NTSB drops Blackberry and switches to iPhone 5 contract

Research In Motion Ltd.’s BlackBerry is being dropped by a U.S. government agency that cited the device’s failures.

The National Transportation Safety Board, which investigates plane accidents, disclosed its plan to switch to Apple Inc.’s iPhone 5 in a document posted last week to a federal website. The BlackBerrys have been “failing both at inopportune times and at an unacceptable rate,” according to the NTSB’s notice.

The 400-employee agency “requires effective, reliable and stable communication capabilities to carry out its primary investigative mission and to ensure employee safety in remote locations,” it wrote.

RIM, based in Waterloo, Ontario, has been hit by recent defections by U.S. agencies and is counting on its new BlackBerry 10 devices to shore up business among its more than 1 million government customers in North America. Chief Executive Officer Thorsten Heins said last week he expects at least 400,000 government customers in North America to embrace BlackBerry 10 in a wave of device upgrades.

RIM rose 1.2 percent to close at $9.71 in New York. The shares earlier climbed as much as 4.7 percent following a rating upgrade from Jefferies analyst Peter Misek. The stock had dropped 34 percent this year before today.

Losing Users

The new operating system is at the heart of RIM’s comeback attempt, following years of market-share losses to Apple’s iPhone and devices running Google Inc.’s Android operating system. While some of RIM’s earliest and most loyal customers have been in the U.S. government, it has lost users at agencies such as the General Services Administration, which has embraced a bring-your-own device policy as a way of saving money.

The transportation board’s statement about the reliability of BlackBerry devices “creates additional headwinds” for RIM, said Sameet Kanade, an analyst at Northern Securities in Toronto who rates the company’s shares a hold.

“Once customers start coming out in the open and saying they’re dissatisfied with the product, it’s very, very difficult” to gain traction with new customers, he said in a phone interview. “It’s very difficult for your brand to be relevant when you’re losing your base itself.”

Older Versions

Eric Weiss, a spokesman for the transportation board, declined to elaborate on the problems the agency has had with BlackBerry devices. He didn’t say what generation of BlackBerrys the agency is using.

Heins said in the interview last week that many government customers are using older versions of the BlackBerry operating system.

“Many of these devices sit on BlackBerry 5 or BlackBerry 6, not even on BlackBerry 7, so the experience is not what I know and what other BlackBerry users know in the consumer domain,” he said. “It is a three-, four-year-old experience.”

Still, the company has faced two international service disruptions for BlackBerry network service in the past 15 months that have marred RIM’s reputation for reliability. Heins apologized after the most recent incident in September.

Last week, the German-born executive said he’s determined to win back government business and that the BlackBerry 10 will be key to doing that. The company reiterated that sentiment in a statement today.

RIM “has been dedicated to providing government with secure, reliable mobile communications for more than a decade,” the company said in an e-mail. “We will soon be launching the new BlackBerry 10 platform globally to meet our customer’s needs in the decade ahead.”

–With assistance from Brendan McGarry in Washington. Editors: Stephanie Stoughton, Joe Winks

To contact the reporters on this story: Nick Taborek in Washington at [email protected]; Hugo Miller in Toronto at [email protected]

To contact the editor responsible for this story: Stephanie Stoughton at [email protected]