Ask the castros

Just how big is the Cuban market for US tech?

People love the image of Cuba with its vintage 1950s cars, but unfortunately it’s tech infrastructure is not much newer. And that’s why U.S. tech companies are eyeing eased trade regulations with interest.

On Thursday, the U.S. Departments of Treasury and Commerce issued orders that should make it easier for U.S. tech companies to enter the tricky Cuban market. As to how big that opportunity will be and how long it will take to develop remain big questions. The moves come about a month after President Obama signaled his intention to  open up Cuban-U.S. relations.

Specifically, new commerce regulations will make it easier for U.S. citizens to travel to Cuba for tourism, journalism, professional research, athletic events, and professional meetings without special licenses. A similar relaxation of the rules will also grease the skids for direct travel from the U.S. to Cuba. That means a New Yorker, for example, will not have to fly to Havana via Montreal or Mexico City typically on the pretext of some educational program. A tourist can now be a tourist. And presumably a business exec can now be a business exec.

In the telecommunications sector, there is a new general license to ease the “establishment of commercial telecommunications facilities linking third countries and Cuba and in Cuba.” And a new general license by the Office of Foreign Assets Control (OFAC) should ease the sales of “certain consumer devices, related software applications, hardware and services for communications related systems, according to the Commerce department fact sheet.

The demand is there

It’s clear that there is pent-up need for communications and other tech services in Cuba where personal ownership of cell phones or computers was prohibited until 2009.

At that time, “the government had a couple hundred thousand cell phones — there are now more than 2 million in Cuba — all 2G,” said Felice Gorordo, CEO of Miami-based Clearpath Immigration and also of Roots of Hope, a non-profit organization that aims to build trade with Cuba. Needless to say, he is happy about this turn of events.

But he agreed there is no way to estimate the size of this potential market and no guarantee that the still-authoritarian Cuban government will allow an incursion of U.S. technology interests in Cuba. Basically, things are now easier for American businesses on the U.S. side of the divide because there is less red tape here, but how official Cuba reacts could be another story.

The closest approximation I could find for the size of the opportunity was put out the Peterson Institute of International Economics last month at which time it estimated that the export of U.S. goods to Cuba could reach $4.3 billion a year eventually (no end date was given), up from $360 million in 2013. And Cuban exports the other way could reach $5.8 billion at some point, up from zero now.

Obstacles remain in Cuba

For one thing, telecommunications in Cuba is now controlled by a state-run entity, ETECSA.

ETECSA is “not only the operator but also controls the cellular phone company and the cyber cafes. It is a monopoly at every end — retail and wholesale,” Gorordo said in an interview.

Plain old connectivity in Cuba is a huge issue. As Gigaom’s Kevin Fitchard pointed out in December, Cuba has exactly zero submarine cable connections to the U.S. despite the fact that Miami is 228 miles away. Right now there is one submarine fiber-optic cable connecting it to the outside world — with one leg to Jamaica and another to Venezuela.

Telegeograhy's map of undersea internet arteries show an almost completely isolated Cuba
Telegeograhy’s map of undersea internet arteries show an almost completely isolated Cuba

If you compare Cuba to the Dominican Republic — a country of similar size and population — the differences are striking. Two maps from TeleGeography tell a lot of the story.

Cuba submarine cable

The Dominican Republic, with 1 million fewer people, has five fiber-optic cables connecting it to the rest of the world compared to Cuba’s one.

Dominican Republic submarine cable

So the need is there, presuming Cuba wants to be part of the larger world. But the cash is not, said an exec with a large U.S. computer and networking company who did not want to be quoted by name. This exec said while Cuba looks interesting, its economy is roughly the size of West Virginia’s (i.e. not very big). So, there just isn’t a huge monetary incentive to rush in. She expects many vendors will likely wait till the tourism industry takes off and there is more disposable income in country to make their move.

And, as stated before, the guys in charge of Cuba remain a wild card.

Last month Robert Muse, a Washington, D.C., lawyer who has followed the laws governing U.S. Cuba relations told Scientific American last month that the Cuban government remains the sticking point.

“They view control of media and information as necessary to state security. It seems unlikely that Cuba is going to welcome U.S. telecom infrastructure providers or direct, unmediated broadcasts between the U.S. and the island—at least for now.

2 Responses to “Just how big is the Cuban market for US tech?”

  1. A couple of points — the degree to which ETECSA is state-run is unclear — it is regulated by the Ministry of Communication, but privately owned:
    http://laredcubana.blogspot.com/2014/12/who-owns-etecsa-and-who-runs-show.html

    As you point out, Cuba may not be an attractive investment to US and other foreign ISPs (Telecom Italia pulled out in 2011) and it might not be such a good deal for Cubans either. (Would you want, say, AT&T or Comcast in control of the Internet in your nation?

    If the Cubans are serious about increased access, as they say they are, there are a number of low-cost steps they could take on their own — for example, encouraging the deployment of satellite infrastructure:
    http://laredcubana.blogspot.com/2013/12/a-cuban-approach-to-achieving-internet.html

  2. Keith Craig

    Looking at the history of federal legislation, you get a sense that ethics, morality or simply fairness long ago took a back seat to commerce.

    Improved relations with Cuba will begin to drive an economic engine. The desire to capitalize on an “open” Cuba will first be tapped by those families with members living on the island, but like the playground, jump-rope ditty, that first love will be followed by commercial marriage, and then along will come all sorts of business deals in the baby carriage.

    No enterprise (or government) ever saw a third-world economy as anything less than an opportunity for profit. Cuban markets will be established, segments of which will robustly pad the bottom line of IT companies over time. And that’s not a bad thing.

    Expect nothing less than IT to do its part in bringing Cuba out of the quaint and naive 1950s and into the quick and networked 2010s.