Global Insight Perspective | |
Significance | The launch of mobile services is the first time North Korean citizens will be able to use mobile phones since the ban in 2004. |
Implications | Orascom's exclusive presence means that it will need to focus on its sales and marketing strategy to ensure it sets the right level of pricing to obtain optimum revenues and customer number. |
Outlook | The operator will have at least a four-year monopoly in the country, giving it ample time to set the standard for future mobile services and form barriers to entry for any future operator. |
Orascom Telecom was granted the first commercial licence to provide national mobile services in North Korea using W-CDMA technology at the end of January 2008. The company said that the licence was granted to its subsidiary CHEO Technology JV Company, which is controlled by Orascom Telecom with a 75% ownership, while the remaining 25% is owned by the state-owned Korea Post and Telecommunications Corp. The duration of the licence is 25 years with an exclusivity period of 4 years. The operator intends to cover Pyongyang and most of the major cities during the first 12 months of operations. Orascom Telecom will invest up to US$400 million in network infrastructure and a licence fee over the first three years to deploy rapidly a high-quality network and offer voice, data, and value-added services at accessible prices.
Orascom's new service is the first since a ban in 2004 when a mobile phone triggered an explosion on a train in Ryongchon in an attempt to assassinate the county's leader, Kim Jong-il (see North Korea: 4 June 2004: North Korean Regime Bans Mobile Communications). Even at that time the mobile sector in the market was extremely small, with South Korean telcos SK Telecom and KT Corp having around 20,000 mobile subscriptions in 2003.
North Korea has a population of approximately 23 million, of which 67% is between the age of 15 and 64 years, moreover, there are currently no mobile services in the country. The new services will complement Orascom Telecom Holding (OTH)'s existing operations in Asia and will further enhance OTH's position as the leading GSM operator in emerging markets. It currently operates GSM mobile services in Algeria (OTA), Pakistan (Mobilink), Egypt (Mobinil), Tunisia (Tunisiana), Bangladesh (Banglalink), and Zimbabwe (Telecel Zimbabwe), and acquired in early 2008 a licence to operate mobile services in North Korea. Orascom Telecom had over 74 million subscribers as of 31 March 2008.
Outlook and Implications
Orascom is currently in the strongest possible position to offer mobile services in North Korea. In addition to its exclusivity in North Korea, it also will not have to pay taxes from earnings over the next five years.
- Orascom Strategy: The launch of services is in line with the operator's strategy to enter highly populated markets with very low mobile penetrations. Orascom has a strong track record in achieving good results in underserved markets. Its international networks have a total population coverage of approximately 440 million with an average penetration of 47%, and it and has maintained its market leading positions in Algeria, Pakistan, Egypt, and Tunisia. It is also strong in Bangladesh, where is in second place.
- Expected Take-Up: Orascom is effectively the first serious player in the North Korean market, so it is essential it gets its pricing right to achieve optimal levels of revenues and customer numbers. Typically in emerging markets, new operators have seen take-up levels of around 15–20% in the first year and 10% there after until a new player enters. North Korea has characteristics similar to other emerging markets Orascom has already entered with a very low GDP per capita of US$1,800. North Korea has been underserved by communications in the past, and some level of user sophistication will be required for other services Orascom may deploy on the network, but effectively the new licence will allow the operator to generate penetration levels of around 40–50% before a new player enters the market in four years.
- W-CDMA Network: Although the W-CDMA network is the first it has launched, it will allow its customers to use 3G services. Orascom has not yet announced details on the types of applications it will deploy over its network, but it will be able to provide the North Korean citizens with far greater services than simple voice and text serves. In other markets around the world, 3G has been used as an ARPU stabiliser. In recent years, operators have seen ARPU levels drop by around 10% per year and required 3G services to stimulate usage to prevent further drops.