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Sanctions Bite Orascom in North Korea

Robert Clark
News Analysis
Robert Clark
6/29/2015
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It must have seemed like a good idea at the time.

When Orascom Telecom , the successful Egyptian operator headed by Naguib Sawiris, won the right to set up North Korea's first 3G network as a monopoly in partnership with the state telco, it must have seemed a sound bet.

Seven years on, it still looks good on paper.

The joint venture, Koryolink, 75%-owned by Orascom, has net assets of 8.3 billion Egyptian pounds (US$1.1 billion) and cash assets of EGP4.1 billion ($537 million). Koryolink, North Korea's sole provider, reportedly has around 2.4 million customers, or 9% of the population.

But that was before the US, Japan and China ramped up sanctions on the international pariah state and the company is now confronted by what accounting firm Deloitte describes as a series of "financial and operational obstacles."

A report from Deloitte issued with Orascom's quarterly results last week said that international sanctions were making it difficult for Koryolink to "operate, maintain and develop" its mobile network.


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


The chief problem is the long-term financial sanctions, which mean Koryolink cannot transfer cash to Orascom Telecom. It also means key goods and services required to run a network have become difficult to obtain.

But even without the sanctions, Koryolink's cash balance, held in North Korean currency, cannot be converted into hard currency at official rates without approval from Pyongyang financial authorities.

That's not all. As well as the bite from the sanctions, Koryolink has now lost its privileged status as North Korea's sole operator. Another government agency has launched a rival mobile provider and in response Koryolink management has sought a merger.

Orascom believes it has won "initial consent" from the government for a deal, but negotiations are continuing.

— Robert Clark, contributing editor, special to Light Reading

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nasimson
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nasimson,
User Rank: Light Sabre
6/30/2015 | 5:05:36 PM
Re: Was it ever a good idea?
> And I wouldn't even call North Korea an emerging market. It's a dangerous
> market to run a business in.

So is the case to some extent with such Asian markets like Myanmar, Combodia and to some extent with Bangladesh and Pakistan.

Some operators manage this risk better than the others. Orasscom and Telenor are known for entry into such markets. Telenor, for example, is in all of the above markets except Combodia. And they are either #1 or #2 player.
thebulk
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thebulk,
User Rank: Light Sabre
6/30/2015 | 4:35:29 AM
Re: Was it ever a good idea?
Lets see how they come out on the other end. Its still a risky market to be in. 
Kruz
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Kruz,
User Rank: Light Sabre
6/30/2015 | 4:02:19 AM
Re: Was it ever a good idea?
@the bulk: i agree. It is a gamble they are willing to take and with a relatively small network to run, they were able to generate considerate revenues. Now is just a negotiation phase that should be overcome.
R Clark
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R Clark,
User Rank: Blogger
6/29/2015 | 10:33:26 PM
Re: Was it ever a good idea?
Telecom network equipment is not banned from export to North Korea. No-one admits to being a supplier, but almost certainly it's ZTE, Huawei or Samsung.

For what it's worth, North Korea's no.2 Kim Yongnam paid a visit to Huawei HQ in August 2013, according to Chinese media.

Koryolink's fat cash balance is surely an irresistible target for a klepto-gangster regime like this one. The setting up of the rival operator, and then agreeing to merge, sounds like a classic shake-down.

 

 
thebulk
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thebulk,
User Rank: Light Sabre
6/29/2015 | 10:26:13 PM
Re: Was it ever a good idea?
True, no job is better then hard labor in a Nort Korean prison camp. 
DHagar
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DHagar,
User Rank: Light Sabre
6/29/2015 | 10:21:54 PM
Re: Was it ever a good idea?
the bulk, one would wonder, would'nt they?  At least unemployment would be the preferred alternative - given the history in N. Korea!
thebulk
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thebulk,
User Rank: Light Sabre
6/29/2015 | 10:16:47 PM
Re: Was it ever a good idea?
@danielcawrey, I also wouldn't call North Korea an emerging market, I am not sure what to call it at all.... 

And even if I ton of people got their hands on cell phones I have to imagine they wouldnt be used in the same way most people outside of North Korea use them today. No social media, no messaging apps. just phone calls and state run email. 
thebulk
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thebulk,
User Rank: Light Sabre
6/29/2015 | 10:14:03 PM
Re: Was it ever a good idea?
@DHagar, given the outcome, and all the negative points going into the deal I have to assume more then a few people have found themselves out of a job... 
thebulk
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thebulk,
User Rank: Light Sabre
6/29/2015 | 10:12:42 PM
Re: Was it ever a good idea?
I am not even sure that Huawei would be allowed... Technically 
DHagar
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DHagar,
User Rank: Light Sabre
6/29/2015 | 9:33:48 PM
Re: Was it ever a good idea?
thebulk, agreed, when it is "too good to be true", it IS too good to be true.

Dealing with an unstable government, political dictatorship, a weak economy, limited consumerism, and people living at poverty levels, does not sound like a good environment - even as sole source.  The fact that the government is now piggy-backing on Orascom's investment is not surprising either, given their track record.

My guess is that it was never a good idea.
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