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.
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.
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.
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.
“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.