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Strategy, spite conspire in BlackBerry’s T-Mobile breakup

BlackBerry’s market share has dropped precipitously.

Nathan Denette/The Canadian Press

What started out as a war of words between BlackBerry Ltd. and one of its carrier partners has culminated in divorce.

The Waterloo technology company announced it will not renew T-Mobile's license to sell BlackBerrys after the current license expires on April 25.

"BlackBerry has had a positive relationship with T-Mobile for many years," BlackBerry chief executive officer John Chen said in a statement. "Regretfully, at this time, our strategies are not complementary and we must act in the best interest of our BlackBerry customers. We hope to work with T-Mobile again in the future when our business strategies are aligned."

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BlackBerry's move to cut off T-Mobile, the third-largest U.S. carrier, brings to an end a month of antagonism that saw the smartphone marker publicly call out the carrier for trying to convince T-Mobile customers to switch to iPhones.

Beyond the apparent acrimony evident between the two companies, both BlackBerry and T-Mobile appear to have determined that they had little to lose by ending the relationship.

"[Mr.] Chen will not allow the BlackBerry name to be thrown in the mud like that, so it's all about brand preservation," Frost & Sullivan analyst Ronald Gruia said. "But it can also signal the beginning of the next stage of cost-cutting: channels."

Mr. Gruia noted that a number of large distributors have recently cut back on their long-term devices contracts, squeezing BlackBerry's margins in the process. "I'd imagine that probably the terms with T-Mobile USA were not that favourable to BlackBerry anyway, making [Mr.] Chen's decision easier."

In the U.S., BlackBerry's market share has dropped precipitously over the past few years. In a report earlier this year, Consumer Intelligence Research Partners, an investment research company, pegged BlackBerry's share of U.S. smartphone activations during the last quarter of 2013 at a number so low, the group rounded it down to 0 per cent.

Indeed, a central pillar of BlackBerry's turnaround plan is a move away from smartphone hardware and focus instead on software and services. Once a leader in the smartphone space, BlackBerry has increasingly lost ground to Apple's iPhones and a variety of handsets running on Google's Android operating system.

"With respect to BlackBerry's hardware business, we struggle to assign any value to this segment given our belief that despite the recent Foxconn partnership, it will remain difficult for BlackBerry to maintain a profitable hardware business as a sub-scale smartphone supplier versus … Apple and Samsung and a very large group of price-aggressive Chinese Android [smartphone manufacturers]," Canaccord Genuity analyst Michael Walkley said in a recent report on the company.

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Even within BlackBerry's shrinking hardware business, many of the company's most loyal customers are enterprises, rather than the everyday consumers that make up the bulk of T-Mobile's base.

T-Mobile, likewise, has seen BlackBerrys account for a smaller and smaller percentage of overall sales, making it easier for the carrier to withstand the wrath of the smartphone maker.

In fact, a split with BlackBerry may mean an immediate cost savings for T-Mobile. Like other carriers, T-Mobile must pay a "service access fee" to BlackBerry for every one of the company's phones it sells. BlackBerry demands the fee because, unlike other smartphone manufacturers, it routes traffic through its own network infrastructure. Many carriers were much more willing to accept that extra cost when BlackBerry was the world's dominant smartphone – but as the company's market share plummeted, BlackBerry faced more and more pressure to reduce those fees.

T-Mobile's feud with BlackBerry became public in February, when the mostly consumer-focused carrier sent an e-mail to some of its BlackBerry users telling them they could "get the tools to do more" if they switched to an iPhone, which the carrier offered at a special price.

In a rarity, BlackBerry's CEO made his opposition to the campaign very public, issuing a statement describing T-Mobile's move as "anti-BlackBerry" and saying he shared his users' outrage at the tactic.

"What puzzles me more is that T-Mobile did not speak with us before or after they launched this clearly inappropriate and ill-conceived marketing promotion," Mr. Chen said. A BlackBerry spokesperson would not answer specific questions about the move, pointing only to the company's terse press release.

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T-Mobile did not respond to a request for comment. But the company's CEO, John Legere, was active on Twitter on Wednesday, telling one tweeter: "I can't, for the life of me, understand why @BlackBerry would take choices away from customers."

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