Secure Smartphones: Has the NSA Scandal Created a New Industry?

For those who don't keep daily tabs on foreign media, it's easy to underestimate the scope of the NSA surveillance scandal and its global implications. Leaks from whistleblower Edward Snowden have been major news in several countries, and are driving some new products.

Enter the "Merkelphone"
The surveillance stories have been huge in Germany. Privacy has become an obsession for many Germans, and that became doubly so after the revelation in October that Chancellor Angela Merkel's own phone has been bugged by the NSA since 2002.

That's the problem, and Deutsche Telekom (NASDAQOTH: DTEGY  ) was quick to market with a solution. The SiMKo 3, dubbed the "Merkelphone" in the German media because of the story that has driven it, is physically a slightly modified Samsung (NASDAQOTH: SSNLF  ) Galaxy S3, but includes a secondary, secure Linux kernel to run concurrently with the stock Android system, which allows encrypted communication both through Wi-Fi and 3G.

That all sounds great, but the sticker shock is getting to a lot of otherwise interested parties, after the revelation that the SiMKo 3 would retail for 1700 Euros, or about $2300 (and yes, that's after the two-year contract discount). That prices it well out of the range of most consumers, but does it mean DT's phone is dead on arrival? No necessarily.

The early adopters
$2300 is a lot of money for a phone, but for governments needing secure cell phone communications it is virtually the only game in town. That's not to say its mass adoption is assured, but well-funded bureaucrats in Germany and across the EU are likely to be much more willing to pay the long dollar for early adopter status than the average, privacy-minded consumer. 

Big corporations are also likely to accept the high premium, at least for their top employees. This is especially true in Germany and France, where much of the NSA scandal has focused not just on government surveillance, but industrial espionage as well.

The price will inevitably come down and the products will be improved over time, with Google (NASDAQ: GOOGL  ) likely to put a lot of effort into reassuring the market of the trustworthiness of its only "mostly" open-source Android operating system, which some security experts are concerned might be SiMKo's weak-link. Still, DT and Samsung are first to market here, and secure smartphones have a potential to be a huge new market for them.

First Germany, then the world?
Germany is a large market itself, but it's not the only one concerned about NSA surveillance and telecoms the world over are likely to follow DT's lead if the "secure mobile platform" proves to be even a bit of a success. Where else might this idea catch on?

Brazil stands out dramatically here, with major energy companies as well as the Brazilian government all targets of particular interest for the NSA, and an intensely competitive mobile market meaning the big players like Telefonica Brazil and Telecom Italia may try to either license the technology of DT's SiMKo or try to create their own alternative.

The EU and South America may be the first points of interest, but secure mobile devices could be a big area for growth all over the world. Likely the one country left out of this will be the United States itself, since the NSA's mass gathering of meta-data from service providers would negate much of the privacy benefit of such a device.

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