How sanc­tions-bust­ing smart­phone biz thrives in NK

‘Smart­phones, call plans among top rev­enue sources for N. Korea’

The Korea Times - - NORTH KOREA -

SEOUL — North Korea is evad­ing U.N. sanc­tions to cash in on soar­ing do­mes­tic de­mand for smart­phones, us­ing low-cost hard­ware im­ports to gen­er­ate sig­nif­i­cant in­come for the regime, ac­cord­ing to de­fec­tors, ex­perts and an anal­y­sis of North Korean-made phones.

Economists es­ti­mate as many as six mil­lion North Kore­ans — a quar­ter of the pop­u­la­tion — now have mobile phones, a crit­i­cal tool for par­tic­i­pat­ing in an in­for­mal mar­ket econ­omy that has be­come a key in­come source for many.

Reuters spoke to some 10 de­fec­tors and ex­perts about the use of mobile de­vices in North Korea, as well as re­view­ing state me­dia re­ports and ad­ver­tise­ments for mobile de­vices, and ex­am­in­ing two North Korean-branded smart­phones.

The phones fea­ture Tai­wanese semi­con­duc­tors, bat­ter­ies made in China and a ver­sion of Google’s open-source An­droid op­er­at­ing sys­tem, anal­y­sis of the North Korean phones re­vealed.

United Na­tions sanc­tions im­posed in 2017 be­cause of the North’s weapons pro­grams pro­hibit im­ports of mobile phone hard­ware.

North Korean leader Kim Jong-un has en­dorsed wire­less net­works, some re­port­edly built with the help of China’s Huawei Tech­nolo­gies, and lo­cal mobile phone brands through pub­lic speeches and a tour to a mobile phone fac­tory re­ported by state me­dia.

Big out­lay

Ba­sic North Korean phones typ­i­cally cost be­tween $100 and $400 at state stores or pri­vate mar­kets, ex­perts and de­fec­tors say. Sub­scrip­tions to mobile car­ri­ers are reg­is­tered at the tele­com min­istry’s stores.

Phones are typ­i­cally sold with ser­vice plans that in­clude 200 min­utes of call­ing time. Pre­paid plans cost about $13 dol­lars for 100 min­utes, North Korean phone ad­ver­tise­ments show.

While those prices are com­pa­ra­ble to or higher than what mobile phone cus­tomers pay in other coun­tries, North Kore­ans earn an av­er­age of about $100 per month, only about 4 per­cent of their south­ern neigh­bors, ac­cord­ing to South Korean gov­ern­ment data.

In­ter­na­tional brands such as Ap­ple iPhones are not pub­licly on sale, but traders and wealthy North Kore­ans can buy them out­side the coun­try and use them with lo­cal SIM cards, de­fec­tors say.

North Korean phones can only be used to call do­mes­tic num­bers and have some unique se­cu­rity fea­tures.

Down­load­ing or trans­fer­ring files is se­verely re­stricted. Reuters found a warn­ing pop-up when in­stalling an “uniden­ti­fied pro­gram” on the Py­ongyang 2418 smart­phone stat­ing: “If you in­stall il­le­gal pro­grams, your phone can mal­func­tion or data will get de­stroyed.”

“North Korea puts al­go­rithms and soft­ware in its mobile phones to keep data from be­ing copied or trans­ferred,” said Lee Young-hwan, a South Korean soft­ware ex­pert study­ing North Korean smart­phones.

Apps such as maps, games and an English dic­tionary show they are de­vel­oped by N. Korean en­gi­neers at staterun en­ter­prises or state uni­ver­si­ties.

The regime has also de­vel­oped a home-grown sur­veil­lance tool on mobile phones, ac­cord­ing the U.K.-based cy­ber­se­cu­rity com­pany Hacker House.

When a user ac­cesses il­le­gal or non-state ap­proved me­dia, an alert is gen­er­ated and stored in­side the phone. A mod­i­fied ver­sion of An­droid also con­ducts sur­veil­lance and tracks users, Hacker House said.

