Blackberry 2013 Annual Report Download - page 53

growing pressure to reduce its existing SAF, especially for the consumer market. In response to these pressures, the Company has
been implementing certain price reduction programs in an effort to maintain and grow its subscriber base. While the Company
expects that existing consumer and enterprise subscribers using BlackBerry 7 and prior BlackBerry operating systems will continue
generating service revenue, the amount of those revenues is expected to decline in the coming quarters due to the ongoing price
reduction programs.
As customers transition to BlackBerry 10, the Company expects SAF revenue to decline further for consumer subscribers, but expects
to continue generating SAF revenue from enterprise customers who elect to utilize the BlackBerry 10 Enterprise Service and other
new services. The Company is focused on developing integrated BlackBerry 10 service offerings that leverage the Company’s
strengths such as BBM, security and manageability to generate new service revenue streams. 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.
However, if the Company is unable to develop a compelling integrated services offering that will mitigate the decline of service
revenue relating to SAF in the manner described above and enable the Company to recover the costs associated with its network
infrastructure, this could have a material adverse effect on the Company’s results of operations and financial condition.
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