1

Transformation of the Telecommunications Industry in North Korea

by

Chang-Ho Yoon

Korea University

and

Young Soo Lee

Hankuk Aviation University

September 1998

Address for correspondence: Professor Chang-Ho Yoon, Department of Economics, Korea

University, 1 Anamdong, Seoul 136-701, Korea. 82-2-3290-2208, 82-2-926-3601(fax),

chyoon@kuccnx.korea.ac.kr

Paper prepared for the International Conference on Developing Social Infrastructure in North

Korea for Economic Cooperation between South and North, Institute for Economic Research,

Korea University Seoul, Korea, 9-10 November 1998.

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I. Introduction

The primary aim of telecommunication development in North Korea is to provide

a vertical communication link between superiors and subordinates for the central

management of state affairs. Civilian contacts with the western world has mostly been

banned for a long time and the lag behind the world increased. Even after a series of

interlocked economic crises in the 1990s, individual initiatives are still not highly

regarded, and horizontal communication among the households and producers has never

been encouraged. In fact the secrecy is mostly welcome as a means to avoid criticism

and preserve authority. But if North Korea attempts to introduce some elements of a

market economy, it has to allow people to make their own individual plans and

decisions, and to provide access to information related to their choices.

Telecommunication is then a necessity for the commercial business to thrive. In fact a

modern telecommunication structure will be indispensable for a successful

reorganization of the centrally-planned North Korean economy that has been heavily

oriented toward the former Soviet materialism. But apart from North Korea’s

willingness to reform its economy, there do not exist a sufficient amount of capital and

advanced technology for modern telecommunications.

Telecommunication services in North Korea have been provided by the state

monopoly operator and are still institutionalized along the integrated age-old PTT(Posts,

Telephone and Telegraph) structure without organizational differentiation between the

regulator and the operator, and between the owner and policy maker. Currently there

are only about four lines per 100 inhabitants and the revenue per line in North Korea is

less than one-tenth of average revenue per line in OECD countries. Although North

Korea has begun to expand fiber optical networks that connect major cities, the required

level of investment to establish modern backbone networks for major industrial and

export areas that includes economical wireless local loop for the urban residential area

still amounts to multi-billion dollars. If we add costs of extending backbone networks

and modern mobile services to rural area, the level of investment will rise considerably

more.

Given the limited availability of internally generated funds from sales revenue and

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assistance from the international government-formed institutions and their associated

program, North Korea must explore very largely private sector options for mobilizing

the finance required to develop this backward sector. But North Korea has an appalling

record of defaulting more than 10 billion dollars of foreign loans1. To solicit foreign

private investment, the North Korean government needs to provide a stable economic

environment and make credible legal commitments to eliminate the possibility of

repatriation and sustain viable long-term investment perspective.

In order to institutionalize any kind of such required reforms in

telecommunications industry, North Korea needs legislative changes that will include

constitutional amendment to allow private ownership and competition with the

government owned service providers. Most of the successfully transforming Central

and East European (CEE) countries that encountered similar obstacles a decade ago

have now completed their new legislation and reorganized their PTT structure to run the

telecommunications operating entity as a commercial business irrespective of who owns

it.

For North Korea these steps may turn out to be not only threatening to the

incumbent regime but painful and difficult to carry through at least in short-run. So far

there have not been substantive measures yet except in Rajin-Sunbong Free Economic

and Trade Zone(RSFETZ) where the North Korean government established a joint

venture with a foreign company granting an exclusive monopoly right in this area. But

in telecommunications network externalities and dynamic scale economies play an

important role. Unless North Korea builds a certain minimum required level of modern

telecommunications infrastructure within a reasonably short period of time, the overall

efficiency gain in the economy as a whole may not be substantiated.

If North Korea can carry out necessary legislative changes, it can consider several

different versions of reform strategies that may be used as a vehicle for delivering higher

investment and efficiency. The most dramatic strategy is so called a competition

strategy along which all the telecommunications markets are fully liberalized at an

earliest possible date. This strategy is currently unimaginable in North Korea and

1 EIU Country Profile, North Korea 1997 –98, pp.23 – 24.

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leaves the possibility that foreign investors will concentrate only on inelastic demand,

and prefer projects with a short pay-off period to long-term projects with high initial

investment. Telecommunication needs of large business or foreign companies with an

ability to pay in hard currency are satisfied before any other. As a result, once the

urgent urban business demand is met, small businesses and individuals who cannot

afford the expensive phones are left out of the market and there will be less pressure to

expand the backbone network. There is no assurance that the competition strategy will

bring welfare optimal deployment of telecommunication infrastructure and lessen the

burden of universal service responsibility in North Korea.

The alternative and more plausible reform strategy is to begin by commercializing

Public Telephone Operator and sell its shares to strategic foreign investors granting a

monopoly right in a specified region over a certain period of time. In specifying rights

and obligations of the privatized carrier, the government may set the target for

expansion of backbone network and quality improvement. The government can also

introduce competition in new service areas indirectly by auctioning off franchise in

mobile or cellular services in several different industrial and urban areas. To sustain an

efficient market structure there may need several regulatory measures. Especially

credible commitment to cost-based tariff adjustment is necessary to attract foreign

investment. Foreign investors must have confidence in the regulatory framework for

setting tariffs and in the autonomy of regulatory agency for fair competition and

efficient network interconnection among the service providers.

The paper explores the variants of the second strategy by examining the nature of

technology and simulating structural imbalance between demand and supply that North

Korea will experience after it begins to transform its economy. Based upon the

minimal initial investment level that we estimate, we search for policy options for North

Korea by evaluating various development strategies adopted in the other transition

economies.

II. Telecommunication Deployment in North Korea

1. Economic Growth and Telecommunication Infrastructure

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Poor infrastructure is one of the major obstacles to economic development. But

infrastructure investments are generally very capital intensive and have a long pay-off

period. A poor country like North Korea must make every efforts, beyond their means,

to install the advanced facilities and technologies from the developed countries.

Especially in telecommunications, the networks are internationally linked and must

satisfy international standards. The most modern technology has the greatest potential

for the highest long-run returns.

Although the demand for telecommunications services is strongly dependent on

the stage of economic development, telecommunications development itself has strong

multiplier effects on economic development by pulling technological developments,

stimulating the production of new quality levels and changing the consumption patterns

and the way of life.

