follow their shortsightedness.

    Today, there is no excuse as higher data capacity and competition are needed to let Canada innovate in an increasingly competitive of digital world economy. Pandering to ISP profits and vertical integration will only leave Canada on the sidelines as our resources and talent look elsewhere to succeed.

  18. @db
    I would love to see how the Telus guy would answer your question but I doubt he’ll be back since a couple of the posters here have been quite rude and trying to change the subject.

    But I am curious why you would sign a 3 year contract if you didn’t need a new phone, it doesn’t make sense, am I missing something?

  19. Donna Sinase says:

    @ Reed Soloman
    Why does Telus charge more for a Samsung Fascinate than Verizon does? Simple, Verizon is going to sell 15 times more of them than Telus ever will. Telus is a puny company with only 7 million wireless subscribers compared to Verizon’s 106 million so Verizon is likely able to buy them from Samsung at less than half the price Telus can. In our global economy Canada is very small potatoes …

  20. Five for Fighting says:

    Where’s my bailout?
    “[S]ome have begun to speculate on whether the Canadian government should step in to ‘save’ RIM from the fate that befell Nortel Networks Corp., the last great Canadian technology company which filed for bankruptcy two years ago.”

    Save RIM? With what money? We’re in a permanent structural deficit as it is thanks to Harper’s idiotic GST cut. We haven’t even started talking about the F-35s or the U.S.-style private mega-prisons.

  21. I don’t follow the sector closely enough, but I also suspect the move away from all-you-can-eat data plans has made the efficient use of data a negative in the eyes of the carriers: they want their customers to use as much as they can if they charge by the MB.

  22. @cynic

    whether a 3 yr contract is signed or not, a customer not being subsidized should pay less. If it required signing a 3 year contract to save the full amount ($15/month) why not?

  23. Bug Out of the “FREE” Market
    I am always amazed at how quickly people start flapping their lips about government bailouts for poor struggling Canadian companies.

    Let the FREE market rule. Survival of the fittest and all that jazz seems to be forgotten all too quickly.

    People should be reminded that the current state of the global economies is a DIRECT result of TOO MUCH government involvement on the WRONG side of the problem.

  24. I would suggest that global warming is to blame for RIMs current struggles. Think about it – warmer winters in Waterloo mean that RIMs engineers are getting out of the office to spend more time enjoying the outdoors. Hotter weather in Cupertino is keeping Apple’s engineers in their air conditioned offices longer so they can work on new products.

    Global warming makes about as much sense as blaming the insignificant affects that Canadian telecom policy can have on a company competing with international handset manufacturers.

  25. market has dried up
    I see the blackberry as an office device. It was marketed as that at least in the early days since the price was too high for many consumers. If a phone is going to put me out $500 then it better have a big high resolution screen for playing games and watching movies. As much as I dislike the communication policy in Canada I think RIMs problems belong to RIM

  26. phone prices
    @Donna Sinase
    I don’t think your arguement about economies of scale holds. I can buy a new unlocked HTC on ebay for about half of the telus retail. They have high retail prices to attract people to enter contracts instead on buying outright. The major carriers fought long and hard to make unlocking phones illegal so they could be guaranteed high margins on phones.

  27. Donna Sinase says:

    @Darren
    I can go down to The Source and buy a 4-pack of AA batteries for $6.99 or I can buy a 60-pack of the same batteries for $19.99. By purchasing in larger quanties I can cut my cost per battery by 80%. The same principle holds whether you are buying batteries, cell phones, cookies, or beer.

  28. @Darren: last time I looked it isn’t illegal to unlock a phone in Canada. The bill that would have made it so died on the order paper with the last election.

    And the reason that they fought to make unlocking illegal has nothing to do with high margins; it was for a pair of reasons:

    1) Making it illegal means that you can’t take your phone with you if you make use of number portability; and
    2) There is big bucks to be made in roaming fees. For instance, Rogers charges $0.90 per minute for a voice call in an area where they don’t have coverage in Canada, about $1.45 per minute in the US (if you don’t have a travel pack), and $2 per minute in the UK. For PAYG, the US is $2 per minute, the UK $2.50 per minute. This prevents you from buying a local SIM and using it in your phone.

