BlackBerry (BB 1.80%) is facing numerous challenges as it tries to rise from the ashes, but Boeing's (BA 0.25%) Black phone isn't one of them. In fact, it may actually improve BlackBerry's chances of being acquired.
Boeing's Black Phone
Boeing's Black phone is ultra-high-end
On Feb. 24, Boeing's attorney filed paperwork with the FCC describing a handset that sounds like it could have been developed by James Bond's Q branch. According to the documentation, Boeing's Black phone was developed to ensure that government agencies' and contractors' data and voice communications are transmitted and stored in a secure manner. The documents go on to describe how there are no serviceable parts and any attempt to tamper with the device will cause it to self-destruct.
BlackBerry's claim to fame has been its focus on security. Over the years, it has been the primary vendor for government agencies. When President Barack Obama took office, he insisted on keeping his BlackBerry, and since then, it has presented no disclosed problems. In the last few years however, BlackBerry's visibility has been slipping as some government agencies have shed its devices for higher-priced, but more feature-rich Apple (AAPL -0.35%) iPhones. Two years ago, for instance, the ATF replaced 3,800 devices because the functionality lagged behind the iPhone and the maintenance cost of the infrastructure was too high.
Sub-$200 handset is more competitive
Now that BlackBerry can offer a sub-$200 smartphone, it may be able to win back some of the lost agencies that are price-sensitive to the $600 iPhones. Even though the agency does not have to pay the full cost upfront, the cost difference is passed through to the customer over the life of the contract.
BES10 free upgrades may help win back customer loyalty
The handset premium isn't the only cost reduction. BlackBerry has offered a robust mobile management system called BlackBerry Enterprise Service, or BES, that facilitates cross-platform device management. The problem with this solution has been the cost. In the past, BlackBerry had its customers locked in and took advantage of the situation by charging a premium price. However, the company recently announced a new program for its enterprise server customers that offers free migration to BES10. The low cost of handsets, combined with simplified low-cost management, may close the gap for companies that are willing to consider BlackBerry as an option.
BES could manage the whole infrastructure
What does all this have to do with Boeing's Black phone? BlackBerry can address what Boeing is leaving on the table and manage it. BlackBerry handsets are geared to the corporate side of government, where cost is a significant consideration, in addition to security. Boeing's Black phone is geared to a much smaller number of users where cost is not the primary concern. You still need to manage these handsets. It wouldn't be viable for a third-party solution to manage Boeing's Black phones, but if Boeing were to buy BlackBerry for the handset and BES businesses, it would be able to offer a management platform that could handle all types of devices. Boeing isn't the only company that this might appeal to. General Dynamics offers a handset called the Sectera Edge, which offers secure access to classified networks.
Transactions could be cheap if BBM and QNX are spun off
Since these two government contractors would not need BlackBerry's ancillary businesses like Messenger or QNX, these could be spun out to pay for the acquisition. If BlackBerry could get a comparable price per user for its BBM business to what WhatsApp received from Facebook -- $40 per user, times 80 million users -- it would amount to $3.2 billion, or 60% of the BlackBerry's market capitalization.
