Blackberry 2013 Annual Report Download - page 173

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
manageability to generate new service revenue streams. The areas the Company plans to leverage for new service offerings include:
new services for the Company’s strong BBM base; possible licensing of the BlackBerry 10 platform; the creation of cross-platform
offerings; services that leverage BlackBerry’s social media community; advanced security tools and additional enterprise services.
Customers that require enhanced services, including advanced security, mobile device management and other services, are expected
to continue to generate monthly service revenue. Other customers who do not utilize such services are expected to generate less or no
service revenue. The Company believes that offering alternative levels of service and pricing will better meet the needs of its
customers. In addition, the Company believes that by offering these services it will expand the size of its addressable market for
recurring service revenue. This strategy will help broaden the BlackBerry ecosystem over time, which will potentially give the
Company and its application developers access to a broader market into which to sell their respective services.
The Company expects the transition from BlackBerry 7 to BlackBerry 10 to be gradual, given that the Company has a diversified
global customer base, many of whom are in markets that are expected to transition more slowly to 4G wireless networks. As a result
of the changes and the pressure to reduce its SAF as described above, the Company anticipates further declines in service revenue in
the coming quarters, which could be significant. The Company cannot predict this anticipated rate of decline with any degree of
certainty, as it depends on a number of factors, including the outcome of negotiations with the Company’s carrier customers and
distribution partners, the rate at which current BlackBerry 6 and BlackBerry 7 customers migrate to BlackBerry 10 and use only
standard BlackBerry services, the Company’s ability to attract existing and new enterprise customers to use the enhanced services
offered by BlackBerry 10, the Company’s ability to continue charging SAF for its BlackBerry 6 and BlackBerry 7 products, and the
Company’s ability to successfully develop over a transition period a compelling integrated services and software offering that
generates new service and software revenues from the BlackBerry 10 mobile computing platform. The Company anticipates a single
digit percentage decline in service revenue in the first quarter of fiscal 2014, the impact of which is expected to be partially offset by
cost savings related to the CORE program.
Prior to the fourth quarter of fiscal 2013, the Company identified the BlackBerry subscriber account base as the total of all subscriber
accounts that had an active status at the end of a reporting period. Each carrier instructed the Company to create subscriber accounts
and determine whether each subscriber account should have an active status. Each carrier is charged a service fee for each BlackBerry
6 and BlackBerry 7 subscriber account each month, with substantially all of such service fees having no regard to the amount of data
traffic that the subscriber account passes over the BlackBerry architecture. If a carrier instructed the Company to deactivate a
subscriber account, then the Company no longer included that subscriber account in its BlackBerry subscriber account base and
ceased billing the carrier with respect to such account from the date of notification of its deactivation. It is each carrier’s contractual
responsibility to report changes to its subscriber account status on a timely basis to the Company. The number of subscriber accounts
is a non-financial metric and is intended to highlight the change in the Company’s subscriber base and should not be relied upon as an
indicator of the Company’s financial performance.
To reflect the changes described above, and to better address possible future strategies and service and software revenue opportunities
related to an integrated services and software offering for the BlackBerry 10 mobile computing platform, starting in the fourth quarter
of fiscal 2013, the Company has adjusted the methodology it uses to calculate the size of its subscriber base. Rather than calculating
the total of all subscriber accounts that have an active status at the end of a reporting period and for which infrastructure access fees
are thereby generated, the Company currently identifies its BlackBerry subscriber base as the total of all BlackBerry subscriber
accounts that are provisioned to access BlackBerry services, regardless of whether the Company is receiving infrastructure access fees
from each such subscriber in any given month. The Company believes this change will better reflect the base of BlackBerry users that
may contribute to service revenues in the future, whether solely through infrastructure access fees or the integrated service and
software offering being developed.
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