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Egyptian firm struggled with North Korea wireless merger, says report

Financial statements prepared for Orascom pointed out international financial sanctions against North Korea was restricting the movement of revenue out of the country for the foreign firm.

By Elizabeth Shim
Egyptian firm struggled with North Korea wireless merger, says report
The mobile phone has become a central component of everyday life for millions of North Koreans. In this photo from North Korean state media, an online shopping mall is featured on a mobile interface. File photo by Yonhap

SEOUL, Aug. 17 (UPI) -- North Korea's main wireless network Koryolink is facing complications in its planned merger with a second provider, according to an analysis of financial statements.

The second-quarter statements from Orascom indicated the Egyptian firm had discussed the merger of Koryolink and Byol, but no merger was finalized, Radio Free Asia reported.

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Orascom holds a 75 percent share in Koryolink, but the merger would have reduced the percentage of Orascom's share of revenue in Koryolink's profits.

Byol already has been in operation inside reclusive North Korea, offering cable-based Internet to Pyongyang's foreign residents. The merger however would have kept Byol as a distinct second cellular provider in North Korea's growing mobile phone market in order to break Koryolink's powerful monopoly, Yonhap reported.

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The financial statements, prepared by global accounting firm Deloitte, said stiff competition from Byol was presenting Orascom with new business challenges.

The statement from Deloitte also said international financial sanctions against North Korea was restricting the movement of Koryolink revenue out of the country, and that North Korea's official exchange rate did not reflect the true value of the North Korean currency.

Koryolink's cash reserve in the second quarter was estimated to be around $630 million, up 17 percent from the first quarter's estimate, $539 million.

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That money however cannot be converted into foreign currency due to financial sanctions. The government's fixed exchange rate of 100 North Korean won to the dollar also does not reflect the true value of Pyongyang's currency, which is estimated to be around 8,200 North Korean to the dollar, South Korean outlet No Cut News reported. That market exchange rate would significantly reduce Koryolink's profits.

Koryolink witnessed significant growth in subscribers since launching its mobile phone operations in December 2008 and Orascom regularly reported the number of phone users until May 2013, when the number was up to 2 million.

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