Of Fools and Their Money, Part 2: Orascom Deal Starts to Sour

That Orascom’s big new investment in North Korea would fail has always been predictable, but it was always incomprehensible how Orascom’s business model centered around introducing the one thing with the most potential to destabilize the regime’s hold on power: a mobile phone network.

Not surprisingly, Orascom and the North Korean regime are already at odds over Orascom’s plan to pass out 100,000 free phones to generate a base of bill-paying subscribers. Instead, the regime is selling them for $235 apiece, a price very few North Koreans can afford. This is lethal for Orascom’s potential to make a profit on its phone venture, which was — again, incomprehensibly — the lynchpin of Orascom’s North Korea investment strategy. Orascom apparently made all its other investments in the North, including its reconstruction of the Ryugyong Hotel, conditional on the phone concession:

Although North Korea reluctantly launched the mobile phone services, it has devised mechanisms to still maintain the stability of the regime. For this reason, North Korea provided Orascom with a frequency different from what is now used in China and South Korea. This allows North Korean officials to ferret out illegal mobile phone usage in the border areas. In addition, North Korea charges high prices for registration for the service, and has announced that it cannot guarantee full service until it equips itself with complete and fully functioning wiretapping system. For this reason, Orascom’s telecommunication business in North Korea may face bleak future. [Open Radio for N. Korea]

Why did Orascom think it would be allowed to introduce a mobile phone network into the world’s most isolated society, where owning a mobile phone is punishable by a prison term? (Recall the rumors that the 2004 Ryongchon explosion was an assassination attempt on Kim Jong Il, triggered by a mobile phone.) Possibly because of its long-term relationship with North Korea in a series of joint ventures in construction and banking. Yet those investments were different in very important ways: they were carried out outside North Korea, and did not require a relaxation of the regime’s control over the movement of information between its subjects.