Figure 1 shows the relationship between per capita income and tele-density. In

an economy with over US$6,000 per-capita income tele-density increases sharply

relative to the gain in per capita income, while in a economy with less than US$ 6,000

income tele-density increases linearly with the per capita income. To understand this

relationship in more detail we divide countries into four groups and run the regression

between tele-density and per capita income in each income group.2 All variables are in

log form so that the estimated parameters represent the elasticity of each variable. The

estimation results are shown in Table1. As per capita income increases, the tele-density

increases at an ascending rate except the low income group, for which the estimated

coefficient is only 1.58 and statistically insignificant. The estimated coefficients are 9.91,

13.66 and 16.61 respectively for each of the other income groups. It shows that the

income elasticity of tele-density turns out to be far greater than one, and accordingly the

demand for telecommunication service will increase much faster than income growth. It

implies that any attempt to forecast social demands for telecommunications

infrastructure must be based on the potential economic growth in the future rather than

the current income.

2 All the data used in our estimation come from the 1996 ITU database.

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The above argument holds strongly for the successfully transforming economies in

CEE as well as East Asia. Figure A1 shows that the growth rates of per capita GDP,

tele-density and the volume of outgoing international telephone traffic in transition

economies from 1990 to 1995. In China the annual growth rate of per capita income

stays at 10%, while the annual growth rate of tele-density reaches 40.9%, and

international outgoing traffic, 30%. Hungary and Slovakia Republic show the similar

pattern of growth. In Czech Republic and Poland per capita income and tele-density

grows more or less at the same rate, but the volume of international traffic shows a

much higher annual growth rate.

2. Target Tele-density to Achieve International Competitiveness

(1) Present Situation of North Korea’s Telecommunication

North Korean once set a goal to install 2 million new lines through the third 7year

economic development plan(1987-1993). But in the absence of official performance

record, it is difficult to have reliable information about the actual deployment rate.

According to Naewoe Press, October 21, 1996, North Korea had 600 thousand

telephone main lines at the time of late 1995. But ITU recently reported that the number

of main lines in operation in North Korea reached 1 million in the early 1990s( Table 2 ).

These statistics are contradictory to each other and certainly not reliable. It seems that

many lines are outdated, 400 thousands of which are operating through manual

switching3.

The telecommunication network in North Korea is characterized by a centralized

system of vertical linkages connecting Pyungyang with 9 provinces(do), 24 cities(shi),

139 counties(kun), 3,311 villages(Ri) and 251 labor districts. The vertical network is

used mainly for administrative purposes connecting various regional jurisdictions and

major industrial bases.

3 Recent Survey of Infrastructure in North Korea, Institute for Economic Research, Korea University,

winter, 1997.

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The telephone network in North Korea consists of optical cables connecting major

cities and counties through Pyungyang, and copper wire and coaxial cable for the other

trunk lines and local loops . Wireless network is reserved for the case of mainline

breakdown and used in mountainous area where no fixed lines are available. Despite the

limited use of the telecom network and capital shortage, North Korea has invested rather

surprisingly in expanding the fiber network and upgrading its network for digital

communication such as ISDN. In fact with a support from UNDP, North Korea installed

its first 300 km fiber optic cable from Pyungyang to Hamheung in September, 1995,

which has recently been extended to RSFETZ4. To facilitate telecommunication

services in RSFETZ, North Korea established a joint venture, called Northeast Asia

Telephone and Telegraph ( NEATT ) on BOT basis with Roxley Pacific

Company( Roxpac ) and granted a monopoly right for 27 years from 1995. NEATT has

installed fiber optic cable of 95 km connecting Hunchun of Gilim, China with Rajin-

Sunbong Area which is eventually connected to Pyungyang. Initially Roxpac planned to

install 400,000 main lines that would cost US$ 500 million. But as the foreign direct

investment in RSFETZ fell short of initial expectations, the Roxpax’s performance

ended up installing 5,000 fixed mainlines, 500 lines of mobile phones and 80 public

phones. To cope with the financial burden of risky long-term investments in North

Korea, Roxpac is now seeking a partner, possibly in South Korea.

In addition to this adventurous joint venture in RSFETZ, North Korea expanded a

backbone network rather rapidly. The government recently advertised in Naewoe Press,

September 28, 1998 that it had already established an optical-fiber backbone network

linking 35 major cities and counties, and 15 more cities and counties would be

connected to this network by the end of 1998. This includes trunk lines from Pyungyang

to Sinuiju, and from Pyungyang to Kaesung via Sariwon ( Figure 5 )

The international telecommunication network in North Korea consists of the

fixed-line network connecting Pyungyang, Peking and Moscow and the fixed-line

network connecting Chungjin and Vladivostok. North Korea depends on satellite

networks to connect Pyungyang to the United States and Japan, and on the microwave

4 The recent extension of optical cables is conjectured by many experts in Telecom business.

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network to Singapore and Hong Kong. Since joining INTERSPUTNIK in 1984,

North Korea is operating 22 lines of FDM, and 10 lines of SCPC for communication

with East Europe. Thanks to the technical assistance from France in 1986, North

Korea established a branch of INTELSAT satellite of Indian Ocean and is operating 36

lines of FDM and 18 lines of SCPC through which satellite communication and TV

transmission from western countries are possible. In November 1990, an agreement

between North Korea and Japan was concluded to open 3 telephone lines, 10 telex lines,

and 1 telegram lines. In addition to these, 24 microwave and 15 cable network lines

began to operate. In 1995, AT&T arranged a direct telecommunication link between

North Korea and the USA. According to Rodong-Shinmoon, October 6, 1996, North

Korea is now well equipped with computer facilities to digitalize satellite

communications.

Public phones, which are the people’s main access to telecommunication, are

installed at the main streets, department stores and hotels of large cities like Pyungyang

and Hamheung In towns and counties, 2 or 3 public phones are located in postal offices.

Where public phone is not available, people use the telephones in local public offices or

business centers reporting their calls. However in North Korea no telephone directory is

available yet, and the telephone numbers and addresses of ministries are kept secret.

Only a few firms publish their telephone and fax numbers.

(2) Potential Demand for North Korea’s Telecommunication

To determine the social demand for North Korea’s telecommunication and define

the target tele-density to achieve within a reasonable period of time, we need to start

with some demographic information and industrial location. The population of North

Korea had reached 23.8 million in 1997, 37% of which is living in rural area.. The

number of households in 1995 is 5.4 million and the average number of household, 4.4.

The western part of the nation such as Pyungan-do, Hwanghae-do, and the

Metropolitan area of Pyungyang, Nampo, and Kaesung city that are under the direct

government control are heavily populated with 15million people with population

density of nearly 300 per square kilometers. About a quarter of the whole population

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spreads in the metropolitan area of Pyungyang, and Nampo. The population of the

eastern part such as Hamkyung-do and Kangwon-do is 7 million with population density

of 150, while the northern mountainous area such as Jagang-do and Yanggang-do is

sparsely populated with only 2 million people with population density of mere 60. In

order to achieve fast mobilization and easy organization of labor force and control,

people usually live in collective habitations.

