By Alastair Sharp

TORONTO (Reuters) - Former Research In Motion <RIM.TO><RIMM.O> co-chief executive Jim Balsillie sought to reinvent the BlackBerry smartphone maker with a radical shift in strategy before he stepped down, two sources with knowledge of his plans said.

Balsillie hoped to allow major wireless companies in North America and Europe to provide service for non-BlackBerry devices routed through RIM's proprietary network, a major break with the BlackBerry-only strategy pursued by RIM since its inception.

The plan would have let the carriers use the RIM network to offer inexpensive data plans, limited to social media and instant messaging, to entice low-tier customers to upgrade from no-frills phones to smartphones.

But the talks with carriers led to discord at the highest levels of the troubled Canadian company, and Balsillie resigned as a director soon after he stepped down as co-CEO. His former partner at the helm, Mike Lazaridis, still has an active role.

The veto leaves RIM's focus squarely on a new generation of BlackBerry gadgets it promises will wow consumers. The devices will have to do just that, analysts say, to arrest the precipitous decline in market share suffered by RIM, the company that virtually invented mobile email more than a decade ago.

Balsillie's plan may have heralded a broader strategic move by RIM to define its high-margin network services - which bring in around $1 billion a quarter - as a business that's distinct from building and marketing the BlackBerry. That hardware business may have lost money last year.

Carriers may have seen value in the plan, which would have encouraged lower-value talk-and-text customers to upgrade to entry-level smartphone plans, with access limited to Twitter, Facebook, messaging and other social media platforms.

The package would have included RIM's BlackBerry Messenger application, a powerful tool that has kept many BlackBerry users faithful even as flashier gadgets from Apple Inc <AAPL.O> and running Google Inc's <GOOG.O> Android software beckon.

That said, the arrangement would have relied on RIM's private network, which crashed painfully last year, adding a layer of risk that some carriers might have shied away from.

The RIM network is integrated with cellular networks across the world. Managed from a string of data centers, RIM encrypts and compresses massive amounts of data it then pushes out to BlackBerry devices. It charges carriers a monthly subscription fee per user for the service.

The system allows the BlackBerry - and in theory other devices - to gobble up much less bandwidth. So routing non-BlackBerry traffic through RIM's servers would help carriers by easing strain on their networks.

RIM took a first step toward establishing the network as a standalone operation late last year with its Mobile Fusion software that gives corporate and government customers the option of linking iPhones and Android devices to their existing BlackBerry management systems.

But that does not offer outsiders the unique technology that encrypts data and pushes it out to the BlackBerry.

CLOSE RELATIONSHIPS

Balsillie developed close business relationships with hundreds of telecoms executives as RIM's chief salesman and dealmaker in the years of BlackBerry's most prodigious growth.

He was talking to AT&T Inc <T.N> and Verizon Communications Inc <VZ.N> in the United States, and Vodafone Group Plc <VOD.L>, Deutsche Telekom AG <DTEGn.DE>, Telefonica SA <TEF.MC> and France Telecom SA <FTE.PA> in Europe, as well as at least one major Canadian carrier, the sources said.

RIM, which declined comment, already offers basic messaging and social media plans to BlackBerry users in many countries, something that has helped it drive growth, particularly in emerging markets.

The plans restrict Internet access to a few popular sites and are typically cheaper than the smallest per-gigabyte plan available for other gadgets.

RIM was well along the path, having developed software to deliver the service to users of the latest versions of Apple and Android operating systems. It had also studied the global potential of selling the service, one source said.

But before that could happen, RIM's new CEO Thorsten Heins, backed by Lazaridis and the board, rejected Balsillie's initiative in favor of a focus on next-generation BlackBerry 10 phones due later in the year, two sources said.

HARDWARE STRUGGLES

Balsillie's plan might have resonated with investors and analysts who have urged RIM to sell its hardware business as a way of salvaging some value from the company, whose shares have shed 80 percent since February last year.

RIM's BlackBerry devices have struggled to compete with Apple's iPhone and iPad and a slew of Android devices. Over the past two quarters, RIM has slashed more than $750 million in total from the value of its smartphone and tablet inventory.

The company likely lost money on hardware sales in the fiscal year just ended, an analyst said on Tuesday.

Yet with the global smartphone boom showing no signs of abating, RIM could target a market six times larger than its existing BlackBerry base, former RBC Capital Market analyst Mike Abramsky wrote in a note last year advocating RIM split in two. Continued...