Big potential in mostly untapped Cuba telecom market

FACTBOX: Big potential in mostly untapped Cuba telecom market
Thu Sep 10, 2009 3:11pm EDT

(Reuters) - In measures originally announced in April and implemented
last week, U.S. President Barack Obama has relaxed aspects of the U.S.
trade embargo against Cuba to allow U.S. telecommunications companies to
provide services to the communist-ruled island.

But the U.S. companies face major hurdles, from legal obstacles to tough
foreign competition and the key question of whether wary Cuban
authorities will be willing to open up this strategic area to operators
from the country Havana has viewed as its ideological enemy for almost
half a century.

Here are some facts about the Cuban telecoms sector:

LOW PENETRATION, BIG POTENTIAL

Most analysts agree that the Cuban telecommunications market represents
a major untapped potential because of the low penetration of fixed and
mobile telephone and Internet services. Cuban data shows the island
lagging far behind in the hemisphere in these services.

Telecommunications data for 2008 released by Cuba's National Statistics
Office in June showed there were only 1.4 million telephones, fixed and
mobile, in the country of 11.2 million inhabitants. This gave a total
density of 12.6 telephones per 100 inhabitants, the lowest in the
region, according to the United Nations International Telecommunications
Union.

Computers were also very scarce at just 630,000 and most were believed
to be in government offices, health facilities and schools. The Cuban
statistics report said 13 percent of Cuba's population had Internet
access, but in most cases this was to a government Intranet. No data was
available for access to the World Wide Web, but diplomats and residents
say it is severely restricted by the communist authorities.

President Raul Castro, who took over the Cuban presidency from his
ailing older brother Fidel last year, introduced a reform allowing
Cubans permission to freely buy and use cell phones -- use had been
previously tightly restricted.

But they can only pay for them in hard currency equivalent convertible
pesos, which are not available to all Cubans.

CUBAN TELECOMS COMPANIES DOMINATE

Empresa de Telecomunicaciones de Cuba SA (ETECSA) is the state-owned
telecommunications provider of telephone, Internet and wireless
services. Telecom Italia has a 27 percent stake in ETECSA, and the rest
is owned by the Cuban government.

Cubacel (Telefonos Celulares de Cuba SA) is a unit of ETECSA providing
mobile phone services on the island.

In the 1990s, in what was billed at the time as the first large-scale
privatization in Cuba since the 1959 Revolution, foreign companies had
obtained and held major stakes in the Cuban telecommunications sector.

In 1994, Mexico's Monterey-based Domos Group agreed to purchase a 49
percent stake in the Cuban national phone system, but then sold 25
percent of its interest to STET International Netherlands, a subsidiary
of Italy's state telecoms company. Domos relinquished its equity stake
in 2005 because of the economic crisis in Mexico.

Established in 1991, Cubacel started as a joint venture between
Mexico-based TIMSA and the Cuban government. In 1998, Canadian resources
company Sherritt International Corp, the largest foreign investor in
Cuba at the time, bought a 37.5 percent in Cubacel.

In 2003, the Cuban government bought back Sherritt's stake and that of a
Mexican investor, taking 100 percent control of Cubacel.

U.S. COMPANIES

Eight U.S. companies, including Verizon, AT&T and Sprint Nextel, are
licensed by U.S. authorities to provide long-distance phone services to
Cuba through satellite or cable.

But in the last few years, the hundreds of millions of dollars of
revenue that these U.S. companies share in phone revenues with Cuba have
become the target of damages lawsuits filed by U.S. citizens, most of
them Cuban Americans, in U.S. courts against the Cuban government for
alleged wrongful deaths and other issues.

Analysts say these kind of cases, and other claims by U.S. citizens
targeting Cuban assets and properties, could pose a potential legal
threat to future foreign investments in the Cuban telecoms sector.

UNDERSEA CABLES AND FIBER-OPTIC PLANS

A submarine telecommunications cable is mostly in place between Key West
and Havana but has not been connected, because of restrictions under the
existing U.S. embargo.

Cuba's left-wing ally Venezuela has formed a joint venture, Gran Caribe
Telecommunications Company, to create a 1,000-mile (1,600-km) highway of
underwater fiber-optics cable linking the two allies. Cuban officials
say this will boost Internet capacity on the island and make it cheaper.

Gran Caribe executives say the link could be up and running by the
middle of 2010.

LIKELY COMPETITION FROM OTHER INVESTORS

Analysts say future U.S. telecoms investors in Cuba could face tough
competition from companies in Asia and Europe, a number of whom are
already operating on the island.

Spain's Telefonica has shown interest in Cuba as a potential market,
triggering rumors that it might buy Telecom Italia's stake in ETECSA.

Other companies with significant presence in the Caribbean and Latin
America, such as America Movil and Digicel, are also likely eyeing Cuba
as a potential market.

Earlier this month, an agreement signed during a visit to Cuba by
China's parliamentary head Wu Bagguo provided a $300 million loan to
help improve Cuba's telecommunications network, according to media reports.

Another telecoms joint venture, Gran Caiman, involving a company called
China Grand Dragon, has been producing switching equipment and other inputs.

Other foreign companies from China, Europe and elsewhere, including
Alcatel-Lucent Shanghai Bell, Ericsson and ZTE Corp are already involved
in supplying equipment and technology to Cuba.

FACTBOX: Big potential in mostly untapped Cuba telecom market | Reuters
(10 September 2009)
http://www.reuters.com/article/globalNews/idUSTRE58957K20090910?sp=true