The Pyunyang industrial area is the major export-oriented industrial area in the

west and consists of Pyungyang(population 3.4-4 million)5, Nampo(population 0.8-1

million) and Sariwon(population 300-500 thousand) cities. In this region labor intensive

middle-tech industries such as textile and electronics have been developed. In Shinuiju

industrial area which includes Shinuiju(population 300-500 thousand), Ungampo,

Yongchun, and Kusung, textile and petrochemical industries have gained

competitiveness thanks to its locational advantage in access to oil pipelines from China.

Haeju industrial area that developed around Haeju city(200-300 thousand population)

and Kaesung city(400-500 thousand population) is also anticipated to become an

industrial complex .

The export-oriented industrial and tourist area of the east are Hamheung-Wonsan

industrial area that consists of Hamheung-Heungnam(0.8-1 million population) and

Wonsan (300-500 thousand population) and Chungjin(0.7-1 million population)- Rajin –

Sunbong area. Auto, chemical, steel and refining industries are to be located in

Hamheung-Wonsan area, while shipbuilding, steel and chemical industries are expected

to develop in Chungjin area.

We can now divide the whole North Korean territory into three regions in terms of

demographic perspective and industrial location. The first region consists of export

business area, resort area and large cities. The upper bound for population of these

area is estimated as about 9 million altogether. The second region consists of domestic

business area, and small and medium sized cities which includes Kanggye, Hyesan,

5 Since the population statistics of North Korea often shows inconsistency, we indicate only the upper

and lower bound for regional population. The lower bound is quoted from KRIHS, 1992, and the

upper bound, from Korea Trade-Investment Promotion Agency 1995. In estimating the demand for

telecommunications services, we use the upper bound.

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Kimchaek, and Dandchun. The population of this area is estimated as 6.6 million.

The third region is the rural area where the estimated population is about 8.4 million.

Target tele-density should vary from region to region. If North Korea is to

introduce market economy to promote economic growth and is going to expand trade

with the outside world, it will eventually start competing with the coastal cities and the

free economic zones of China. For example, the telecommunication infrastructure of

modern industrial and tourist areas of North Korea should be at least comparable to that

of major coastal cities of China. And in other areas like domestic business and rural

areas, the telecommunications deployment can be planned on the overall growth

potential of the North Korean economy.

For experimental studies, we present two scenarios that are based on the

hypothesis developed in the previous section. In scenario 1 the target tele-density of

the major industrial and urban area is assumed to be the tele-density of urban area of the

high income group. As shown in Table A1, the average tele-density of urban area in

these countries is 38.98%. The target tele-density of the other area is based on the

optimistic estimation of growth potential in the forthcoming decades. We assume that

the target tele-density of domestic business area including small and medium-sized

cities is 26.03%, which is the tele-density of the urban area of the upper-middle income

countries. The target tele-density of the rural area is set to the average rural tele-density

of the upper middle income countries.

In scenario 2, the target tele-density of business and tourist areas is set to 52%,

which is equivalent to the tele-density of largest cities of high income countries. The

assumption is not unreasonable since the tele-density of the largest city of transition

economies( except China and Vietnam), ranges from 36% to 52%. Table 4 exhibits

the required main lines in North Korea in each scenario.

We can be more specific on this estimate by distinguishing business lines and

residential lines. We assumed in this experimental study that the average ratio of

residential main lines to business main lines is 2. In fact, as seen in Table A2, the ratio

of residential main lines to total main lines in various income groups fluctuates around

70%. Table A3 shows that the ratio of residential lines in transition economies also

ranges from 65.0% to 83.0% except Vietnam. Accordingly, our assumption on the

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ratio of residential main lines in North Korea seems reasonable.

Table 4 summarizes the required infrastructure for North Korea’s

telecommunication. In Scenario 1, the total of 6 million main lines is needed. And in

this case, the tele-density will reach 25%. Main lines supplied to the major industrial

and urban area are 3.51 million, of which residential lines are 2.33 million, and business

lines, 1.18 million. Domestic business area including small and medium cities require

1.72 million main lines of which residential lines are 1.15 million, and business lines,

0.57 million. In the rural area 0.77 million lines are required, all of which are assumed

to be residential. According to scenario 2, 7.17 million lines are required to achieve 30%

level of tele-density. Main lines for major industrial and urban area will be 4.68

million, among which residential lines are 3.12 million and business lines, 1.56

million.

3. Investment Requirements for North Korea’s Telecommunication Deployment

(1) Investment Level for Telecommunication Deployment

The total number of main lines needed to accomplish the target tele-densities of

several strategic area is 6 million lines in scenario 1 and 7.17 million lines in scenario 2.

To have a rough idea about the cost of the telecommunication infrastructure, we need to

distinguish between business mainlines and residential lines. Business lines are designed

to achieve a global standard of international competitiveness and must be capable of

handling multimedia information. On the other hand, for residential mainlines,

immediate emphasis is put on the simple voice and data transmission.

There are many ways to expand the business networks. A relatively less costly

method is to install twisted pair telephone wires utilizing compressing techniques such

as xDLS to expand transmission capacity. Where this method is not suitable, optical

fiber cables or hybrid fiber-coaxial cables can be used to provide wide band services.

Amstrong and Fuhr(1993) have estimated the cost per subscriber in this type of

deployment, and report that the cable cost of US$ 700-1,200 per subscriber will be

required in the USA. Considering that a significant portion of outside plant investment

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consists of capitalized labor cost, and taking into account of much lower wage rates in

developing countries, outside plant investment (including inside wire) in the developing

countries will be accomplished with less than US$ 500 per subscriber.6 As a reference

point, we assume that per subscriber cost for constructing business main lines is US$

500.

Wireless Local Loop( WLL ) can be an alternative for residential fixed lines in

North Korea. WLL, invented in early 1970s, is a wireless network connecting telephone

station to the subscriber via wireless way saving the installing cost. This method has a

number of merits; the service can be provided in shorter time, and the bandwidth is still

relatively broad enough while the cost is only a half of the fixed wire. Besides these, it

has all the functions of telephone voice service, facsimile, modem, and ISDN. And

there is also a variety of techniques developed for WLL satellites system, systems

applied fixed microwaves, applied cellular system, and cordless techniques. If WLL is

to be chosen for residential connection, the cost would lie somewhere between US$

200-500, as Hills and Yeh(1996) forecasted. Figure A2 shows the cost of WILL per

subscriber in each country. It ranges from US$ 290 in Russia, to US$1,260 in

Argentina. The average cost per subscriber is US$ 700. This difference comes from

difference in population density, demographic spread and the differential quality of

WILL service. In this study the cable cost of residential main line construction is

assumed to be US$ 300.

