Late last month President Barack Obama announced he would seek to normalize relations with Cuba, laying out a plan to begin the thawing of a long-frosty relationship. While cigar aficionados and others have had stars in their eyes ever since the announcement, the fact remains that one of the areas in which Cuba is most deficient is communications -- both in terms of enterprise communications and the infrastructure necessary to support large- and small-scale communications.
Indeed, the administration has acknowledged that, as much as it's looking forward to the reopening of diplomatic relations, significant hurdles must be overcome within Cuba before more than the most basic of non-Cuban industries will be able to support the kind of communications that drives business. According to the White House, Internet penetration within Cuba is extremely limited, with less than 5% of the nation's population having access to the Web. What Web access does exist is tightly controlled by the government and used primarily to serve up a national email system, educational and reference materials, and websites supportive of the Cuban government, as discussed in a report compiled by Freedom House.
Wireline and wireless domestic and international communications services in Cuba are extremely limited as well. Deployment of such essential business tools can only come after the infrastructure necessary to support such services is in place, and while the door is open slightly, getting that infrastructure in place remains a challenge.
Down With Capitalism
Cuba has been a much more reluctant and difficult partner for American and other businesses than fellow communist countries China and Vietnam -- yet represents a greater risk and investment of time and money give potential market size. Cuba only has 11 million potential consumers, compared to China's 1.4 billion and Vietnam's almost 90 million.
The issues of infrastructure may, in fact, be the second-most pressing. First, sadly, is the anti-business culture within Cuba. As Miami attorney Pedro Freyre told Bloomberg News, "in their heart of hearts, the rulers of the country don't believe in capitalism." The culture is so very different that, despite the proximity and incredible interest in selling products and services within Cuba, non-Cubans have found doing business there extremely and often painfully difficult. When joint ventures are proposed, for example, the Cuban government in many cases insists on holding a majority stake and thus complicating an already-complex environment for starting and sustaining business.
The situation gets even more complicated when taking the actual workforce into account. Employment matters are particularly sticky in an economy such as Cuba's in which workers often receive pay in the local currency but bonuses in either U.S. dollars or other goods that can be difficult to quantify. Finally, returning to the anti-capitalist bent referenced earlier, "creating incentives and a work culture is 'a very real problem,'" as Cuban scholar Andrew Zimbalist told Bloomberg News. In the previously cited Bloomberg article, Zimbalist said, "Cubans live in a society that provides basic needs and little else. It's not possible to get ahead by working harder so it's not easy to motivate people." In a word, bummer.
Nonetheless, the door is ajar and foreign businesses are stepping in. Through the present time, Cuba's largest trading partners have been Venezuela, China, Spain and Canada, with Venezuela and Canada being the two largest foreign investors, reports Canada's Ivey Business Journal. Yet, while these countries have spawned more than a number of well-known telecommunications infrastructure companies (think Mitel and Nortel to name just two), penetration remains thin and, therefore, the infrastructure is very weak.
American telecom equipment manufacturers haven't been able to enter the Cuban market, per Federal Communications Commission mandate. The FCC prohibitions not only have limited carriers from providing services between the two countries, but also have limited the export of telecom infrastructure equipment including hardware, software and other products essential not only for Cubans to communicate with those outside Cuba, but, perhaps more importantly, with each other as well.
Time for Change
But change is coming, as indicated in information provided by the White House that the "commercial export of certain items that will contribute to the ability of the Cuban people to communicate with people in the United States and the rest of the world will be authorized. This will include the commercial sale of certain consumer communications devices, related software, applications, hardware, and services, and items for the establishment and update of communications-related systems." The administration expects that telecom providers, working in conjunction with the State and Commerce departments, will be allowed to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecom and Internet services. This, in turn, will improve telecommunications between the U.S. and Cuba.
These changes in U.S. policy represent a significant -- some might say semi-seismic -- shift. According to the White House, not one of the five American carriers licensed by the FCC to provide wireline communications services between the U.S. and Cuba has been able to make an agreement with Cuba's domestic carrier Empresa de Telecomunicaciones de Cuba S.A., or ETECSA, to enable the delivery of calls that originate in the U.S. to the intended destination within Cuba.
American carriers that wish to offer services to Cuba must first meet the requirements of the Communications Act of 1934 Section 214, which aims to protect the American domestic telecom market against potential anti-competitive behavior by carriers with market power in a foreign country. Section 214 approvals are required for all providers of international telecom services, including satellite transmissions. In most cases, the FCC grants carriers that complete the application blanket authority for international transmission (see the FCC's Section 214 application filing guidelines here).
Cuba has been on the exclusions list, which means those entities seeking to provide international connectivity must meet higher levels of scrutiny from the FCC and the State Department. That's not to say such approval is impossible to get, but it is more difficult. (Note: As recently as Jan. 1, checking the most recent Exclusions List redirects visitors to the FCC's International Bureau page). Further details can be found at 47 C.F.R. 63 et seq.
The bottom line is this: Business opportunities with a newly opened market in Cuba exist. But they're not for the faint of heart, both because of American restrictions (albeit those are likely to loosen in this new year) and because of the business conditions, including limited communications capabilities, within Cuba.
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