Why is RIM Bargaining With Wireless Carriers?
With its clout seemingly falling alongside its stock price, Research In Motion (NASDAQ:RIMM) is under pressure to reduce carrier fees that help the company generate $4.09 billion, or more than a third of its annual revenue. RIM said it has been asked to cut fees by some of the largest telecoms in the U.S. and Canada, including Verizon (NYSE:VZ) and AT&T (NYSE:T), and is in negotiations with them. RIM is the only handset maker that charges this fee.
RIM posted its first loss in a decade last week and its stock has dropped 95 percent since 2008 as it crumbles under intense pressure from Apple’s (NASDAQ:AAPL) iPhone and devices running on Google’s (NASDAQ:GOOG) Android operating system. The company is also working overtime to introduce the new BlackBerry 10 phone soon, but had to delay the launch to next year.
Northern Securities analyst Sameet Kanade told Bloomberg that he expected revenue from monthly fee to drop 17 percent to $3.4 billion this year and another 18 percent to $2.8 billion in fiscal 2014. “There’s definitely negotiations going on right now to reduce” the fee, Kanade said. The drop in revenue from slashed fees may hurt RIM badly, according to Veritas Research analyst Neeraj Monga, who said the company could run out of cash by May if the new phone is not launched by then. “April, May of next year could be a time of reckoning for RIM,” he said. “It’s a race between what comes first: BB10, zero cash balance or an acquisition.”
RIM hired JPMorgan Chase (NYSE:JPM) and RBC Capital Markets in May to help evaluate strategic options for the company. It also said it would have to get rid of 5,000 jobs to cut costs.
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