To estimate the total cost per subscriber, we divide the total cost of deploying

telecommunication into four categories.7 A typical classification of the main forms of

expenditure of telecommunication equipment is given as follows: 32% of the total cost

for switching equipment for public exchange, 44% for cables and local network, 17%

for transmission equipment, and 7% for telephone and PABX. But these categories

could be altered depending on the economic environment or other conditions of the

country that deploys telecommunications. However, in this study, we calculated the

total cost per subscriber using these ITU standards. Our estimates of the cable cost for

6 Hills and Yeh(1996), p453. 7 ITU, Telecommunication Development Bureau, Document 1/197-E, 1997, pp.26-27.

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business lines and for residential lines were US$ 500 and US$ 300, respectively. Since

the cable cost accounts 44% of the total per subscriber cost, the total cost becomes US$

1,136 for business lines, and US$ 682 for residential lines.

Table 5 shows the expected investment level of North Korea’s telecommunications

infrastructure. When scenario 1 is taken, the total cost of telecommunication

deployment is 4.887 billion US dollars, the cost of business main lines being 1.988

billion dollars, and the cost of residential main lines, 2.899 billion dollars. Export

business areas need 2.93 billion dollars, of which 1.34 billion dollars is for business

main lines, and 1.59 billion dollars for residential main lines. Domestic business area

and small and medium sized cities need 1.432 billion dollars, of which 0.648 billion

dollars is needed for business main lines and 0.784 billion dollars, for residential main

lines. Rural area needs 0.525 billion dollars of investment.

If scenario 2 is taken, total investment will be 5.857 billion dollars. 3.9 billion

dollars is required for export business area and tourist area, of which 1.772 billion

dollars is needed for business main lines and 2.128 billion dollars for residential main

lines.

(2) Investment Perspectives in North Korea’s Telecommunications

In order to draw a picture for financial flows, we need to have at least a rough idea

of time schedule for North Korea’s telecommunication deployment. Since it takes

enormous cost to establish modern telecommunications infrastructure, it is important to

decide where the priorities will go and what sector of the economy needs

telecommunication infrastructure most.

Table A4 shows the number of countries at each category of tele-density, and the

transition time required from one category to another. The average time required for

tele-density to increase from 5 to 10 percent, according to the table, is 7 years. And to

increase tele-density either from 20 to 30 or from 30 to 40, it requires on average 6 or 7

years. Given the rapid pace of technological development, the required time period to

reach a certain stage must have been considerably shortened. In fact in New Zealand, it

took more than thirty years from 1937 to 1970 to increase tele-density from 10 to 30.

But in Japan, during the period from 1960 to 1977, tele-density had increased 8 times

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higher from 3.9 to 30.6. And in South Korea, Singapore and Taiwan, thanks to

technology development and learning effect, tele-density increased from 10 to 30 in only

ten- year time period from 1975 to 1985.

During the 1990s, the amount of time required for tele-density to reach a certain

stage has been considerably reduced, especially in large cities of transition economies

such as Czech, Slovak, Hungary, China and Vietnam(Figure A3). Tele-density in

Prague(Czech Republic) had increased from 42% in 1991 to 52% in 1994. In

Bratislava(Slovak), tele-density rose from 38% in 1991 to 47% in 1994, and in

Budapest(Hungary), from 24% in 1991 to 34% in 1994. In the largest cities of those

countries with low tele-density to begin with like China and Vietnam, tele-density has

increased several times higher in 3 or 4 years. Hence the required time for North Korea’s

tele-density to reach a certain target level is likely to be even shorter than in these

economies in transition. For a planning purpose, it is convenient to divide the

investment horizon into three successive stages.

First of all North Korea has to install backbone networks connecting various

strategically important area such as export-oriented industrial area and major urban area

in the soonest possible way. For this purpose, North Korea needs to install 1.28 million

residential lines(30% of residential main lines) and 1.4 million business main lines(80%

of the whole business main lines). That is, the total of 2.68 million lines needs to be

deployed in this stage. Considering that 2.33 million residential and 1.18 million

business main lines are required in major industrial and urban area, we see that in stage

1, almost all of business area and almost half of the residential area are covered in this

region. After the first stage the tele-density will rise from 4.7% to 11%. The required

investments in this stage are 1.59 billion dollars for business lines and 0.873 billion

dollars for residential main lines ( Table 6 ). It is not yet clear how much investment has

been done in North Korea. Inferring the size of backbone networks from the recent

Naewoe Press (September 28, 1998) and applying the same cost formula as above, the

upper bound would not exceed 0.5 billion US dollars.

In the next stage, we assume that 50% of all the residential main lines and all of

the business main lines will have to be deployed. Business lines for small and medium

sized cities and domestic business area will be all deployed in this stage. Through the

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second stage most of the urgently needed residential main lines for large cities and

business area will be completed. The required investment at this stage for residential

lines is US$ 0.58 billion, and for business lines, US$ 0.397 billion. After the second

stage the tele-density will reach 18%. In the final stage, the rest of the residential main

lines in both urban and rural area will be deployed. US$ 1.446 billion of investment will

be needed in this stage. If North Korea has an access to the current best practice, each

stage will take about three years to complete.

The other factor to be considered in North Korea’s telecommunication deployment

is the price of telecommunication services. Mostly in developing countries the price of

residential telephone installation is determined much lower than the actual cost and

tariff for local call is very low. On the contrary, the installation price and basic tariff

for business telephone lines as well as domestic trunk and international lines are

determined much higher than costs.

We examine revenue per main line in the each income group and in transition

economies. As shown in Figure A4 and Figure A5 for comparison, the revenue per line

in low income countries is US$ 343 and, in lower middle income group, US$ 296, while

in upper middle and high income countries the revenue per line is more than US$ 700.

In those transition economies, revenue per line is surprisingly higher than the world

average of the income group to which these countries belong. For example in Vietnam,

revenue per line exceeds US$ 500, and in Hungry, Poland and Slovak republic, it

reaches US$ 400. China’s average revenue per line is around US$ 300.

According to the ITU reports, the annual average operating cost per telephone line

in 1995 falls in the range of US$ 200 ~ 750. The median value is US$ 300 while the

lowest value, which could be considered as the outcome of the best practice, is US 200$.

