Despite cell phone ban, North Korea gets wired

/ Source: The Associated Press

An Egyptian company said it will launch 3G mobile telephone service in North Korea on Monday, after winning the contract to build the advanced network in the country where private cell phones and Internet access are banned.

Under the terms of the deal reached in January, Orascom Telecom will invest $400 million in network infrastructure and license fees over the first three years to develop the network. Orascom said it was the first foreign telecommunications company to be awarded a North Korean commercial telecommunications license and would have exclusive rights 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. Initial subscribers would be largely restricted to top government and military officials.

Diab noted that the push into North Korea, which is taking some steps to liberalize its dilapidated economy, came before the global credit crunch and liquidity crisis had truly manifested themselves. Even so, Orascom officials previously told analysts they believed they could have a positive cash flow within a year, according to a Beltone report from November.

It was not clear what restrictions, if any, would be imposed on the network, which 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 to top government and military officials.

Orascom has said it intends to cover the North Korean capital, Pyongyang, and most of the major cities during the first year of service. North Korea, one of the world's poorest countries, is pushing hard to give its capital city a facelift — a makeover coinciding with the 60th anniversary of the communist nation founded in September 1948.

Orascom Telecom spokeswoman Rasha Mohamed confirmed in an e-mail on Sunday that the service will be launched on Monday. Additional details were not immediately available.

The North's motives for wanting a modern cell phone 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.

Mobile phone use, though not widespread, was once increasingly visible among North Koreans. Visitors to the country say it has markedly declined since 2004.

Service was cut shortly after a mysterious April 22, 2004, explosion on a train at a railway station in the North Korean town of Ryongchon that killed 160 people and wounded an estimated 1,300 others, according to some estimates. The blast was believed to have been sparked by a train laden with oil and chemicals that hit power lines.

Encouraging Orascom to invest in the country at the time were apparent thaws in relations with the West. The North agreed last year to disable its key nuclear reactor and declare its nuclear programs as a step toward their ultimate dismantlement amid pressure from the United States and others. Negotiations, however, have since bogged down and the outlook is uncertain.

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.

The 25-year-license to operate in the reclusive state was granted to Orascom subsidiary CHEO Technology JV Co., which is 75 percent owned by the Egyptian telecommunications firm. The remaining stake is held by state-owned Korea Post and Telecommunications Corp.

Orascom currently operates GSM networks in the Middle East, Africa and South Asia.

AP Business Writer Kelly Olsen contributed to this report from Seoul, South Korea.