Exclusive: Former RIM Boss Sought Strategy Shift Before He Quit

(Reuters) -- Former Research In Motion co-chief executive Jim Balsillie sought to reinvent the BlackBerry smartphone maker with a radical shift in strategy before he stepped down, two sources with knowledge of his plans said.

Balsillie hoped to allow major wireless companies in North America and Europe to provide service for non-BlackBerry devices routed through RIM's proprietary network, a major break with the BlackBerry-only strategy pursued by RIM since its inception.

The plan would have let the carriers use the RIM network to offer inexpensive data plans, limited to social media and instant messaging, to entice low-tier customers to upgrade from no-frills phones to smartphones.

But the talks with carriers led to discord at the highest levels of the troubled Canadian company, and Balsillie resigned as a director soon after he stepped down as co-CEO. His former partner at the helm, Mike Lazaridis, still has an active role.

The veto leaves RIM's focus squarely on a new generation of BlackBerry gadgets it promises will wow consumers. The devices will have to do just that, analysts say, to arrest the precipitous decline in market share suffered by RIM, the company that virtually invented mobile email more than a decade ago.

Balsillie's plan may have heralded a broader strategic move by RIM to define its high-margin network services - which bring in around $1 billion a quarter - as a business that's distinct from building and marketing the BlackBerry. That hardware business may have lost money last year.

Carriers may have seen value in the plan, which would have encouraged lower-value talk-and-text customers to upgrade to entry-level smartphone plans, with access limited to Twitter, Facebook, messaging and other social media platforms.

The package would have included RIM's BlackBerry Messenger application, a powerful tool that has kept many BlackBerry users faithful even as flashier gadgets from Apple Inc and running Google Inc's Android software beckon.

That said, the arrangement would have relied on RIM's private network, which crashed painfully last year, adding a layer of risk that some carriers might have shied away from.

The RIM network is integrated with cellular networks across the world. Managed from a string of data centers, RIM encrypts and compresses massive amounts of data it then pushes out to BlackBerry devices. It charges carriers a monthly subscription fee per user for the service.

The system allows the BlackBerry - and in theory other devices - to gobble up much less bandwidth. So routing non-BlackBerry traffic through RIM's servers would help carriers by easing strain on their networks.

RIM took a first step toward establishing the network as a standalone operation late last year with its Mobile Fusion software that gives corporate and government customers the option of linking iPhones and Android devices to their existing BlackBerry management systems.

But that does not offer outsiders the unique technology that encrypts data and pushes it out to the BlackBerry.

CLOSE RELATIONSHIPS

Balsillie developed close business relationships with hundreds of telecoms executives as RIM's chief salesman and dealmaker in the years of BlackBerry's most prodigious growth.

He was talking to AT&T Inc and Verizon Communications Inc in the United States, and Vodafone Group Plc , Deutsche Telekom AG , Telefonica SA and France Telecom SA in Europe, as well as at least one major Canadian carrier, the sources said.

RIM, which declined comment, already offers basic messaging and social media plans to BlackBerry users in many countries, something that has helped it drive growth, particularly in emerging markets.

The plans restrict Internet access to a few popular sites and are typically cheaper than the smallest per-gigabyte plan available for other gadgets.

RIM was well along the path, having developed software to deliver the service to users of the latest versions of Apple and Android operating systems. It had also studied the global potential of selling the service, one source said.

But before that could happen, RIM's new CEO Thorsten Heins, backed by Lazaridis and the board, rejected Balsillie's initiative in favor of a focus on next-generation BlackBerry 10 phones due later in the year, two sources said.

HARDWARE STRUGGLES

Balsillie's plan might have resonated with investors and analysts who have urged RIM to sell its hardware business as a way of salvaging some value from the company, whose shares have shed 80 percent since February last year.

RIM's BlackBerry devices have struggled to compete with Apple's iPhone and iPad and a slew of Android devices. Over the past two quarters, RIM has slashed more than $750 million in total from the value of its smartphone and tablet inventory.

The company likely lost money on hardware sales in the fiscal year just ended, an analyst said on Tuesday.

Yet with the global smartphone boom showing no signs of abating, RIM could target a market six times larger than its existing BlackBerry base, former RBC Capital Market analyst Mike Abramsky wrote in a note last year advocating RIM split in two.

Some 1.55 billion mobile phones were shipped worldwide in 2011, of which less than one third were smartphones, according to research firm IDC. Only about 51 million were BlackBerries.

But smartphones will likely account for more than half of the 2.17 billion phones shipped in 2016, IDC said.

Assuming that RIM could sell its services for even a tiny portion of the new smartphones, while retaining its existing subscribers, its services business would expand meaningfully.

Verizon, Vodafone, France Telecom and Telefonica declined to comment. A Deutsche Telekom spokesman said the company was not aware of such a proposal.

Verizon Wireless is a joint venture of Verizon and Vodafone, while Deutsche Telekom also owns T-Mobile USA. France Telecom, Telefonica and Vodafone all have operations in emerging economies where RIM has notched most of its recent growth.

OPEN TO ALL OPTIONS

Balsillie and Lazaridis stepped down from their shared CEO roles in late January, and gave up roles as co-chairman of the board.

Lazaridis stayed on as vice-chair and head of a newly created innovation committee.

The pair, who together built Lazaridis' 1985 start-up into a global business with $20 billion in sales last year, handed the CEO job to Heins, a German-born former Siemens AG executive.

Heins initially said it would be wrong of RIM to focus on licensing its software or abandoning its integrated stance - where RIM ran its own software on its own phones, supported by its own network - and he certainly wasn't considering a sale.

But in late March, while reporting RIM's first quarterly loss since 2005, Heins abruptly said he was reviewing options such as partnerships, joint ventures, licensing and other ways to leverage RIM's assets. He did not rule out a sale.

I did my own reality check on where the entire company really is, he said. It is now very clear to me that substantial change is what RIM needs.

Those comments don't rule out talks with carriers about a plan like the one Balsillie proposed.

There hasn't been any inconsistent 'back-and-forth' between Thorsten and carriers, a separate source familiar with the situation said, without confirming or denying that any talks had taken place.

Balsillie cut his last professional tie to the company on the day Heins opened the door to all those options, stepping down as a board director. He remains one of RIM's largest shareholders, with a 5 percent stake.

(Editing by Frank McGurty and Janet Guttsman)

(This story corrects paragraph 21 of story published on April 13 to show RIM wrote off $750 million of inventory in total over the past two quarters, not in each of the quarters)