Egypt’s Orascom Telecom will launch advanced 3G mobile telephone service in North Korea on yesterday, a move the company has said could strategically position it as the reclusive communist nation eyes liberalizing its ailing economy.
Under the terms of the deal, Orascom will invest US$400 million in network infrastructure over the first three years to develop the advanced cellular phone network in the country where private cellphone ownership is banned.
Orascom said it was the first foreign telecommunications company to be awarded a commercial telecommunications license in the country and would have exclusive rights to operate it for four years.
Shrouk Diab, a telecom industry analyst with Middle East investment bank Beltone Financial, said the company was in a position to tap into a market with no real mobile phone saturation.
Diab noted that the company’s push into North Korea came before the impact of the global credit crunch and liquidity crisis had truly manifested themselves. Even so, Orascom officials previously told analysts they believed they could generate positive cash flows within the first year of operations, according to a Beltone report from last month.
“According to their strategy, they’re going to become margin positive in the first year,” said Diab, explaining why the company would want to enter into a market where their subscriber base would initially largely be restricted to top government and military officials.
Orascom Telecom spokeswoman Rasha Mohamed confirmed in an e-mail on Sunday that the service will be launched on yesterday. Additional details were not immediately available.
It was not clear what restrictions, if any, would be imposed on the network, which would also provides data capabilities as well as phone services in one the world’s poorest and politically restrictive countries. The Pyongyang government severely restricts information sources and Internet access is limited only to top government and military officials.
The North’s motives for wanting a modern cellphone network are also unclear, though the country has taken some steps to liberalize its dilapidated economy in recent years as it courts foreign investment.
Marcus Noland, a senior fellow at the Peterson Institute for International Economics in Washington, wrote in a recently published paper that Pyongyang is torn between modernization and controlling its people.
“In an attempt to make a great leap forward, the government has seized upon the promotion of information technology as a strategic priority,” Noland wrote, adding, however, that the country has had “multiple false starts” in the area of mobile phones due to concerns over control.
But investing in North Korea can be risky. The government, angry with the policies of South Korean President Lee Myung-bak, recently tightened the inter-Korean border and cut the number of South Koreans allowed access to a joint industrial zone in the North.