Suppose the operating cost per line is US$ 300 in North Korea. Under the political

pressure to satisfy universal connectivity, the government is not likely to set the

residential revenue per line above the operating cost. Let’s assume that the average

revenue per business main line and residential line in North Korea will eventually reach

US$700 and US$ 300 respectively after stage 1. The average revenue per line will then

be 460US$. Assuming that the annual operating cost per line is US$300, and 15 percent

depreciation allowance for switching and transmission equipments, and neglecting for

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the moment the value of past investments, we can draw a time-profile of annualized

investment costs, revenue and profits in Figure 2.8 It shows that under this optimistic

expectations about the revenue stream, it would take more that 14 years to recoup the

total investment costs. If we breakdown the revenue into business revenue and

residential revenue, we see a wide discrepancy between two streams of profits in Figure

3. As experienced in many other transition economies, profits from the business sector

has to be great enough to cover the deficits in the residential sector. At least during the

initial phase of network expansion for universal connectivity, cross-financing seems to

be indispensable. Of course as the average revenue per line varies, the gestation period

varies as can be seen in Figure 4.

It is interesting to notice that if either the North Korean government or foreign

strategic investors focus only on strategically important areas targeted in stage 1 and 2,

the profit stream becomes more attractive ( Figure 5 and 6). It would be more so if the

investment costs of the current facilities are subtracted ( Figure 7). In fact in the absence

of universal connectivity obligations, investors are likely to focus on lucrative business

demands in metropolitan area leaving out small business and residential demands.

III. Development Policy for Telecommunication Infrastructure

1. Financing the Modernization Project

As was explained in detail in the previous section, the required amount of capital

to establish back-born networks is formidable. But without the economy-wide

information networks, North Korea would not be able to let people exercise their

individual initiatives to save their collapsed economy. The critical question is whether

the current militant regime will accept a telecom reform that may help produce an

individualistic knowledge-based economy. Even if the incumbent regime does not

regard these developments as threatening, the question still remains whether the state-

8 For the first three years, we assume that on average only half of the target revenue is collected.

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owned traditional PTT system can attract enough capital to finance a modernization

project. Leaving aside the first issue for a while, let us focus on the financial problems

that North Korea will be faced with.

First, like any other governments in transition economies, the North Korean

government will be susceptible to pressure from various interest groups during the

transitional phase and is likely to pursue non-economic objectives using the

telecommunication service as a means to achieving them. The telecommunication

authority will then need various types of subsidies from government. But since the

government often runs out of the budgetary resources, the telecom authority can hardly

rely on the state budget alone to finance the modern information services and has to

eventually establish a cost-based pricing system to increase revenue. In fact even in

Albania, which is one of the poorest countries in the Eastern Europe, the telecom

authority raised residential connection charges six times, and the cost of inter-city calls

by seven times between 1992 and 1994. Even the tariff for local calls was doubled

during the same period9. Since the telephone service is virtually free to most of those

who have an access in North Korea, the required amount of an increase in tariffs would

be astronomical. But again for the same reason that the government is likely to be

subject to political pressure, it would be very difficult to reform the existing tariff

system in a credible and sustainable manner. To accomplish a tariff reform, the

government has to commercialize state provision of telecommunications services and

structurally separate telecommunication from post and broadcasting by abolishing cross-

financing and establishing an autonomous system of management. These steps seem

to be an imperative that needs to be taken in a soonest possible way to achieve

modernization of the information infrastructure in North Korea. In addition the

telecommunication ministry has to play a role of an impartial regulatory agency to

monitor the incumbent carrier.

Second, even though the North Korea government reforms the tariff successfully

and meets the inelastic but growing business demands at high prices, it has to still wait

9 See Manxhari, Levine and Pitt (1998 ) for telecom reforms in Albania.

17

at least five or six years to recoup the investment costs10. In fact the North Korean

government needs to finance the telecom project by issuing either debt or equity.

Generally debt is well suited for financing projects whose assets are redeployable with

little costs. In the event that such projects fail, the assets can easily be used for other

purposes at little loss of productive value. Priority claims against such assets provide

debt holders with considerable security. But unfortunately most of the important

investments in telecom assets such as switches and fiber-optic cables are relation-

specific investments with limited flexibility. Coupled with political uncertainty and risks

of repatriation, these assets can be debt-financed only under unfavorable terms. To

reduce the cost of capital, the government may have to introduce the corporate

governance structure which guarantees that those who supply finance run the carrier and

bear the residual claimant statue. In other words, the telecom operator has to be

privatized by issuing equities.

Privatization not only helps the government to finance the project at better terms

but also enable the telecom operator focus on efficiency by freeing the operator from

political pressure and bureaucratic rigidities and exposing it to the competitive pressure.

But the question is whether privatization strategy is viable in North Korea where the

individual right to own even agricultural land has long been eliminated. In addition

there are simply not enough funds in North Korea to support mass ownership of a large

modernized enterprise. Unless foreign investors exhibit great enthusiasm,

privatization would not be possible, and to achieve privatization, the North Korean

government has to provide an attractive investment environment to strategic foreign

investors by letting the market selection prevail and banning the perception that

telecommunications industry is a social welfare sector.

The strategic investors are most likely to come from South Korea, Japan and

China. If North Korea adopts liberalization policy, the traffic volume around this region

will increase at an unprecedented rate. Also telecom operators in North and South Korea

will have incentives to obtain maximum benefits from network externalities by

connecting networks from both sides. But unless there is a significant improvement in

10 See Figure 5 and 7 for illustrative cases.

18

North-South relations, complementarity between two networks may not be substantiated.

If North Korea can successfully lift the U.S. economic embargo and improve diplomatic

relationships with neighboring countries, strategic investors may flow from the western

developed countries. As the global networks become seamless, North Korea will then

have a plenty of options in selecting business partners.

2. Privatization and Market Structure

In any part of the western world, the efficiency of the economy is largely

dependent on the institution of a well functioning system of private property rights and

competitive markets. But these two complementary institutions often develop at

differential pace at least in the early phase of transition towards the market economy.

Depending upon the socio-economic and political situations, each country in transition

has chosen different strategies. For example Russia placed more emphasis on

privatization than on legal structure for competitive markets and regulatory bodies,

while China extended first the scope of competition without privatizing the

telecommunication authority(Ministry of Post and Telecommunication, MPT).

The telecom activities in many countries are still highly integrated ranging from

local services to domestic and international long-distance services. The critical policy

issue is whether to retain integrated monopoly structure or restructure it before

privatization. Keeping monopoly everywhere enable North Korea utilize both scale

and scope economies, and coordinate various investment decisions. Monopoly market

may also look more valuable to foreign investors.

But monopoly operator which inherits arrogantly rigid tradition of the bureaucratic

authority is likely to perpetuate legacy of fifty years of communism. Moreover it is not

yet clear whether foreign direct investment flowing into the monopoly supplier will

bring more capital into the industry than a competitive market.

