* RIM shares fall 4 pct in Toronto

(Adds analyst comment on RIM, share prices)

By Souhail Karam and Bappa Majumdar

RIYADH/NEW DELHI (Reuters) - The makers of the
BlackBerry smartphone held last-ditch talks with Saudi Arabia
Wednesday to avert a threatened cut-off of a key service,
while India took a tough line with the Canadian company.

Research In Motion is facing mounting
demands from governments around the world for access to its
vaunted encryption system on national security grounds.

The spat, which has highlighted the access some states seem
to have in comparison to others, threatens to cut off some 2
million BlackBerry users in the Gulf and India.

RIM shares fell as investors weighed the potential impact.
Its Nasdaq-listed stock sank $2.14 to $53.39 on Wednesday,
representing a 7 percent drop so far this week. The shares fell
C$2.53 to C$54.24 on the Toronto Stock Exchange.

Security officials in India, a giant growth market for
mobile communications, warned the service would be halted if
the company failed to meet its concerns, a newspaper reported.

"We are very clear that any BlackBerry service that cannot
be fully intercepted by our agencies must be discontinued," The
Economic Times quoted an unnamed security official as saying.

"Offering access to data is part of the telecom licensing
guidelines and has to be adhered to."

An Indian government source told Reuters that RIM had
proposed to share some details of its BlackBerry services but
security agencies were demanding full access to a messaging
service it fears could be misused by militants.

RIM has said BlackBerry security is based on a system where
customers create their own key and the company neither has a
master key nor any "back door" to enable RIM or third parties
to gain access to crucial corporate data.

The company said Wednesday it has never provided anything
unique to the government of one country and cannot accommodate
any request for a copy of a customer's encryption key.

The Saudi telecoms regulator met senior RIM officials
before a Friday deadline to cut BlackBerry Messenger text
messaging service on Aug. 6 in the kingdom, the world's biggest
oil exporter.

"(The ban) is only for the Messenger. Negotiations are
still going on, the deadline is final," said Sultan al-Malik
from the Communications and Information Technology Commission
(CITC)

CITC said on Tuesday it had informed the kingdom's three
mobile operators of the ban.

"The instructions for this ban are coming from high up,
it's not like any decision that has been issued by CITC before.
They will have to stop it, period," said another CITC official,
speaking on condition of anonymity.

RIM officials Frenny Bawa and Khaled Kefel are in the talks
which also include technical and regulatory experts from Saudi
Arabia's three mobile telecoms firms, a source at one of the
telecoms firms told Reuters.

"The talks are still ongoing," the source said. The cut-off
threat has hit shares of Saudi telecoms providers Etihad
Etisalat, Saudi Telecom Co and Zain Saudi
Arabia, as well as RIM's own stock price.

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Factbox on BlackBerry security issues [ID:nLDE6720FI]

Factbox on BlackBerry security explained [ID:nN04103272]

Take a Look on Blackberry's data risk [ID:nN02151382]

Global smartphone market: http://link.reuters.com/fup82n

Analysis [ID:nN04270061]

Reuters Insider: http://link.reuters.com/myw92n

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ACCESS DISPUTED

The United Arab Emirates, which plans a ban on BlackBerry
Messenger, email and web browser services from October, said
RIM is flouting its regulations. It maintains the planned
suspension follows three years of discussions with the
company.

The UAE regulator plans no furthers talks with RIM and has
told the company to comply by October or be cut off.

The UAE says it does not have the same kind of surveillance
rights to BlackBerry messages as U.S. officials do.

Security experts say that many governments enjoy the
ability to monitor BlackBerry conversations as they do
communications involving most types of mobile devices.

"The ability to tap communications is a part of
surveillance and intelligence and law enforcement all over the
world," said Mark Rasch, former head of the computer crimes
unit at the U.S. Department of Justice.

U.S. law enforcement agencies need a court order signed by
a judge to access BlackBerry call logs, email traffic or other
data from RIM. U.S. intelligence agencies do not discuss what
capabilities they have to spy on BlackBerry users.

RIM is in an unusual position of having to deal with
government requests to monitor its clients because it is the
only smartphone maker which manages the traffic of messages
sent using its equipment.

RIM Chief Technology Officer David Yach told Reuters on
Tuesday he believed governments were unlikely to follow through
on their threats because state officials themselves depended
heavily on the BlackBerry.

"I believe they'll have trouble pulling the trigger to shut
down BlackBerry. Most governments in the world rely on
BlackBerry."

Indeed, analysts said RIM's prospects as a major smartphone
maker are tied more to the success of its new Blackberry Torch,
designed to stem an erosion of market share to Apple's
iPhone and handsets using Google's Android software.

"This is a political issue that, over time, has gone back
and forth, and it's not just RIM that has to deal with this.
Google has had to deal with this kind of stuff in China," said
Duncan Stewart." Deloitte Canada's director of research in
technology, media and telecommunications.

The Dubai launch of the Torch handset planned for Wednesday
at the exclusive Armani hotel in Burj Khalifa, the world's
tallest tower, was postponed, however.

"It will not be taking place. It was postponed due to the
current attention in the media," a hotel employee said.

Russian security concerns held up import of the BlackBerry
for years. The state security service FSB was concerned that
RIM's strong encryption software, and the presence of servers
outside Russia, contravened anti-terrorist laws and limited its
ability of monitoring traffic.

In November 2007, the FSB finally granted permission to
Vimpelcom and MTS to start shipping BlackBerrys
on condition that the servers be installed in Russia.

According to a source with one of the companies, Russian
operators still have to secure FSB permission before they can
introduce each new BlackBerry service.

The European Commission said it rejected the BlackBerry in
favour of the iPhone and HTC smartphones during a
2008 review against certain criteria, including security and
cost.
(Additional reporting by Maria Kiselyova in Moscow, Jim Finkle
in Boston, Tamara Walid in Dubai, Georgina Prodhan in Helsinki,
Susan Taylor in Ottawa; Writing by Amran Abocar and Jeffrey
Jones; Editing by Jason Neely, Paul Taylor, Frank McGurty)