Can Dubai Business Survive Without the BlackBerry?

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Mosab Omar / Reuters

A woman speaks on her BlackBerry at a mall in Dubai on Aug. 2, 2010. Key services of the smart phone may be cut off for more than a million BlackBerry users in Saudi Arabia and the U.A.E.

Dubai has built a global name as an easy place to do business. Consider its international airport, one of the world's largest: more than 40 million passengers traveled through the hub last year, and, like business travelers everywhere, most can be seen checking their BlackBerrys or other PDAs during layovers. "It's six hours–plus either way from Hong Kong all the way to the U.K.," says Jim Knight, a Dubai-based partner at U.S. law firm Vinson & Elkins. "That's a long period to be out of touch. It's the difference of being out of touch for six hours vs. being out of touch for a day and a half." But this week, the United Arab Emirates, of which Dubai is a part, moved to curtail BlackBerry operations, casting a huge shadow not just on checking e-mail at the sprawling airport but on doing business in the U.A.E. itself.

Citing security concerns, U.A.E. authorities announced earlier this week a suspension of the smart phone's most popular and useful features: e-mail, Web access and the BlackBerry instant-messenger service. Though the ban doesn't go into effect until Oct. 11, many executives are already wondering if a once indispensable tool for doing business might become just an expensive paperweight. BlackBerry has about 500,000 subscribers in the U.A.E. Neighboring Saudi Arabia, which is home to about 700,000 BlackBerry subscribers, said it will enact its own BlackBerry ban on Friday.

"It's going to be massively disruptive not only to our own working practices but also to the clients who come to see us, who will find working in the Middle East less convenient than it was," says Mark Adams, CEO of Gulf Healthcare International, which has invested about $100 million in health-related businesses in the region in the past year.

The standoff between the U.A.E.'s Telecommunications Regulatory Authority and Canada's Research in Motion (RIM), which produces the BlackBerry, began on the morning of Aug. 1, the start of the workweek here. By Tuesday, the U.A.E.'s two main telecom companies, Etisalat and du, began offering alternative packages to BlackBerry customers, including swapping the RIM device for an iPhone G4. At issue is the BlackBerry's high level of encryption, which transmits data directly to RIM servers, putting it out of reach of local authorities. But it's that level of security that has attracted the loyalty of businesses worldwide. (Saudi Arabia's official press agency said the country is blocking BlackBerry services for similar reasons, saying RIM's technology doesn't comply with local regulations.)

Knight, the partner at the U.S. law firm, says he isn't worried about secure data when it comes to his personal information. "You almost come to expect within the region a heightened sense of security and surveillance," he says. "But on the business side, [losing the BlackBerry] makes confidentiality for clients and client issues much more problematic." For executives whose businesses are focused on sensitive and proprietary information, BlackBerry is the standard. "It's got a very good reputation for reliability," says Mark McGourty, a Dubai-based principal at TVM Capital MENA, a Munich-based health care private equity firm. "That's not to say that the iPhone won't [have one] over time, but the BlackBerry's been around, what, 15 years?"

To some executives, the decision to ban BlackBerry services has implications beyond the mobile device itself. If a BlackBerry can suddenly be suspended, what else could that lead to? "You will probably have the business question: How open is this market?" says McGourty.

That is not the sort of question Dubai wants global businesses to ask. The city-state, which has nearly $100 billion in debt, is still seeking economic equilibrium after the global credit crunch a year ago popped a hole in what had been a booming real estate market. "Arguments for why people are concerned over encrypted data are absolutely understandable," says Adams of Gulf Healthcare. "The issue for me is, Why hasn't this happened earlier? When we purchased our 100 BlackBerrys three months ago, this was as much of an issue as it is today."

As its talks continue with Emirates authorities, RIM has put on a business-as-usual face on the situation. The Canadian company announced on Wednesday that it will launch the BlackBerry Torch in the U.A.E. in October. But BlackBerry users are moving forward cautiously. McGourty has put on hold a plan to purchase local BlackBerry service packages for his firm's U.A.E. employees. "And we're a small player," he says. "I can't imagine how the Philips or the GE's of the world are going to cope."