January 04, 2016 11:25
Orascom Telecom Media and Technology of Egypt, which launched mobile services in North Korea in late 2008, is considering pulling out of the isolated country, the Wall Street Journal reported Saturday.
Orascom owns a 75-percent stake in North Korean cellular operator Koryolink but has been unable to send any of an estimated US$600 million in profits back to Egypt because the regime is refusing to authorize the remittance.
Instead, the regime demanded that the money be invested in projects to modernize Pyongyang, according to Cho Bong-hyun of the IBK Economic Research Institute. A key example was Orascom's failed investment in the Ryugyong Hotel.
The Egyptian company invested $200 million to build the giant hotel in Pyongyang and set up a joint venture bank.
Pyongyang granted Koryolink exclusive rights to operate mobile communications services in the North until late 2012. But Koryolink's earnings dropped after the launch of a rival homegrown cellular network called Byol.
"This is a clear reminder of how risky it is to do business in North Korea," said a former Unification Ministry official here. "If Orascom pulls out of North Korea, the North will probably just confiscate all its assets."
The North did the same with facilities built by South Korea's Hyundai Asan at Mt. Kumgang after package tours to the scenic resort stopped.
The first mobile phones appeared in North Korea in 2002, when Thai telecom SunNet began offering limited 2G services to around 20,000 users. But SunNet's services were halted after a massive explosion in Ryongchon in 2004 that is believed to have been a botched attack on former North Korean leader Kim Jong-il's armored train. Mobile phones were suspected of being used to trigger the explosion.
Services did not resume until late 2008, when Koryolink was launched offering 3G services. The number of subscribers surged to 1 million by February 2012 and 2 million by May 2013 and is now estimated at 3.8 million.
The regime apparently changed its mind despite the perceived threat because the business brings in desperately needed cash. Koryolink generated revenues of US$344 million in 2014, of which $270 million was net profit.
Orascom was entitled to 75 percent of that money but had to reinvest most of it in North Korea.
However, Orascom does have a global reputation as a hit-and-run operator. It has made huge profits by entering countries with weak communications infrastructure and unstable governments, expanding quickly by borrowing money and reselling its business for a huge profit once a competitor emerged.
But North Korea made sure it could not remit a single penny. Koryolink's assets were valued at $832 million as of June of last year, $653 million in cash holdings.
After Orascom's exclusive rights expired in late 2012, North Korea allowed Byol to start offering mobile services.
Orascom chief Naguib Onsi Sawiris then tried to keep operating in North Korea by offering to merge Koryolink with Byol, but to no avail, and he may end up losing not only his assets but management control as well.
"It looks like North Korea outsmarted Orascom," an intelligence official here said.
By the end of 2014, Orascom had apparently invested around $80 million in North Korea, most of it building relay stations and setting up communications lines. By the third quarter of 2011, there were reports that Orascom had set up 453 relay stations in 14 major cities, including Pyongyang, and 86 smaller cities. But there have been no reports of upgrades since then.
One telecom expert said, "There is no way of telling how widespread cellular coverage in North Korea is, but since technicians in the North have spent around seven years operating relay stations, they will be able to run the system without major problems even if Orascom pulls out."
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