RIM Looks at Tiered Pricing for Service Access Fees as They Ready for Launch

By: Talha Bhatti  |   December 24th, 2012   |   Business, News, O Canada, Smartphones

Beleaguered Canadian technology giant Research in Motion recently announced results for the third quarter of 2012 and delivered results that marginally surpassed already low analyst and market expectations. RIM also showed that its cash pile had grown and that the company is all set to launch its upcoming BlackBerry 10 devices and platform at the end of January.

 

The good news was unable to take away attention from the disappointing fact that a key revenue stream from service access fees paid by wireless operators for use of RIM’s proprietary network have been dropping over time. Now that the maker of the BlackBerry is not a dominant force in the wireless sector it is being forced to offer a tiered pricing plans to keep customers.

 

The current CEO of RIM, Thorsten Heins, took over his post after Mike Lazaridis and Jim Balsillie vacated their positions early in the year. The overall perception of the new CEO is that he has reduced RIM’s ineffecienes and has geared the company towards launching a global product like BB10.

 

During the conference call in which the quarterly results were announced, Heins stated that, “We believe the company has stabilized and will turn the corner in the next year. We are now in a very strong position to reinvest into our launch and our new platform.”

 

It was revealed to analysts that RIM had seen a drop in subscribers and had sold a smaller number of smartphones since last year.  A tax credit helped it show that it had earned money and the company ended beating analyst expectations. For the third quart RIM had $2.7-billion in revenues, which is 5 per cent lower than the previous quarter. Sales of BlackBerry devices also fell to 6.9 million units.

 

The major concern for many analysts is the service access fee because it has been a very lucrative revenue model for RIM because of its 95-per-cent margin. Analysts believe that the tiered system that is being proposed by RIM will cause decline in revenue and that is not a good thing for the already financially strapped firm.

 

Kris Thompson of National Bank Financial says that, “There is a lot of confusion on the generation of monthly services revenue as the company transitions to BB10. You could see the stock sell-off post market when the tiering of service revenue was disclosed on the conference call. Investors will focus on the services model since few, if anyone, expects the company to generate sustainable profit on the hardware business alone.”

 

Source: Globe and Mail