    I would agree some about the high retail prices, however; there is real money to be made in the higher priced contracts, especially since the contract price is not reduced when the subsidy period is done. This allows them to use the phones as a loss leader.

    @Donna: In a sense I think both you and Darren are correct; your point is definitely correct when it comes to what the retailer pays the manufacturer. However, just because the retailer is paying a lower unit price it does not automatically follow that the lower price will flow to the consumer. If the market will support the higher price demanded by the retailer, it is simply higher profit. That is the nature of the law of supply and demand (http://en.wikipedia.org/wiki/Supply_and_demand)

  29. Un-Trusted Computing says:

    RIM’s woes mostly their own
    One of the few times I disagree with MG…

    The Blackberry having been my first smartphone, I can tell you that it is very effective at delivering messages quickly, and their network does what it was meant to do, which is deliver messages when they were sent.

    Push and BIS are RIM’s true strength and the Blackberry was just a platform to deliver these two services.

    Ideally Blackberry would realize that they’re not the best at tapping the smartphone market and drop it, in order to sell their network to better smartphone makers.

    This situation RIM finds itself in has *nothing* to do with Canadian Telecom policy.

  30. Kris House says:

    I missed the point
    I really found it difficult to follow the thoughts you wrote, maybe just I was not interested or you wrote your post quite unclear…

    End of Tenancy Cleaning

  31. some points are on the mark
    I agree with some of what Dr. Geist says but in a round-about fashion. It’s not the telecom policy per se that forced RIM to hamper their innovation (though there are many other reasons for it that others have commented on elsewhere) but it certainly is tied to the carriers who in turn manipulate the policy to their advantage.

    Example, early on when GPS was a big thing being touted on these phones RIM already had that in place but was coerced to disable it by both Rogers and ATT. This put them at a disadvantage even though customers wanted it. The reason given internally within RIM was that the carriers were not prepared to handle that kind of wireless traffic. There was quite a lot of fighting between the brass at RIM and the carriers but it was the carriers that won out.

    Now that RIM has to really fight to gain traction again the carriers are facing more heat from RIM to get a better ground on the competition… hence the BBM Music announced last night (mind you it has been in the works for more than 2 years … not a recent development like some of the news rags will have you believe… and there was [maybe still is] a movie and tv show service was also in the works at the same time but hampered by the carriers, who own the media outlets, and licensing issues).

    Without a decent telecom policy and oversight body in place to rein in these carriers then companies like RIM will be at a disadvantage because they will be at the mercy of the carriers. Plain and simple.

  32. @Ram
    Certainly the carriers did things to their advantage. Remember, the CRTC generally doesn’t force things upon the carriers which could cause them to demand money from the government to assist in the mandated implementation. Look at 911 and number portability, for instance. The mandated capability generally has not required the carriers to upgrade the cell stations, rather it has addressed public safety and competition concerns. However, remember as well that, from what I’ve seen, Rogers in particular has followed the lead of AT&T in the US. For instance, I used to have a Nokia E-62 phone. This phone was a derivative of the E-61; AT&T had Nokia remove tethering and WiFi from the phone. When Rogers saw the phone they brought in that one, rather than the -61, since it meant increased data revenues. Nokia couldn’t force AT&T to accept the -61; if they wanted into the US market with this flavour of phone they had to be willing to play by AT&T’s rules. With the iPhone, on the other hand, Apple did a good job of pre-sales marketing and therefore could get concessions from the US carriers in order to carry it.

    The market integration that we are seeing in Canada is a different issue. That a carrier is also a provider of landline internet (either DSL or cable) as well as an owner of the media outlets (and in some cases content producers) is a different discussion.

  33. @Anon-K
    but that they can and use that advantage against innovators like RIM is the point of policy failure. Yes separate issue but also a part of the bigger vision. And in RIM’s case Rogers is usually the test bed carrier and not ATT since most of the alpha/beta and gold software/hardware is done up here in Canada not the US. In this case the roles are reversed.

