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Low cost, high stakes: RIM pushes to hold its ground

CEO Thorsten Heins will give a keynote speech on Tuesday in Orland which may give clues to the future of the company’s products.

Fernando Morales/The Globe and Mail

Research In Motion Ltd. is doubling down on two of its biggest success stories, unveiling a low-cost BlackBerry aimed at emerging markets and opening its popular instant messaging service to rival manufacturers.

Chief executive officer Thorsten Heins held up the company's first phone designed for developing economies, called the Q5, at the company's annual conference in Orlando, Fla., on Tuesday.

The device, which will go on sale in Asia, the Middle East, Africa, Latin America and parts of Europe in July, will run on RIM's new operating system and boast advanced features such as video conferencing. But it will likely cost a small fraction of the $700 price tag commanded by the Q10 BlackBerry that went on sale recently in Canada and the United States.

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The move underscores RIM's strategy of trying to maintain its grip on emerging markets, where its brand has remained strong, while trying to recover its lost market share in developed countries.

The company, now doing business as BlackBerry, faces new challenges in those markets identical to the one it faces in the West: As more people adopt smartphones, rivals from Samsung Electronics Co. Ltd. to Huawei Technologies Co. Ltd. are making gains.

"If BlackBerry expects to compete against Samsung … it has to move its range of handsets this way," Ken Campbell, the CEO of the North African wireless operator Tunisiana, said in an interview. "While emerging markets are price sensitive, people will buy strong brands. BlackBerry has an opportunity, but it has to move quickly."

Generally, the most affordable smartphones in Africa have been selling at $250 or less. Recently, Samsung moved the bar substantially lower with its Samsung Galaxy Pocket that sells for about $125. Executives in Africa for Huawei say the local market for smartphones will ignite when prices for fully featured handsets drop below $100.

"It's important for any manufacturer today to have some portfolio of product to address this market segment, and the Q5 fills that gap for BlackBerry," said Charles Golvin, principal analyst for Forrester Research. "[The Q5] isn't just an important product, it's a necessary product for RIM."

RIM did not reveal a price range for the Q5, and an important factor will be whether local carriers choose to offer subsidies in return for wireless contracts. But with the entry-level device, RIM will walk a fine line between selling more handsets and maintaining profitability, after struggling to get back in the black just last quarter.

Charlie Wolf, an analyst with Needham & Co., estimates that RIM will need to sell 10 entry-level BlackBerries to match the profit from a single subsidized Z10 device, which Canadian carriers are offering for $100 with a multiyear wireless contract.

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During his years as chief operating officer for RIM, Mr. Heins insisted on maintaining the BlackBerry brand's prestigious appeal – and premium price – across all global markets, according to at least one source close to the company. Clearly, though, strategy has shifted within the company as it's becoming increasingly clear that mobile phone makers cannot expand by foisting expensive devices across the developing world.

On a bustling downtown street in Accra, Ghana, for example, a Vodafone shop is trying to drum up interest for the aging BlackBerry Torch – selling for roughly $500 – by throwing in a free $12 talk-and-text phone made by Huawei. Merchants here talk of growing demand for smartphones. But while shoppers aspire to the BlackBerry brand, they remain very sensitive to price.

Investors reacted to RIM's announcements on Tuesday by sending the stock price down 3 per cent, perhaps over concerns about margin slippage or the company's decision to give up exclusivity of its instant messaging service.

RIM is trying to stoke interest in its new BlackBerry 10 operating system by getting its BBM instant messaging service into the hands of the millions of people using Apple Inc.'s iPhones and Google Inc.'s Android platform. Even as BlackBerry handsets have lost popularity, BBM remains dominant. RIM boasts that the service has more than 60 million monthly active users who send and receive more than of 10 billion messages a day. One sign of just how addicted users have become to the service: Almost half of all messages are read within 20 seconds of being received.

The decision to open up BBM is a gamble because users will no longer have to own a BlackBerry to use it. But part of the company's announcement included the launch of BBM Channels, an enhancement that enables communication with groups in real time. As companies begin creating channels to reach customers, there could be rich new marketing and advertising opportunities, Mr. Golvin said.

Ultimately, the real test for RIM remains regaining market share among U.S. consumers, and so far response to RIM's new operating platform has been mixed, said Mark Sue, an analyst with RBC Dominion Securities Inc. Early results look positive in Canada and Britain, but in the U.S., phone companies have offered only limited advertising commitments in the face of "limited enthusiasm" among U.S. consumers, he wrote Tuesday.

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