The so called monopoly-versus-competition dilemma posed difficulties to

19

privatization in a potentially non-competitive industry.11 It has been argued that in this

type of a industry competition-oriented restructuring must precede privatization since

the private business will not be willing to promote competition at the expense of their

profits. By separating the local loop in the upstream stage and introducing competition

in the down stream long-distance service, vertical divestiture could produce pro-

competitive effects. But this policy of vertical divestiture and fragmented ownership

reduces benefits resulting from scale and scope economies. Unless this reduction is

offset by dynamic technical progress driven by competitive market forces, too much

emphasis on competition and diffuse ownership from the beginning stage of

development is not likely to be welfare optimal. Furthermore new carriers may enter

only relatively profitable segments of the industry, and as a result, those demands of

local business and residential areas are likely to be neglected. A regulated monopoly is

often in a better position to accomplish universal connectivity through cross-financing

among different services and regions.

The monopoly-versus-competition dilemma caused confusion in some CEE

countries in the early 1990s. A rather unfortunate example can be observed in Russia.

Russia vertically divested the ministry of telecommunication into many small regional

monopolies and a nation-wide monopoly, Rostelcom, in the long-distance and

international market. To utilize scale economies, however, Russia did not introduce

competition in the downstream long-distance market and the formerly integrated

monopoly was merely converted into two successive monopolies that produced

inefficient double-marginalization effects. Vertical divestiture merely produced another

set of monopolies. In fact the Russian regulatory agency confronted many transitional

difficulties setting standards in network management and encouraging compatibility of

new technologies between local loops and long-distance networks.

Smaller countries like Hungary and Czech Republic did not adopt a divestiture

strategy and left intact an integrated monopoly structure. In fact both countries

guaranteed monopoly profits to foreign investors by credibly promising monopoly

11 See Tirole (1991) and Choi (1995) for comprehensive application of this concept to privatization

policy in transition economies.

20

position for a certain period of time. As of 1995, Ameritech and Deutsche Telecom

hold a controlling block of shares(67%) of the Hungarian Telecom, Matav, which was

incorporated at the end of 1991. The Hungarian government has provided a monopoly

right and in return demanded Matav to expand fiber backbone network on a planned

basis. In fact the number of direct lines per citizen in Matav region rose from 15 to 28

in the three-year period, 1993-1996. Privatization of Matav that ended in December

1995 was the single largest foreign investment in Hungary and the biggest privatization

of the Central and East European region at that time. After privatization Matav

established itself as an international traffic hub by jointly initiating the TEL(Trans

European Lines) and TET(Trans European Telecom Network) projects through which

19 countries of CEE are connected by optical fiber.

In both Hungary and Czech Republic, foreign investors undertook the

restructuring of the privatized monopoly operator and improved management. They

both could eliminate the legacy of state socialism inherited in the former telecom

authority while obtaining synergy effects by utilizing scale and scope economies. Both

countries introduced competition in the mobile services, and to a certain extent

competition between land and mobile networks curbed the monopoly power of the

incumbent. In fact when the two international consortium were selected for 900MHZ

GSM service in Hungary, they both promised 90% coverage of the country in two years

and offered prices which were competitive with the regular land services.

In North Korea there is an undoubted need for foreign capital and technology,

production management and professional skills. To attract foreign resources in an

efficient manner, North Korea needs to avoid duplicated development that dissipates

scarce resources. As discussed earlier in the previous simulation study, cross-financing

between the business sector and the residential sectors seems to be indispensable in

modernization project. The government can also ask the privatized monopoly carrier to

expand universal connectivity in return for guaranteeing monopoly profits for a certain

period of time. Moreover if the scope of the decentralized market expands too rapidly,

North Korea will need a sophisticated regulatory rule and competence, both of which

take a considerable amount of time to prepare and are not expected to be accomplished

in a short-term period. Efficiency-oriented restructuring must precede competition-

21

oriented restructuring of the existing telecommunication authority. Still the integrated

incumbent carrier can be challenged from other directions including mobile and many

other niche services. Also as in China, institutional competition at local levels in

initiating the development of information infrastructure may be considered as an

alternative complimentary mechanism during the transitional phase.12

IV. Conclusion

The telecommunication policy in any developing country must achieve broad

policy targets such as provision of modern high-tech services in the strategically

oriented industrial and urban area as quickly as possible, and basic services to all within

a reasonable time framework. The policy target must also include enhancement of

dynamic efficiency by guaranteeing proper incentives. The telecom authority in North

Korea may also like to maintain close contact with the outside carriers, especially in the

South to maximize network externalities. But Currently North Korea has neither the

technological expertise nor the sufficient amount of capital to achieve the policy targets.

Without reforming the current age-old PTT system, North Korea would not be able to

establish modern information infrastructure and lose its role in international division of

labor. Reforms can proceed toward privatization and competition.

Privatization helps in two respects. It provides not only a channel for strategic

foreign investor to bring capital and modern technology, but an opportunity to

restructure the bureaucratic organization of the communist government by the foreign

management. Also at an earlier stage of development, an integrated monopoly structure

seems desirable at least in the fixed-line services to utilize scale and scope economies

and to expand backbone networks throughout the country. In fact as long as the

government can enhance credibility of temporary protection in operating the backbone

network, the current system of integrated structure of the incumbent monopoly carrier

need not be separated.

12 For the development of China’s information superhighway, see Tan( 1995 ).

22

But apart from the monopoly-versus competition controversy, it would be very

difficult and painful for the power elite in North Korea to establish and run a so called

state privatization agency in a transparent and autonomous way. Also as experienced in

Russia, misguided policy toward privatization and competition produces inefficiency.

The government has to assure that in the later stage of development competition (even

with the government-owned carrier) will be unavoidable. The government promise can

be made more credible , as in Czech Republic and Hungary, by preparing a supporting

legal structure and introducing competition on a gradual basis from mobile phones.

Although privatization is a long-run policy goal, North Korea may like to adopt a

different path. It can still structurally separate telecommunication from the PTT system,

but does not have to privatize for the time being. Instead it may run a state enterprise by

commercializing state provision of telecom services and establishing management

autonomy. It may announce that it will eventually privatize the state enterprise. During

the transitional phase the government could also introduce institutional competition

from the other branches of the related ministries or from the mobile phone entity. It is

well known that China has been successful in building information infrastructure by

adopting this type of development strategy. It is not yet clear whether North Korea will

be able to maintain credibility of this strategy to foreign investors . But compared to

privatization strategy, the government will confront more difficulties in attracting

foreign resources.

23

References

Alex Hills and Hung-Yao Yeh, “Using Wireless Technology to Provide Basic Telephone Service in the Developing World”, Telecommunications Policy, Vol. 20, No.6, 1996.

Armstrong, T. and J. Fuhr, “Cost considerations for Rural Telephone Service”, Telecommunications Policy, Vol. 17, No.1, 1993.

