Mobile Phones Ring in Growth

North Korea has more cell phone users than ever before, but who is making the calls?
2011-05-25
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North Korean girls use mobile phones in a park in Pyongyang, Sept. 22, 2010.
North Korean girls use mobile phones in a park in Pyongyang, Sept. 22, 2010.
AFP

Mobile subscribers in impoverished North Korea now number more than half a million, according to new statistics released by the country’s telecom provider, suggesting that cell phones are no longer exclusively for the wealthy and elite.

Koryolink, North Korea’s domestic cellular phone network provider, reached 535,133 users in the January-March period this year, up from 431,919 users in the final quarter of last year, Egyptian parent company Orascom said in its quarterly earnings report last week.

The number of subscribers in the reclusive nation of 24 million represented an exceptional jump of 420 percent from 125,661 in the first quarter of 2010.

While the company believes people in the lower income bracket are partly fueling its subscriber base, experts still believe that mobile phones are owned mostly by strong backers of North Korean dictator Kim Jong Il’s regime.
  
Bruce Klingner, senior research fellow at the Washington-based Heritage Foundation, said cell phones are still only in the hands of a select few despite the rapid subscriber growth.

“500,000 people, or even one million, out of a nation of [24] million is still a pretty low percentage. Based on those numbers, the trend is of expanding use of cell phones in North Korea,” he said.

“The question would be: Who has access to those cell phones? Is it only trusted members of the Korea Workers’ Party, of the regime, or would average citizens also have access to cell phones?”

Koryolink’s sales value rose in the first quarter of 2011 to U.S. $25.76 million from U.S. $24.75 million in the previous quarter.

A year ago, sales were languishing around U.S. $9 million.

Usage decrease

Orascom itself admitted that while Koryolink benefitted from progressive subscriber and sales growth, average cell phone usage and average monthly revenue has dropped.

In the first quarter of 2011, it said average monthly cell phone usage in North Korea plummeted to 270 minutes from 316 minutes in the previous quarter. The decrease also represented a drop of 41 minutes from an average of 311 minutes a year ago.

And average revenue per unit (ARPU) in North Korea also saw a marked decrease, dropping to U.S. $12.70 per month from U.S. $14.60 in the fourth quarter and plunging by 40 percent from U.S. $21.30 during the same period in 2010.

In a conference call to discuss earnings, Orascom CFO Aldo Mareuse said strong growth in North Korean subscribers diluted average revenue in the first quarter “due to the fact that we go into lower income segments.”

Orascom said that throughout the first quarter, in addition to boosting subscriber growth, Koryolink focused on maximizing foreign currency revenues. To this end, the company launched a “Euro Pack” offering which allows subscribers to purchase recharge cards in Euros in exchange for free services in off-peak periods.

The company also added a multimedia messaging service (MMS) to its suite of value-added services, allowing North Korean users to send and receive photos and audio to one another via their cell phones.

According to Orascom, North Korea’s cell phone network now covers 13.6 percent of the country’s territory, including 14 main cities including Pyongyang, Wonsan, and Hamhung, that is home to about 92 percent of the country’s population.

Wooing subscribers

Koryolink is finding it harder to attract new customers while existing customers are spending less, said Martyn Williams, Tokyo media chief for IDG News Service, in his tech blog northkoreatech.org.

“There have been some reports that Koryolink is hoping to have a million subscribers by the end of 2011,” he wrote.

“To get there it needs to add an additional 465,000 subscribers, which averaged out is 155,000 subscribers per quarter. That’s certainly not impossible, but it will require a major push.”

Williams said that the revenue Koryolink earned from each subscriber is likely falling due to the company’s growth into new segments of the population.

“This is perhaps inevitable as the service expands its reach from the ultra wealthy to the wealthy and middle class, but it’s a worry for the company,” he wrote.

“The amount of time each customer is on the phone, the minutes of usage, is also falling but the decline isn’t as steep as the average revenue per month. That indicates call charges are getting cheaper.”

Who is calling?

John Park, senior fellow at the U.S. Institute of Peace (USIP), said that Orascom’s earnings report does not detail the segment of the population that largely comprises North Korea’s cell phone user base—well-to-do Pyongyang residents, and not ordinary citizens suffering from food shortages.

He also noted that Orascom’s statistical data on cell phone users in the country did not account for traders active in the border areas with China, many of whom own one or two handsets connected to Chinese mobile networks.

Given these circumstances, he said, Orascom will need to change the way it does business in North Korea to make its services available to the broader population.

“In order to try to increase what they call cellular phone penetration—the number of mobile phone users—a common technique is to subsidize the cost of the handsets,” he said.

Park said that currently, handsets in North Korea are very expensive, and only the most privileged in the country’s capital can afford them.

“If Orascom is looking to increase the number of subscribers, reducing the price of the handsets, and maybe increasing the price of the SIM card or service plan is one way to increase revenue generation over the long run.”

Korean-Egyptian venture

North Korea first established a mobile phone service in November 2002 only to ban it in the wake of a 2004 train explosion in Ryongchun, which according to the South Korean media left as many as 3,000 people dead.

North Korean authorities confiscated all phones and interrupted service that year in an attempt to prevent further leaks of information to the outside world through the use of cell phones.

In 2008, the country resumed service when Orascom launched its advanced mobile phone network at an initial cost of U.S. $465 per account opened, but Chinese traders who regularly travel back and forth to North Korea have said local residents showed little enthusiasm for the new service.

North Koreans who sought to set up a cell phone account before the Ryongchun explosion faced a fee of more than U.S. $900.

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

Reported by Borah Jung for RFA’s Korean service. Translated by Grigore Scarlatoiu. Written in English by Joshua Lipes.

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