Term of the Day: Service Revenues

Many of you are waking up this morning, reading the results of the Q3 2012 earnings call and saying to yourself, “wow, RIM beat estimates again! but… why is the stock down 12% in pre-market trading!?!?”  The answer SERVICE FEES.

Get ready as this is now going to be a huge topic of discussion moving into the launch of BB10 and for good reason.  Service fees are the fees RIM charges carriers/enterprise companies to access their BIS and BES networks.  It accounts for about 30% of their revenue which is around $1 billion per quarter.  Estimates put about 60%-70% of all service revenue coming from BIS users, the rest from BES users.  RIM is the only company that charges service fees as they are the only mobile company with their own network that carriers attach to.

In the earnings call yesterday Mr. Heins dropped a slight bomb by stating that basically all service fees will stop coming in from regular BIS consumers on BB10.  Up front that is VERY scary as this would account for about 20% of their overall revenue.  To come out and say that 20% of RIM’s revenue is going to go poof scared the poop out of investors to say the least!

As most investors were busy hitting the sell button, they neglected to hear Mr. Heins state that this drop would NOT happen overnight.  Mr. Heins was on CNBC this morning and tried to clear up and clarify how this service fee situation will go down.  He indicated the following things:

  • BIS service fees will only cease to exist for BB10 customers, not BB7 customers
  • They will continue to collect service fees on current and future BB7 customers
  • The transition period between now and getting everyone to BB10 and off BBOS, globally, will take about 1.5 to 2 years, meaning, for the next 12-18 months, service fees will remain relatively strong
  • Service fees will continue to be collected from BES users on BB10
  • Significant sales of BBOS devices  will continue in emerging markets for at least the next year, these sales will continue to bring in service revenues
  • Given they anticipate a 1.5 to 2 year time frame for the BIS service fees to completely drop off, it means they have lots of time to initiate new programs to generate revenue
  • The ACE card for Mr. Heins seems to be BBM as they have BIG plans for BBM that include finding ways to monetize it.
  • Off the top of my head I can think of the following basic scenario.  Think about having a BBM cross platform app that comes in a basic free version with just chat and a full paid version that has video chat and file sharing that costs ($1.99).
  • Or have a BBM desktop suite software package that costs a nominal fee
  • BBM Money transfers which we know is happening will help bring in fees as well

On the CNBC call Mr. Heins seems not worried at all about the service fee issue.  I gather that he feels they have enough time to find new ways to generate service fees with products such as BBM.  Also I believe they are confident that a 20% drop in revenue could easily be made up with solid sales of BB10 devices that will have a MUCH higher revenue per unit sold than the current BB7 crop.  A 20% drop in revenues, even with solid BB10 sales, might have been horrible for the old RIM, but, with the new “lean and mean” RIM that Mr. Heins has created, they can absorb this loss and still make a profit.

Anyways, the consensus in the community seems to be that analysts are over reacting to the above issues and don’t full realize that it is not an issue that is going to affect RIM in the next 6-10 months, it will take 12-18 months to make a serious dent.  Once the analysts process this I am sure the stock will go back up to where it should be given the fact that RIM has almost 3 Billion in the bank and 79 million users around the globe to sell BB10 to.  Heins will likely be all over the media today trying to clear up the above issues as well.

 

17 total comments on this postSubmit your comment!
  1. This issue has been discussed many times before, its nothing new. I guess to some analysts it’s news but looks like a buying opportunity for the stock.

  2. If BBM is for a fee and not free, I may ditch Blackberry…sorry but these are my terms…

    • cross platform versions could be that, not versions on BB10 devices

      • You think?
        Well lets brain storm this for a minute, what makes Blackberry unique and secure is that they are closed about it, ie: Blackberry to Blackberry right?
        Well, add iOS and Android and now if either one of them (and they do) have security leaks, I’m not sure how that would work out!!!

        • Well I am only theorizing here. Also a iOS or Android BBM would still use the NOC and be as secure as BBM on BB10/BBOS so that isn’ t something to worry about.

          Another theory I have heard is potentially allowing BB10 users to pay extra to have BBM Video over LTE. Free version only allows only over WIFI.

  3. This raises a couple of questions for me: one, if the extra fees for bis are off at my local carrier does this mean that the advertised rates for data plans will now include bb? Currently they are android only when you ask for the rate. Two, will we loose the features of bis in bb10? Like compressed data and great security?

    • Its not 100% clear what is happening to BIS. Is BIS going away? Or is BIS just going to be free to the carriers. Its hard to say.

      Either way, BlackBerry won’t be getting the fees on most basic consumers for internet access

  4. I’m wondering what will be so great about BBM that will make users on other platforms want to pay to be able to use it.

    Will it be the IM features? No, there are plenty of powerful and fully features cross-platform IM apps.

    Will it be the cloud features? No, they have enough solutions on their platforms

    Will it be the security features? No, most people don’t care and there are more secure solutions available on Android.

    Will it be the voice and video calling features? Maybe since you’ll only need one app to do everything.

    If I wanted to sell BBM to my family, what would be the arguments?

    • I think the only feature they could reasonably hold back is BBM Video.

      As I mentioned before they could hold back on allowing BBM Video entirely or they could only allow BBM Video over WIFI.

      Pay a nominal fee and you get full access to BBM Video over cellular.

      I think its possible due to RIM’s NOC that they could offer FTF Video service for much cheaper than other offerings such as Facetime.

      • What about voice over wi-fi anywhere in the world with your BBM contact for free; or BBM to any of your BBM contacts for free anywhere in the world. What if that’s the complete package?? BBM becomes a paid file sharing cross platform device which you would paid to use or pay for the app… as I don’t use many other IM apps out there I wonder if there are IM apps that lets you file share across the platform? Take it beyond Skype.

        The other possibilities is that the BIS fees will be collected through higher costs to carriers. i.e. rolled into what they’re offering to the carriers. If Apple pays very minimal subsidies for the carriers to carry their iPhones than I would think that RIM would figure a way of recovering that NOC cost by burying it in another way to the carriers. i.e. less subsidies for their handsets.

        So if they did away that fee and roll it into the cost of their handsets I think they’ll recover more then the forecast 20% revenues lost through the sales of their handsets, in much the way like Android or Apple does.

        • Where RIM could make BBM succeed is by offering everything you need in one app. IM, files, voice, payments. If it’s seamless and reliable, people will start using it, other wise people will keep using their favourite IM, file sharing, voice and payments appS. It doesn’t matter if it comes from different companies. Some may even find it better: each app will be excellent at executing its tasks.

          Regarding BIS and subsidies. I think it’s a dangerous road to start lowering the subsidies, but RIM has 1-2 years to figure it out. If their products become sought after again, it won’t be a problem, but if people think of them as value for money, RIM may not have a lot of room to maneuver.

  5. Is this a fee that was past on to end users in the past (as part of my $30/mth blackberry plan) because if this is a fee that carriers were paying and now they aren’t, wouldn’t carriers be very much on board with that? RIM creating some goodwill, ensuring that the relation with carriers across the world is strong for BB10…if any carriers were hesitant about carrying BB10, I would think that would change minds pretty quick but if again, if those fees were passed along, maybe it doesn’t make a difference to carriers. Interesting…

    • yes these were fees carriers paid but weren’t passed on to the consumer. BlackBerry data fees have always been on par or even lower than regular data fees for other smartphones.

      and yes, this was a concession RIM needed to do in order to help coax carriers into fully supporting BB10

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