The decision by Research In Motion, the makers of Blackberry, to end services fees for certain users has created a threat to its source of income that is most profitable and ended the company’s stock rally that was three months long.
Subscribers who have asked for enhanced services, which includes additional security, will keep paying a service fee, while others, who are no using those services will generate little or no revenue from the service, said Thorsten Heins, the RIM CEO. Service fees amounted to sales of $982 million during the last quarter out of the total of over $2.73 billion.
The decision by RIM jeopardizes the service business of the company and casts a cloud over the plan to turnaround the company, which centers on the new Blackberry 10 launch early in 2012, said one analyst. The lack of detail over the change has also contributed to concerns with investors, said the analyst. Shares of RIM fell 23% to just $10.91, the biggest one day decline since September of 2008.
RIM, by implementing this as well as lacking in details, has created great doubt about that type of revenue that is very high margin and by some estimates, that revenue is the only real source of the company’s profitability.
In a situation not related, Nokia announced that RIM had agreed to make one-time as well as on-going payments for the patent licensing deal that essentially ended all the legal disputes between both companies.
RIM is amidst a chance in its approach to service fees as customers of mobile phones are putting pressure on all wireless carriers to lower their monthly rates.
Carriers traditionally have passed on fees to their customers, but of late that is becoming harder and harder to accomplish.