Choi, J. P., “ Telecommunications Reform in Central and Eastern Europe”, Wien Institute for Advanced Studies, October 1995.

Comparison on the South-North Korean Socio-Economic Situation, National Statistical Office, Republic of Korea, 1997.

Economist Intelligence Unit: Country Profile, 1998. Everstadt, Nicholas, “North Korea’s Interlocked Economic Crises: Some Evidence from

Mirror Statistics”, Asian Survey, March, 1998 Gareth Davies, Steve Carter, Stuart McIntosh and Dan Stefanescu, “Technology and Policy

Options for the Telecommunications Sectors”, Telecommunications Policy, Vol. 20, No.2, 1996

ITU, Broadband Transmission Over Existing Cooper Wire Loops-Special Concerns of Developing Countries in Relation to the Work of the Radiocommunication and Telecommunication Standardization Sectors, Telecommunication Development Bureau, Document 2/263-E, 1997.

ITU, Draft Final Report – Industrial and Transfer of Technology, Telecommunication Development Bureau, Document 1/197-E, 1997.

ITU, Handbook of New Technologies and New Services, Telecommunication Development Bureau, Document 2/265-E, 1997

ITU, Handbook on New Development in Rural Telecommunications, Telecommunication Development Bureau, Document 2/261-E, 1997.

ITU, Report on Communications for Rural and Remote Areas, Telecommunication Development Bureau, Document 2/224-E, 1997

ITU, World Telecommunication Development Report, ITU, 1997. ITU, World Telecommunication Development Report, ITU, 1998. ITU, Yearbook of Statistics – Telecommunication Services Chronological Time Series 1986-

1995, ITU, 1997. Korea Research Institute for Human Settlements, A Study on the National Spatial

Development for the 21 Century: Potentiality and Problem after Korean Reunification, 1992

Korea Trade-Investment Promotion Agency, Industry in North Korea, 1995 Manxhari, M., N. Levine and D.C. Pitt, “ Central and Eastern Europe – Convergence,

Development and the New Competitive Paradigm – The Case of Albania “, mimeo., Strathclyde Business School, Scotland, forthcoming in Telecommunications Policy, 1998.

Milne, C., “Universal Service for Users: Recent Research results – An International Perspective” Paper for the 25th Annual Telecommunications Policy Research Conference.

Noland, Marcus, “The External Economic Relations of the DPRK and Prospects for

24

Reform” in Samuel S. Kim. Editor, North Korean Foreign Relation, Hong Kong:Oxford University Press, 1998.

Preston, Paschal , “Competition in the Telecommunications Infrastructure – Implications for the Peripheral Regions and Small Countries in Europe”, Telecommunications Policy, Vol.19, No.4, 1995.

Tan, Zixiang, “China’s Information Superhighway: What Is It and Who Controls It”, Telecommunications Policy, Vol. 19, No. 9, 1995

Tirole, Jean, “ Privatization in Eastern Europe: Incentives and the Economics of Transition”, in Oliver Jean Blanchard and Stanley Fischer (ed.), NBER Macronomics Annual, 1991.

Welfens, Paul , “Telecommunications and Transition in Central and Eastern Europe”, Telecommunications Policy, Vol.19, No.7, 1995.

World Telecommunication Indicator database, ITU, 1998. Yoon, Young H., Young S. Kwun , and Han S. Yoo, A Study on the National Spatial

Development for the 21 Century: Potentiality and Problem After Korean Reunification, Korea Research Institute for Human Settlements, 1993(Korean).

25

Table 1. Teledensity as a function of GDP per capita

ML/100 Inhabitant Constant GDP per

capita R**2

Lower income -7.28 (-0.8)

1.58 (1.1) 0.003

Lower middle Income

-63.33 (-2.8)

9.91 (3.2) 0.19

Upper middle Income

-97.06 (-3.4)

13.66 (4.0) 0.35

High income -118.17 (-2.9)

16.61 (4.2) 0.33

Note: ( ) is t-value.

Table 2. Telecommunication in North Korea

1993 1995 1996

Main lines in operation 1,089,300 1,100,000 1,100,000

ML per 100 inhabitant 4.7 4.61 4.90

ML per 100 inhabitant of largest city 8.5 8.45 8.18

Number of local telephone calls(million) 2,386 - -

Int’ outgoing telephone traffic (thousand minutes) 3,072 3,100 3,800

Int’ incoming telephone traffic (thousand minutes) 3,127 - -

Residential telephone connection charge(US$) 47.4 47.4 47.4

Business telephone Connection charge(US$) 47.4 47.4 47.4

Residential monthly telephone subscription(US$) 7.1 7.1 7.1

Business monthly telephone subscription(US$) 11.4 11.4 11.4

Telecommunication revenue (million US$) 0.58 - -

Telecommunication investment (million US$) 3.00 - -

Source: World Telecommunication Development Report, 1997, 1998, ITU. World

Telecommunication

Indicator database, ITU

26

Table 3. Basic indicator of North Korea’s population and household

Basic year : 1997 Population (10 thou.)

Average size of household

Number of household (10 thou.)

Ratio of population

(%)

Export business area, resort area and large

city 1/ 900 4.4 220 37.5

Domestic business area, and small and medium

sized city 2/ 660 4.4 150 27.5

Rural area 840 4.4 190 35.0

Total 2.400 4.4 540 100.0

Source: Comparison on the South-North Korean Socio-Economic Situation, National

Statistical Office, Republic of Korea, 1997.

27

Table 4. Demand projection

Population (10 thou.)

Urban & rural ML per 100 inhabitants

Total ML (10 thou.)

Residential ML

(10 thou.)

Business ML

(10 thou.)

Scenario 1 38.98 351 233 118 Export business

areas, tourist area and large city

900

Scenario 2 52.00 468 312 156

Domestic business

area, small and medium

sized city

660 26.03 172 115 57

Rural area 840 9.13 77 77 -

Scenario 1 25.00 600 425 175

Total 2,400

Scenario 2 29.88 717 504 213

28

Table 5. Required level of investment

Demand projection Unit : million US$

Cost of residential main lines

Cost of business main lines Total cost

Cost per lines(US$) 682 1,136 -

Scenario 1

Scenario 2

Scenario 1

Scenario 2

Scenario 1

Scenario2 Export business area,

tourist area and large cities 1,590 2,128 1,340 1,772 2,930 3,900

Domestic business area, and small and medium sized cities

784 784 648 648 1,432 1,432

Rural area 525 525 - - 525 525

Total 2,899 3,437 1,988 2,420 4,887 5,857

29

Table 6. Number of lines and additional investment required for North Korea

Division Cumulative percentage

(%)

Main lines (10 thou)

Additional main lines (10 thou)

Additional cost (M$)

Residential lines 30.0 128 128 873

Business lines 80.0 140 140 1,590 Stage 1

Total lines 44.7 268 268 2,463

Residential lines 50.0 213 85 580

Business lines 100.0 175 35 397 Stage 2

Total lines 64.7 388 120 977

Residential lines 100.0 425 212 1,446

Business lines 100.0 175 - - Stage 3

Total lines 100.0 600 212 1,446

Source: World Telecommunication Development Report 1998, ITU 1998.