North Korea’s rep­re­sen­ta­tives at the United Na­tions did not re­spond to re­quests for com­ment.

Tool for busi­ness

Still, the phones are a big as­set in North Korea’s grey mar­ket econ­omy, which has flour­ished since a dev­as­tat­ing famine in the 1990s.

One young North Korean woman sur­named Choi re­called sell­ing two pigs and smug­gling herbs from China to raise the 1,300 Chi­nese yuan ($183) her fam­ily needed to buy a mobile phone in 2013.

She used the phone to help suc­cess­fully run a re­tail busi­ness sell­ing Chi­nese clothes and sham­poos, ar­rang­ing de­liv­er­ies from whole­salers.

“It turned out we could make a way more money than our of­fi­cial salaries,” said Choi, who has since de­fected to South Korea, de­clin­ing to give her full name for fear of ret­ri­bu­tion against rel­a­tives still in North Korea.

In a sur­vey this year of 126 North Korean de­fec­tors who had used mobile phones, more than 90 per­cent said cell­phones im­proved their daily lives and about half said they used them for mar­ket ac­tiv­i­ties.

“Mil­lions of peo­ple are us­ing mobile phones and need them to make a liv­ing or show off their wealth,” said Shin Mi-nyeo, ex­ec­u­tive di­rec­tor of the Or­ga­ni­za­tion for One Korea, a South Korean sup­port group for de­fec­tors that con­ducted the poll. “Then their phone bills cre­ate huge in­come for the gov­ern­ment.”

Kim Bong-sik, a re­searcher at South Korea’s Korea In­for­ma­tion So­ci­ety De­vel­op­ment In­sti­tute, said es­ti­mat­ing rev­enues was dif­fi­cult, but it was likely to be one of the state’s big­gest earn­ers given the scale of the busi­ness.

The two Py­ongyang-branded smart­phones ex­am­ined by Reuters are pow­ered by chips from Tai­wan’s Me­di­aTek and run a ver­sion of Google’s An­droid op­er­at­ing sys­tem, along with the North Korean se­cu­rity soft­ware. Ads for an Ari­rang-branded hand­set also claimed to use Me­di­aTek chips.

The Py­ongyang 2423 smart­phone man­u­fac­tured last year fea­tured Me­di­atek’s MT6737 chipset and a slot for one SIM card and one mem­ory card. The mem­ory card’s se­rial num­ber showed it was pro­duced by Ja­panese chip-maker Toshiba.

The de­vice’s iden­ti­fi­ca­tion num­ber showed the phone was man­u­fac­tured by the Chi­nese firm Gionee, a maker of low-end smart­phones.

Google said any hard­ware maker can use open-source An­droid soft­ware at no cost, mean­ing no ex­port rules are be­ing vi­o­lated in re­gards to North Korean smart­phones.

Me­di­atek said in a state­ment to Reuters it had not shipped any prod­ucts to North Korea, and was in full com­pli­ance with sanc­tions. Toshiba also said the com­pany had no busi­ness with North Korea. Gionee did not im­me­di­ately re­spond to re­quests for com­ment.

“North Korea can­not make phones with­out us­ing for­eign com­po­nents and tech­nol­ogy,” said Kim, the re­searcher. “That means it is vi­o­lat­ing sanc­tions to keep run­ning the busi­ness.”

Of­fi­cial cus­toms data show North Korea im­ported $82 mil­lion worth of mobile phones from China in 2017, the third big­gest im­port item after soy­bean oil and fab­rics.

That num­ber dropped to zero in 2018 as sanc­tions bit.

Reuters-Yon­hap

A man uses his mobile phone next to an elec­tric bi­cy­cle in down­town Py­ongyang, North Korea, in this Oct. 8, 2015 file photo.

Reuters-Yon­hap

A man speaks on the phone in front of the April 25 House of Cul­ture, venue of the Work­ers’ Party of Korea (WPK) congress in Py­ongyang, North Korea, in this May 6, 2016 file photo.

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