Orascom has launched its 3G network in North Korea, begging the question - ‘What on earth does Orascom think its doing, launching a mobile network in North Korea?’

While bold investment in developing markets has become something of a trademark for Middle East telcos, I can’t help but feel that this investment looks like a big, big gamble.

North Korea: Lots of people and an ailing leader, but how soon will the market open up? (Getty Images)

Orascom says that its targeting 5-10% of the population, which would be around 1.1 to 2.3 million subscribers, with an initial target of 50,000 subscribers in the first six months of operating.

But that’s from a user base of zero. Currently there are only 1.1 million fixed lines in a country of 23 million. Ownership of a mobile phone is essentially banned up until now, as the authorities believe that mobiles were used in an assassination attempt against the leader Kim Jong-il. The leadership has such distrust of communications that TV and radio sets sold in the country are pre-tuned to only receive state-approved channels.

It seems most likely that ownership will be restricted to the military and members of the ruling KWP party. But this ruling elite is not some rich, privileged cadre - the GDP of North Korea is estimated at just under $26 billion. The country labors under outdated infrastructure and systems in just about every sector.

The country is also frequently reliant on aid from its neighbours, even for food aid, but frosty relations with just about everyone including patron state China and the UN means that there are not even a lot of aid workers - often a key source of mobile revenue for operators in emerging markets - in the country.

Some sources have said there is a possibility that some private traders might be given access to mobiles, but the private sector in the country is constantly reined in by shifting rules and government attempts to control the black market with China, so its unlikely in such a controlled state that mobiles will be allowed to all but a trusted few. Even then, communications are likely to be monitored and controlled to an excessive extent.

Of course, it might be possible that Orascom is playing this as a very long term investment, waiting for a time when North Korea begins to open up. There has been a lot of speculation about the health of the totalitarian leader Kim Jong-il, and the Orascom group has other investments in the country, including a 50% stake in a cement company, and redevelopment work on the Ryugyong Hotel (the capital’s only prestige hotel project, which has remained unfinished for twenty years).

But Orascom has already been burnt by risky investments - in Iraq, where it failed to secure a full term mobile licence after operating on a temporary basis, and in Zimbabwe, where it previously had its licence suspended (although it still operates today). Chief executive Naguib Sawiris told the 2007 3GSM Barcelona audience that the company was wary of emerging African markets that suffered with bureaucracy and corruption. Even if there was ‘regime change’ in North Korea, its unlikely that this oppressive, one-party state will transition to anything like a free market without a hell of a lot of growing pain, like bureaucracy and corruption…

Orascom has said it will invest up to $400 million into the North Korean 3G network. Whether North Korea is the right market for the company be regaining its appetite for risk, remains to be seen.