30

Figure 1. The relationship between GDP per capita and tele-density

Figure 2. Time Profile of Cost, Revenue and Profit (Residential revenue per line is US$300, Business revenue per line, US$700)

Note: A: Annualized investment cost + Operating cost + Depreciation cost

B:Revenue C: Cumulative profit

Main line/100Main line/100Main line/100Main line/100

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

0 20 40 60 80 100 120

per capita income (US$100)

ML/100

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

A B C

31

Figure 3. Decomposition of Time Profile of Cumulative Profits (Residential revenue per line is US$300, Business revenue per line, US$700)

Figure 4. Time Profile of Cumulative net profits

-20

-15

-10

-5

0

5

10

15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Res identia l Bus ines s Bus i+Res i

-40

-30

-20

-10

0

10

20

30

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

US $300 US $400 US $500 US $600

32

Figure 5. Decomposition of Time Profile of Cumulative Profits(First Stage Investment

Only)

(Residential revenue per line is US$300, Business revenue per line, US$700)

Figure 6. Decomposition of Time Profile of Cumulative Profit(First & Second Stage

Investment

Only) (Residential revenue per line is US$300, Business revenue per line, US$700)

-20

-15

-10

-5

0

5

10

15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Residential Business Busi+Resi

-20

-15

-10

-5

0

5

10

15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Residential Business Busi+Resi

33

Figure 7. Decomposition of Time Profile of Cumulative Profits with Reduced Initial

Investment(First Stage Investment Only) (Residential revenue per line is US$300,

Business revenue per line, US$700)

-15

-10

-5

0

5

10

15

20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Residential Business Busi+Resi

34

35

Appendix for the Supplementary Figures and Statistics

Table A1. Urban and rural main lines and tele-density

Ratio of Urban

Population (%) (1995)

Ratio of Urban ML (%)(1995)

Urban ML Per 100

Inhab.(1995)

Ratio of Rural

Population (%) (1995)

Ratio of Rural ML

(%) (1995)

Rural ML Per 100

Inhab.(1995)

Low Income 28.1 80.7 4.30 71.9 19.3 0.40

Low Middle Income

55.7 82.2 10.72 44.3 17.8 2.92

Upper Middle Income

73.7 77.1 26.03 26.3 22.9 9.13

High Income 77.7 87.0 38.98 22.3 13.0 -

WORLD 45.1 83.7 7.74 54.9 16.3 1.24

Source : World Telecommunication Development Report 1998 , ITU

Table A2. Residential, largest city and rest of country tele-density, 1996

ML

Residential (%)

Resi. ML per 100

household

Largest city teledensity

Rest of country

teledensity

Overall country

teledensity

Low Income 74.0 8.9 6.53 2.31 2.48

Low Middle Income 75.9 31.1 22.16 7.20 9.41

Upper Middle Income 72.1 39.7 25.73 11.51 13.74

High Income 69.9 102.7 52.85 43.77 45.95

WORLD 71.4 39.9 21.54 6.59 8.66

Source: World Telecommunication Development Report 1998 , ITU

36

Table A3. Urban and rural main lines and tele-density in the transition

economies

Residential

ML (%) (1996)

Largest city tele-density

(1996)

Urban ML (%)

(1995)

Urban ML Per 100

Inhab.(1995)

Rural ML (%)

(1995)

Rural ML Per 100

Inhab.(1995)

China 75.2 18.97 80.2 9.26 19.8 0.94

Czech Republic 65.9 52.12 - - - -

Hungary 82.9 36.89 81.6 26.55 18.4 10.97

Poland 83.0 - 71.1 17.04 28.9 11.27

Russia 75.7 42.86 86.6 20.11 13.5 8.49

Slovak Republic 73.8 52.06 78.7 27.88 21.3 10.79

Viet Nam 50.0 8.96 50.0 0.85 50.0 0.22

Source: World Telecommunication Development Report 1998, ITU

Table A4. Time to attain different tele-density( by years)

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6

Tele-density

(%) 1-5 5-10 10-20 20-30 30-40 40-50

Number of countries (1996)

37 29 28 22 17 19

Best years 5 3 3 3 3 4

Average years 14 7 9 6 7 7

Note: ‘Average’ refers to the mean number of years taken by countries which have made the transition from one tele-density category to another. ‘Best’ refers to best practice, in terms of the shortest length of time taken. It is logically not possible to provide an average transition length for 0 to 1 as many countries still have a tele-density of less than one.

Source: World Telecommunication Development Report 1998 , ITU, pp. 17

37

Figure A1. Per capita income, Tele-density and International Outgoing Traffic in Transition Economies (1990 – 1995 annual growth rate)

Source: World Telecommunication Indicator database, ITU

Figure A2. Cost of WLL per subscriber

Source : World Telecommunication Development Report 1998, ITU, 1998.

C o s t o f W L L p e r s u b s c r ib e r , U S $C o s t o f W L L p e r s u b s c r ib e r , U S $C o s t o f W L L p e r s u b s c r ib e r , U S $C o s t o f W L L p e r s u b s c r ib e r , U S $

1260

1160

1100

1000

700

630

500

500

290

A rg en tin a

G han a

V ie tn am

Po lan d

A ve rag e

In d o n es ia

S r i L an k a

H un g a ry

R u s s ia

0

10

20

30

40

china czech hungry poland slovak

per capita income tele-density international

40.9 58.3

38

Figure A3. Changes in tele-density(economies in transition):largest city

Czech Republic 42 52

Slovak Republic 38 47

Hungary 24 34

China 5 14

Veit Nam 1 9

1990 1991 1992 1993 1994 1995 1996

Source : World Telecommunication Development Report 1998, ITU, 1998.

Figure A4. Revenue per main line

Source : World Telecommunication Development Report 1998, ITU, 1998.

Revenue per ML ($) -1996

343 296

772

1051

839

0

200

400

600

800

1000

1200

Lowincome

Lowermiddleincome

Uppermiddleincome

Highincome

World

Country

US $

39

Revenue per line

0

100

200

300

400

500

600

1990 1991 1992 1993 1994 1995 1996

년도

US $

China Hungary Poland Slovak Repu Viet Nam

Figure A5. Revenue per main line(Economies in Transition)