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Egypt’s Orascom has hailed the launch of its fledging mobile network in North Korea as a success, noting that it has signed up almost 50,000 customers by the end of 2Q09 (following commercial launch in December 2008) and predicting that the network will hit 100,000 subscribers by year-end. According to the latest Wireless Intelligence data, this growth will see the network reach half a million mobile connections by the end of 2012. The network is the first to be launched in the country – officially known as the ‘People’s Democratic Republic of Korea’ or DPRK – since an earlier effort was shut down by North Korea’s controversial regime several years ago, and marks the first major investment in the state by an international operator.
The new network – branded ‘Koryolink’ – is a joint-venture between Orascom (75 percent) and Korea Posts and Telecommunications Corp. (KPTC), a state-owned entity that controls the remaining 25 percent. The JV has been awarded a WCDMA license for a period of 25 years and includes an exclusivity period of four years. Orascom has earmarked investment of US$100 million in the country in 2008/2009 (inclusive of the licence fee paid in 2008), with a further US$300 million planned over the next three years. The network has been rolled-out initially in the capital city of Pyongyang, which has a population over 2 million, and along a highway linking the capital to the northern city of Hyangsan. However, the JV has ambitious plans to eventually cover the entire country’s population – estimated at 23 million – by 2012.
Building-out an advanced mobile network in one of the world’s most notorious totalitarian and secretive states is a brave move – even for an operator such as Orascom, which has forged a reputation for doing business in politically challenging markets (including Pakistan, Algeria, Bangladesh and, until 2006, Iraq). Telecoms infrastructure in North Korea is archaic by modern standards and communication lines to the outside world (primarily with neighbouring China) are severely controlled. The fixed-line infrastructure is maintained by KPTC (Orascom’s partner in Koryolink), but it estimated that there are only around 1.1 million fixed-lines in operation. The vast majority of these are believed to relate to government offices and state-owned enterprises with as little as 10 percent controlled by individual households.1 Despite an earlier commitment to expand the network across the country, recent reports of frequent disconnections by the regime suggest that private fixed-line ownership could actually be falling.
Earlier attempts at rolling-out mobile networks have not fared much better. In 2002, a CDMA network was planned by a consortium involving South Korea’s SK Telecom and KT during a period of relative cooperation between the two countries on the Korean peninsula. However, this network was allegedly vetoed by the US on security grounds; it was thought able to do so because the CDMA patents (at the time) were controlled by US firms.6 A GSM network was eventually deployed in 2002 and reportedly reached around 20,000 subscribers1 before being closed down by the regime in 2004 (ostensibly on security grounds2). However, it is thought that some form of network was maintained in the interim period for use by officials in Pyongyang and for select visitors to the country.
Announcing the launch of Koryolink late last year, Orascom’s chairman and CEO Naguib Sawiris proclaimed that “this is not just about providing 3G mobile services; we are making history in a country that is developing and opening up in a remarkable way.” He has more recently asserted that the network is being made available to normal North Korean citizens and not just the ruling elite. To this end, the operator claims to be in the process of rolling out a retail network in Pyongyang consisting of direct sales stores, scratch card vendors and via KPTC (post office) outlets. Reports in August suggested that as many as 30 percent of Pyongyang citizens are using the service.3
However, the new network faces challenges beyond the authoritarian nature of the state. North Korea has a GDP per capita (PPP) of just US$1,700,4 making it one of the poorest countries in the world, and one in which access to basic mobile services (never mind WCDMA-based data services) is likely limited to a very privileged few. According to press reports, a mobile phone can be bought in Pyongyang for around US$150, while access to Koryolink’s network is fixed at KPW3,000 (US$21.5) per month for eight hours of talk time.3 These price points are significantly lower than those charged by the earlier public North Korean mobile network but still represent a luxury in a country where the average monthly salary is US$47.5
Nevertheless, Orascom’s reported financials for first six months since commercial launch have been encouraging. For 1H09, Orascom reported earnings (EBITDA) in North Korea of US$2.8 million on revenues of US$12.5 million, representing a healthy EBITDA margin of 22.5 percent. Reported ARPU of US$22.8 for 2Q09 was also high, despite dropping slightly from the previous quarter (US$24.7). However, it should be noted that Orascom’s reported financial data for Koryolink is based on the ‘official’ exchange rate between the North Korean Won and the US Dollar (currently US$1 to KPW140), which values the Won significantly higher than it is typically worth on the black market where most trading in the currency takes place.
Matt Ablott, Analyst, Wireless Intelligence
In less than a year since commercial launch, Orascom can already claim to have rolled-out North Korea’s most successful mobile network to date. However, our projection of 500,000 connections within three years (based on current growth rates and coverage footprint) comes with a number of caveats, most notably the fact that the unpredictable nature of the regime could mean the network is shut down – or severely curtailed – at any point. Orascom’s relatively cautious early outlay (US$100 million inclusive of the licence fee) reflects the very genuine risks for foreign investors operating in the DPRK. It is seemingly taking a ‘wait and see’ approach with regards to investment outside of Pyongyang, which may slow network rollout to other parts of the country. Mobile penetration (currently around 1 percent) will therefore remain in the low single digits for the foreseeable future. Meanwhile, reports that Koryolink is already offering mobile Internet access via its network (in a state notorious for its control of public information) is further evidence that the network has the power to genuinely change the lives of ordinary North Koreans (or at least those in the capital). Orascom also has a banking licence in the country, suggesting that services such as mobile payments may also be in the pipeline. It will take time and further investment before Koryolink is truly rolled-out to the masses – particularly the rural poor – but Orascom can claim a solid start to its latest high-risk venture.