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My colleague Marc Noland is Mr. Digital North Korea, having written on the background on the Orascom deal. But he is traveling and there are some updates that are too interesting to pass up.
Alexandre Mansourov has written a report for Nautilus with the breathy title “North Korea on the Cusp of Digital Transformation.” But don’t let the title fool you: this is a serious piece of research, providing a ton of information on all aspects of the IT sector. We will be posting more details from it shortly; here, we focus on a few details on cellphones.
On the one hand, North Korea—like many developing countries—has the opportunity to leap-frog landlines (which carry traffic for only 1.1 million customers in a country of 24.5 million people) by rolling out cellphones, which have grown to nearly 700,000 subscribers in no time. This is a smart thing to do, as a growing body of research on cellphone use in developing countries attests.
On the other hand, the official interest in IT runs the perennial risk of becoming yet another white elephant, with pockets of excellence bought at the cost of fundamental misallocation of resources. Whenever we hear that the North Korean leadership envisions a “great leap forward in IT,” we shudder.
Yet of greater interest is the complex political economy of the phone industry, including its security implications. As Mansourov explains, the DPRK’s national landline telecom network is made up of several independent parallel networks serving specific communities (party, military, state security, industry) with the objective of linking all units into a hierarchy through which orders will be delivered. It is thus puzzling that the regime would all of a sudden see an interest in peddling cellphones to its citizens.
But a recent piece in the DailyNK provides some insight on the government’s interest in the deal, which are—as we should have predicted—partly fiscal. Officials up and down the hierarchy have been given the task of getting their hands on foreign exchange in order to fund the extravaganzas planned for 2012. The North Korean Ministry of Communications has reportedly monopolized the import of handsets from Chinese companies ZTE and Huawei, buying them for $80 per handset and reselling them for $300. Based on known prices, connection fees and the number of subscribers, the DailyNK estimates that the authorities may have raked in $250m through this practice alone. Likely purchasers: those with market income.
Which brings us to the political fallout. The second half of the year has seen the dispatch of “storm troop” units to the border areas to round up people who have—you guessed it—Chinese cellphones. That’s one way to enforce the monopoly! But of course the problems of proliferating cellphones are not just economic, as recent revolutions in the Middle East have shown. Cellphone use in the border area is associated with trade, cross-border movement and above all, communication with the outside world, including the South. Recently, a total of 300 families in one border province were exiled for these activities.
But the concerns extend into Pyongyang as well. Again, our friends at the DailyNK provide some insight. While Mansourov has outlined in great detail the various government units involved in IT, the DailyNK notes a weird parallel security apparatus—so-called “Gruppas”--that have the task of cracking down on illicit IT use. Group 109, set up by the Chosun Workers’ Party, is tasked with going after illegal media including CDs and DVDs. Group 27, actually a branch of the Defense Security Command, deals with illicit mobile phone usage. Mansourov’s conclusions with respect to cellphones parallel what we have said with respect to the market more generally: “The party guidance over IT policy tends to oscillate between more restrictive and more permissive regimes, depending on the perceived severity of domestic political challenges threatening internal stability and the ruling regime.” Not the environment to generate a North Korean Steve Jobs.
Below, some photos from Abe Kim at KEI via our friend Dave Kang at USC; thanks to both.
