Parks Associates Blog

Thursday, February 14, 2008

Mr. Mobile Goes to Pyongyang

Egypt’s Orascom, the largest mobile carriers in Middle East, recently announced their acquisition of a mobile license in North Korea, the most notorious totalitarian country in the world, and its plan to invest $400 million in the next three years to provide mobile communication services in the country, including a 3G network. This deal is certainly not glamorous as Microsoft’s $44 billion bid of Yahoo. Nonetheless, I think it carries the message equivalent to…say, Barnes and Nobles is going to open branches in Afghanistan, or something like that. I can’t help but trying to find something meaningful in it:

  1. Are mobile carriers really running out of attractive markets where mobile penetration is low and growth potential is high? If we can remember, a year ago, Vodafone spent $11 billion on Hutchison Essar, one of the major mobile carriers in India. But there we are talking about a country with a burgeoning middle class and 10 million new mobile users every month. And North Korea? A country that is usually associated with nuclear tests, UN sanctions and human rights issues. Yeah, we know Cairo and Pyongyang are buddies. Still, if risk-averse investors are venturing into North Korea, they must have a plan and thought they had to take a bet to make exceptional profits. FYI, Orascom has a track record of entering regions largely forgotten by the rest of the telecom world such as Bangladesh and Zimbabwe.
  2. The puzzling question is who is going to consume expensive mobile communications in N. Korea? The country did have 20,000 mobile subscribers at the end of 2003. But shortly afterwards, mobile phones were officially banned in 2004 in order to prevent the foreign culture permeation. In 2003, it cost $750 to enjoy a mobile service including the handset, which equates to years of salary for an ordinary worker. So the logical conclusion is that besides a handful of party and military elites, the foreigners, in restricted areas, of course, may be the initial target of the new mobile service. Is this a harbinger of a new round of economic reform and maybe a new special economic zone? I am not sure, but by all means, this is a significant signal for anyone watching the country.
  3. Off the record, the paramount leader Kim Jong Il is a self-claimed Internet expert. Maybe he read about how cool it is to browse the Internet on a mobile phone and watch mobile TV, and pretty much the only users of the 3G network will be himself, his concubines and his confidants? And he signed the deal totally out of whims? Well, in that hypothetical scenario, I hope Orascom has already formed an exit strategy.

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