Understanding the Growth of KoryoLink

December 15th, 2011
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With cell phone subscriptions in the DPRK hitting a milestone of one million users, it is worth looking closer atPyongyang’s motivation to allow such widespread distribution of potentially destabilizing information technology. One plausible explanation is that the North Korean government is balancing its need to make money against the dangers that cell phones pose to its authoritarian control. By limiting the phones’ functionality, it can mitigate the risks of cell phone distribution while still capitalizing on the popularity of the devices.

Popularity with a Price

Cell phones have been tried in North Korea before. They were banned after a phone was linked to an assassination attempt on Kim Jong-il’s life on May 24, 2004. They have subsequently been reintroduced after Egypt-based telecommunications firm, Orascom Group, agreed to develop the Koryolink network in partnership with the DPRK government. This network utilizes the W-CDMA radio interface, providing the basis of a reasonably advanced 3G network. The network’s ownership is split asymmetrically between Orascom (75 percent) and the state-owned Korea Posts and Telecommunications Corporation (25 percent).

Since this reintroduction of mobile phones, North Koreans have been purchasing them at an astonishing rate. In Orascom Telecom’s 3rd quarter report, they note that the number of Koryolink subscribers has increased by 170 percent over the past year. Orascom sees this is the result of both greater market segmentation and increased network coverage, but it is equally possible that it is simply the result of pre-existing demand.

According to the report, 94 percent of the population of North Korea is already covered by Koryolink’s 3G network. But while this means that the vast majority of North Korea’s population might be under the coverage area, it is primarily within Pyongyang that people can afford to purchase mobile phones. In fact the phones are almost prohibitively expensive; roughly 25 times what the average North Korean earns in a month. This makes the price a de facto method for the North Korean Government to ensure that the country’s loyal elites are the primary ones with access to mobile phones.

It is not as if these phones are especially capable either – having little in common with the app-heavy smart phones popular elsewhere in the world. Koryolink phones are primarily built for calling and messaging, and even that is limited. The network is a walled garden, functionally keeping North Koreans from either calling or receiving calls from the outside world. Moreover, since very few individuals are allowed Internet access, Koryolink phones unsurprisingly lack this level of connectivity. In fact the only technologically impressive quality they are allowed is the ability to send and receive multi-media messages, such as pictures and videos.

Phone Propaganda and People Power

But this functionality – to share and receive messages – should furrow the brow of at least a few cynics. Koryolink’s capacity to virally propel official propaganda is a likely part of the DPRK government’s strategy in telecommunications implementation. Certainly the ability of news and ideas to proliferate across a cell phone network has proven one of the most powerful tools of the information age – it played a prominent role in the Arab Spring in early 2011. However such networks can also be utilized to disseminate a government’s message, and an example of this tactic is currently being executed by North Korea’s largest state-run paper, Rodong Shinmun.

The fact that the government of North Korea will monitor mobile activity is a given. Well-known firms like Sweden’s Ericsson AB have sold monitoring equipment for this very purpose to totalitarian states (e.g., Iran) in recent years so it is highly unlikely that Pyongyang will have any trouble acquiring this technology. This type of technology is often referred to as LBS (location based services), which is software designed to geographically pinpoint cell phone users. LBS tools offer a number of opportunities for commercial marketing and customer targeting. There are equally a number of LBS tools for government use. One such application from Creativity Software, Lawful Intercept, provides, among other things, emergency service personnel with the ability to find people in dire need. Yet while such technology might be used for resolving crises in the hands of one government, in the hands of another it could easily serve more sinister purposes.

Partially because of the expectation of close surveillance from technology like this, the implications of increased cell phone use for the citizens of North Korea are not as notable as many tend to believe. The Koryolink network is too tightly circumscribed and controlled to provide much opportunity for seditious behavior. Combined with the prohibitively high cost of the phones, it will be a long time before average North Koreans are capable of buying and using them to foment dissent.

