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No Quick Boom

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Thursday, April 16, 2012
Special Reports

Cuba Telecom: No Quick Boom

President Obama's liberalization of Cuba restruictions won't lead to any overnight boom in U.S. telecom services on the island.

GET IN LINE: U.S. telecom firms will have to get in line after European and Latin American firms already in Cuba, experts say.

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BY CHRONICLE STAFF

President Barack Obama's liberalization of restrictions on U.S. telecom services in Cubawon't lead to any surge in business any time soon, although the Caribbean island has big potential with the right policies in place, experts say.

"Everybody is forgetting that the Cuban government will need to take some measures to change the regulatory framework for U.S.companies to benefit," says Jose Otero, president of Signals Telecom Consulting. "Just the fact that that you need a [Cuban] regulatory change is a big obstacle.”

NEW U.S. RULES
The White House announced Monday that it would authorize U.S. firms to establish fiber-optic cable and satellite telecommunications facilities linking the United States and Cuba, allow roaming service agreements with Cuba's telecom providers and permit U.S. firms to engage in transactions necessary to provide services to customers in Cuba.

“Most observers expected to see a loosening of travel restrictions and perhaps a greater ability to transfer money between Americans and their family members in Cuba, but, a general opening up for this key U.S. industry was a bold move that was not widely expected,” Richard Burke, trade counsel in the Washington, D.C. office of U.S.-based law firm White & Case said in a statement today.

“The Obama Administration may be betting that the benefits of exposing the Cuban people to the Internet, satellite television, and modern communications outweigh any resulting financial windfall to the Castro regime.”

However, experts warn that there are several challenges ahead for U.S. firms that may be interested in taking advantage of the new regulations. In addition to necessary changes by Cuba’s government, U.S. firms face the hurdle of strong competition from companies in other countries that are already active in Cuba or have better relations.

”Even before U.S. companies, there are a lot of [non-U.S.] companies with better relations that will also try to bid for any type of concession in Cuba," Otero warns.

STRONG POTENTIAL

That being said, he sees strong potential in Cuba if the government implements the right policies aimed at attracting foreign investors. "Cuba is the ... biggest opportunity in the region in terms of low penetration of various telecom services, be it fixed, wireless, Internet or broadband, it becomes a really, really attractive market for anyone coming in there," Otero says. "Once the market opens, there's going to be a huge boom...It reminds me of the Czech Republic after the fall of Communism....There's going be a lot of business"

Cuba today has the lowest wireless penetration in Latin America -- 1.8 percent in 2007,  according to the International Telecommunications Union (ITU). No other country in the region has single-digit penetration. Haiti, the country with the second-lowest wireless penetration in Latin America, had a penetration rate of 26.1 percent in 2007.

As a result of having Latin America’s lowest wireless telecom, Internet and broadband rates in addition to low fixed telecom and PC penetration rates, Cuba ranked at the bottom of the latest Latin Technology Index fromLatin Business Chronicle.

In addition to the low technology penetration, Cuba’s market will be spurred by factors such as close proximity to the United States and a large Cuban-American population that will send more money to the island, Otero says.

HAITIAN MODEL
Cuba won't be the first Latin American country to show dramatic improvements in technology. Another Caribbean nation, Haiti, has seen a boom in wireless penetration in recent years, largely thanks to wireless operator Digicel.  Haiti went from having 140,000 wireless subscribers in 2002 to 2.5 million in 2007, according to the ITU.

"Look at Haiti," Otero says. "With the proper business model you can [boost] mobile penetration."
And despite the low telecom penetration, Cuba is far from an untapped market for foreign telecom providers. “Cuba does have foreign telecom providers and vendors on the island,” he says. “So it’s not a completely untapped market.”

Telecom Italia owns 27 percent of Cuba’s telecom company Etecsa, while equipment vendors like Ericsson and Alcatel are also active. And previously, Spain’s Telefonica was also a partner in a Cuban venture. AndVenezuela’s government is already deploying an undersea cable system to Cuba. 

LEGAL CHALLENGES
Meanwhile, the track record of U.S. telecom companies in Latin America has not been that positive, Otero adds. In recent years, they have largely withdrawn from the region, which is now dominated by operators likeMexico’s America Movil and Telefonica.

U.S. companies that start operating in Cuba may also face legal challenges from Cuban exiles who lost property during the revolution and today are U.S. citizens, Otero warns.

Although Obama’s new rules will allow U.S. firms to provide roaming in Cuba, that won’t necessarily have much of an impact. 

First, high-priced roaming is generally a service targeting business travelers rather than tourists and Obama’s liberalization does not lift the overall commercial sanctions against Cuba nor restrictions on travel by Americans in general. The new rules do allow Cuban-Americans to travel. 

TECHNOLOGY HURDLES

Second, Cuba today offers limited technical roaming capability, mainly using GSM technology used by only two U.S. carriers – AT&T and T-Mobile – and the 900 MHz band frequently used in Europe, but not in theUnited States. There are only some patches of Havana and Varadero that offer the 850 MHz band used in theUnited States, Otero points out.

That means that Cuba would have to invest considerable amounts in new equipment to provide widespread roaming for Americans, which it won’t likely do until the U.S. travel embargo in general is lifted.

Even today, roaming is hardly used by the 2.35 million tourists that visit the island yearly, mostly from Europe. “Roaming is a very niche service,” Otero says. “No one wants to be surprised with a $500 to $1,000 bill after their trip.”

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Source: http://www.latinbusinesschronicle.com/app/article.aspx?id=3327


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