  34. @Anon-K
    yes the market integration is a separate issue but also still part of the bigger vision and RIM needs to deal with the limitations that will result from regulatory capture by the carriers. Again part of the policy failure. And incidentally, Rogers is the test-bed for most Blackberry devices not ATT – all alpha/beta/gold software/hardware goes through verification up here in Canada.


  35. RIM’s problems are of their own making. They somehow forgot what they were doing. The Blackberry is eminently an enterprise tool, you would expect RIM working on perfecting the integration with MS Exchange and other enterprise messaging, and various remote control tools for on-call/on-travel people. That’s still lacking while they focus on silly apps for Facebook. Then they forget all that and spend considerable efforts to make yet another glorified photoframe to compete with the iPad. And we blame Telus for that? Bwahaha.

    Nap.


  36. …and BTW does anyone here remember the Linux powered Sharp Zaurus? At the very point someone has the idea to revive it with a modern screen, processor and a cell phone inside, the Blackberries (and the Android phones) are pretty much toast….

    Hello Sharp?

    Nap.

  37. Ram, Apple (as much as I am not an Apple fan… the only Apple device I own is an iPod and that was a gift) did a great job of ensuring that they got what they needed from the carriers to support their business model. The hype Apple created in the lead up to the release of the first iPhones was such that they could almost dictate to the carriers what they would offer. In Canada this wasn’t quite as successful, as, if memory serves, Rogers (and Fido) had the only network at the time that could support the phone; however the customer demand for the device was such that Rogers had to give some.

    On the other hand, RIM has had a hard time shaking its image as a business device; even when they did start trying to market the device as a consumer device they weren’t that successful with the campaign.

    RIM could have done the job to modify the way that the devices work if they had wanted to spend the cash on it. They didn’t and are now paying the price for that short-sightedness. Napalm put it very well. At the end of the day, if they really wanted to enter into the international consumer market they should have bit the bullet rather than attempting to trade on their name with the legacy architecture. I’ve seen this happen many times in the high tech world; the management wants to continuously repackage the existing tech for a new product, but aren’t willing to invest some of the profits for the long term. At the end of the day, a tradeoff is made between short term profits (and therefore “shareholder value” and management bonuses) on one hand and the long term viability of the company. Given that the half-life of a CEO of a publicly traded company is about 3 years, the impact of going for the former is more likely to occur on someone else’s watch.

    With respect to the market integration, correcting this will take a massive effort simply because there are so many government departments and acts involved. Remember, cellular licenses are governed by both the telecommunications act and the radiocommunications act, for instance, each has different definitions of foreign control. Now add in the broadcasting act for TV and radio… Not sure which department deals with print media. But I suspect you get the idea. Too many regulatory stovepipes.

    As with many regulatory issues, while it may in fact be better if the system is simplified, one single controversy can restart the cycle. Politically it is better to be seen to be doing something even if it turns out that something is wrong, than to appear to be doing nothing even if that is the best course.

  38. Part of RIM’s problem is that they don’t see what the customer wants and needs. Everything they’re doing is fluff, not functionality.

    The 9700 Version 6 software is a perfect example. They take the easy operation of the version 5, make the windows explode, and you continually have to screw around with that scratch post to get anywhere. I have better things to do than play with that scratch post all day.

    And their computer interface software is insane. Back your database up and restore it. That’s it. No editing features to the software at all. Painfully slow, as well. JUNK!

    My retired Palm Treo, although a PITA phone, the software to the computer was decent and fast. Take notes, RIM.

    After the upgrade to the V6 platform, I was ready to throw the damned thing into the lake. Thankfully, I was able to restore to V5.

    Little wonder the stock has slipped …

  39. GeoToronto says:

    Corporate Personality issues
    I think both Basillie and Lazaridis had the perfect personalities to start up a company like RIM, they remind me of the generals that organized and landed on the beaches on D-day.
    That being said once they won the “war” they didn’t change their mindset.
    This “post-war” era needed a smoother hand.