How a sanctions-busting smartphone business thrives in North Korea

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The North Korean regime has developed strict surveillance tools on mobile phones to monitor access to illegal or non-state approved media. (AFP)
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North Korean phones can only be used to call domestic numbers and have some unique security features restricting the downloading of material. (Reuters)
Updated 26 September 2019

How a sanctions-busting smartphone business thrives in North Korea

  • Mobile phones are proving a vital asset in North Korea’s grey market

SEOUL: North Korea is evading UN 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 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.

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

Phones are 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.

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

The regime has also developed a home-grown surveillance tool on mobile phones, according the UK-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.

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 run a retail business selling Chinese clothes and shampoos, arranging deliveries from wholesalers.

“It turned out we could make 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.”

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. But while sanctions eliminated official imports, informal trade has continued, experts and defectors say.

William Brown, a retired US intelligence official who studies North Korea, said mobile phone hardware parts “are very easily smuggled across the Chinese border.”

China is North Korea’s sole major ally, and its mobile phone industry is crowded with little-known local smartphone manufacturers.

China has said it upholds UN sanctions but has defended “normal trade” with North Korea.

The US Commerce Department is reviewing whether Huawei violated export control rules in relation to sanctions on North Korea, sources have said.

ZTE last year paid a $1 billion fine for violating US sanctions involving shipment of telecom equipment to Iran and North Korea.

Huawei and ZTE did not respond to Reuters’ requests for comment.

Huawei in early talks with US firms to license 5G platform: executive

Updated 19 October 2019

Huawei in early talks with US firms to license 5G platform: executive

  • Currently there are no US 5G providers and European rivals Ericsson and Nokia are generally more expensive
  • Huawei has spent billions to develop its 5G technology since 2009

WASHINGTON: Blacklisted Chinese telecoms equipment giant Huawei is in early-stage talks with some US telecoms companies about licensing its 5G network technology to them, a Huawei executive told Reuters on Friday.
Vincent Pang, senior vice president and board director at the company said some firms had expressed interest in both a long-term deal or a one-off transfer, declining to name or quantify the companies.
“There are some companies talking to us, but it would take a long journey to really finalize everything,” Pang explained on a visit to Washington this week. “They have shown interest,” he added, saying conversations are only a couple of weeks old and not at a detailed level yet.
The US government, fearing Huawei equipment could be used to spy on customers, has led a campaign to convince allies to bar it from their 5G networks. Huawei has repeatedly denied the claim.
Currently there are no US 5G providers and European rivals Ericsson and Nokia are generally more expensive.
In May, Huawei, the world’s largest telecoms equipment provider, was placed on a US blacklist over national security concerns, banning it from buying American-made parts without a special license.
Washington also has brought criminal charges against the company, alleging bank fraud, violations of US sanctions against Iran, and theft of trade secrets, which Huawei denies.
Rules that were due out from the Commerce Department earlier this month are expected to effectively ban the company from the US telecoms supply chain.
The idea of a one-off fee in exchange for access to Huawei’s 5G patents, licenses, code and know-how was first floated by CEO and founder Ren Zhengfei in interviews with the New York Times and the Economist last month. But it was not previously clear whether there was any interest from US companies.
In an interview with Reuters last month, a State Department official expressed skepticism of Ren’s offer.
“It’s just not realistic that carriers would take on this equipment and then manage all of the software and hardware themselves,” the person said. “If there are software bugs that are built in to the initial software, there would be no way to necessarily tell that those are there and they could be activated at any point, even if the software code is turned over to the mobile operators,” the official added.
For his part, Pang declined to predict whether any deal might be signed. However, he warned that the research and development investment required by continuously improving the platform after a single-transfer from Huawei would be very costly for the companies.
Huawei has spent billions to develop its 5G technology since 2009.