In fact, there is no reason to think that this sudden mobile phone usage will even lead to changes in the medium-term. After all, there was substantial cell phone and internet penetration in Egypt for at least a decade before enough dissent was fomented to depose its former leader, Hosni Mubarak. Mobile phones in and of themselves do not facilitate widespread social movements or social upheaval in the same way that smart phones do because they lack the widespread connectivity and mass sharing features embedded in social networking.

Physical geography and demographic trends are also a factor. North Korea is an especially rural and agrarian country, and its population is dispersed across sparse landscapes with poor transportation options – an improvement in the tools to communicate can do little to repair 80 year old train lines and broken roads. Even if levels of discontent were high enough to support regime change, much of the country would have trouble actively participating for these logistical issues.

The Real Value of Telephones

Even though cell phones in North Korea do not represent an immediate threat to government control, their continued dispersal could. The most compelling explanation as to why the government is allowing and aiding the growth of this market is that cell phones are a source of revenue for Pyongyang. They also happen to be a method of boosting much-needed foreign currency holdings. Orascom reports higher average revenues per user in North Korea than in nearly any other country where they own a telecommunications network (Canada and Lebanon are higher). While much of this can be seen as the result of monopolistic pricing, it is also in the government’s interest to see its citizens paying higher prices.

Koryolink users can also receive “free voice & VAS during off-peak period” if they pay for their service in different European currencies. This is a practical step that again benefits both Orascom and the North Korean government. The former has reason to be worried about exposure to North Korean currency, the questionable economic practices of the government, and the general difficulty of repatriating the North Korean won. On the other hand, the latter has such poor financial management that it is constantly on the lookout for foreign currency injections to purchase foreign goods.

And in a country of low economic development and little foreign investment, increased cell phone use means increased investment from Orascom Group. Orascom Group’s Construction Industries branch agreed to a joint project with the Pyongyang Myongdang Trading Corporation and has also agreed to investments in the Rason SEZ (special economic zone). Additional to this agreement was a deal made to renovate Pyongyang’s landmark Ryugyong Hotel.

Orascom’s Growing Power

Orascom Telecom itself has opened 24 Koryolink shops in North Korea and has added other ways for potential customers to connect with and buy from it as well. More tellingly, when the DPRK hosted the 17th Tae Kwon-Do World Championship this past year, Koryolink secured a deal to become the event’s exclusive sponsor. Due to its impressive growth in both users and revenue, there is every reason to believe that this kind of marketing and cultural investment will continue. The need for infrastructure to support Koryolink’s burgeoning service will bring steady capital flows with it.

Perhaps most interesting of all, this makes Orascom an increasingly powerful player in North Korea. As part of the 25 year license it received in 2008 contract, it has a full monopoly over the mobile phone network for four years. More importantly, it is one of a very few large firms making sizable investments in North Korea, somewhere in the arena of $400 million for the network alone. The importance of this investment to the DPRK was indicated in 2009 when the CEO of Orascom Telecom was awarded the Order of the DPRK Friendship First Class.

The Future of Cell Phone Use in North Korea

There are still some risks for both parties. How the shareholder-driven demands of a multi-national telecommunications firm balance against one of the few truly communist countries over the long-term remains to be seen, but right now North Korea is proving to be a hugely successful market for Orascom Telecom and its parent company.

With still a small number of cell phone users in the DPRK on a tightly controlled and limited network, more North Koreans purchasing phones simply means more money for Orascom and the government. However, there is invariably a tipping point where the number of users will pose a threat to the government’s power and the financial incentive will cease to be as appealing as it once was.

Photo Credit: Joseph Ferris III

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About the Author

David Matthew

David Matthew is pursuing a Master’s degree in Public Policy at Edinburgh University in the UK with a focus on security, trade, and technology in the Asia-Pacific.

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  • Asdfadsf

    you know your article was cribbed by the economist this week, right?

  • Asdfadsf

    you know your article was cribbed by the economist this week, right?