Has the Time Come for a Cuban Telecom Boom?

Has the Time Come for a Cuban Telecom Boom?
Mar 17, 2015

President Barack Obama's move to re-establish diplomatic relations with
Cuba and lift a 54-year trade embargo has raised hopes among U.S.
businesses that see big opportunities in the island nation. Luis G.
Coello, CEO and founder of CubaMobile in Miami, Fla., is one such
entrepreneur who has rekindled his dreams of investing in the country's
telecommunications infrastructure.

Coello lost no time after Obama in December announced his plans to
normalize U.S. ties with Cuba. He set up CubaMobile within a month, his
third bid in 25 years for a piece of the telecommunications business in
Cuba. "The telecom business is very lucrative," he said. "Smaller
companies understand that they will have minority participation because
the big companies will come and take over everything. But it is a big
business, and there is room for everybody."

Last week, Cuba's state-owned telecommunications company, ETECSA, and
U.S.-based IDT Corp announced an agreement to establish direct
long-distance telephone service between the U.S. and Cuba.


Tempered Optimism

Coello was bullish, but also cautious, about the opportunities for U.S.
telecommunications companies in Cuba. He discussed what lies ahead for
the sector on the Knowledge@Wharton show on Wharton Business Radio on
SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Coello is also scheduled to speak at the April 1 Cuba Opportunity Summit
at NASDAQ MarketSite in New York. The event is being organized by
Knowledge@Wharton, Wharton's Lauder Institute and Momentum Event Group.

"Smaller companies understand that they will have minority participation
because the big companies will come and take over everything. But it is
a big business, and there is room for everybody."

Coello, who came from Cuba to the U.S. in the mid-1960s when he was nine
years old, has good reason to be cautious. He entered the telecom
industry in 1990 with a business selling phone cards to call Cuba from
the U.S. In 1994, as the Clinton administration appeared to ease
relations with Cuba, he secured a license from the U.S. government to do
business with ETECSA. While that facilitated calls from the U.S. to Cuba
via satellite, Coello found the window for new opportunities "closed
back up again" by 2000.

Coello's hopes rose again in 2009 when Obama lifted some restrictions on
doing business with Cuba, and he secured permits to lay an undersea
fiber optic cable from Key West, Florida, to Havana. AT&T and Verizon
backed Coello's plan, but Cuba decided to lay a cable to Venezuela instead.

This time around, Coello hopes Obama's announcement results in a lifting
of the embargo on Cuba along with the requisite changes to laws and
rules in both countries. "We've been through these motions a few times …
been there, done that," he said. "Hopefully this will be the real one;
this will be the one that will work and make the change that we need."

Waiting for Legal Clarity

Coello said telecom infrastructure investments are needed in Cuba to
provide Internet access, voice and data transmission, banking, credit
card transactions and more. However, to enable those investments, laws
have to change to protect investors, he added. Once the legal terrain
becomes clear, he plans to conduct a study to determine the nature and
scope of investments required in Cuba's telecom infrastructure.

"We are waiting for the ability for American companies to go to Cuba and
invest in the [telecom] infrastructure," said Coello. This requires "not
only the change of laws [in the U.S.], but also [in Cuba], where the
investment [has to be] protected."

"The big guys will go there, and they will have all the money. But in a
way, they lack the experience to help them navigate those waters."

According to Coello, the current phone traffic from the U.S. to Cuba is
40 million to 50 million minutes a month. At rather expensive rates of
up to a dollar a minute, that is a $40 million to $50 million business
monthly, he adds. The potential of the Cuban telecom opportunity is
huge, given the existing small base. The country's 11 million people
have access to just one modern, fixed Internet connection to the outside
world, according to a Wall Street Journal report. That is 1% of the
Internet bandwidth available in the nearby Dominican Republic, which has
a population of about 10 million, the report added.

"It opens the door for AT&T and the others [to invest in Cuba]," said
Coello of the thawing U.S.-Cuba ties. He noted that in 1994, AT&T,
Sprint and the former MCI and WorldCom (now part of Verizon) had gone to
Cuba and signed contracts. "They can feel more confident that they can
go down there and have serious talks and be part of the infrastructure
rebuild."

The prospect of that level of competition does not worry Coello. "We
know we will get pushed down the ladder," he said. "The big guys will go
there, and they will have all the money. But in a way, they lack the
experience to … navigate those waters. That is a little bit of the
advantage we have over the bigger companies…. We have some relationships
in the government and the phone company," he noted. "It takes a long
time and a lot of work to build those relationships."

Source: Has the Time Come for a Cuban Telecom Boom? -
http://knowledge.wharton.upenn.edu/article/has-the-time-come-for-a-cuban-telecom-boom/