Is Cuba the Next Investment Hub for US Telecom Companies?

Is Cuba the Next Investment Hub for US Telecom Companies?
January 20, 2016, 01:25:00 PM EDT By Zacks Equity Research, Zacks.com

President Barack Obama's decision to normalize U.S. diplomatic and
economic relations with Cuba, which had been strained until recently
since 1961, has started showing results. Under Obama's administration,
new Cuban policy regulations, approved by the Treasury and Commerce
departments, have helped the U.S. telecommunications industry gain
initial exemptions from the existing embargo to invest in Cuba.

Recently, U.S. telecom regulator Federal Communications Commission (FCC)
removed Cuba from its exclusion list enabling U.S.-based telecom
operators to provide telephone and Internet services to Cuba without the
need of a separate approval from the FCC.

The newly developed truce between the two countries will allow U.S.
telecom carriers to export telecom equipment and products to Cuba. The
operators will also be able to establish the necessary infrastructure in
Cuba to offer various telecom services including the Internet. The
export of communications devices, related software, applications,
hardware, and other items to upgrade the systems will enable Cuban
citizens to communicate freely with the U.S. and the rest of the world.

In Mar 2015, U.S.-based IDT Corp. formed a joint venture with Cuba's
Empresa de Telecomunicaciones de Cuba SA to provide direct international
long-distance service. In Apr 2015, Sprint Corp.'s
S
prepaid service division - Boost Mobile - launched an unlimited voice
call and text message service plan to boost connectivity between the
U.S. and Cuba.

In Sep 2015, Verizon Communications Inc.
VZ
became the first U.S. telecom operator to offer roaming wireless
services in Cuba. More recently, low-cost online streaming service
providers Netflix Inc.
NFLX
started offering video services in the country. We believe AT&T Inc.
T
, which is at present significantly expanding in Mexico, may also turn
toward Cuba in the future. However, the company is yet to take any
decision in this regard.

Cuba is a less developed country with a population of around 11 million.
At present, only 2 million of the inhabitants have access to global
Internet connection through government institutions, high-end hotels and
the black market. People in Cuba access the Internet under highly
restrictive conditions.

The Cuban government strictly monitors global networks, keeps a check on
phone connections of anti-government activists and surveys private email
accounts through the installation of software in offices. Such stringent
measures have significantly escalated the price of telecom gadgets and
services in Cuba.

Our View

We believe that the U.S. telecom operators may not reap any near-term
gain from Cuban investments as the country is less developed at present
and reels under highly restrictive government regulations. However, in
the long-term, Cuba may become a boon for telecom carriers whochoose to
operate in the country. An opportunity to sell products and services to
11 million untapped customers is something worth reckoning after all.

Moreover, with communism waning and winds of globalization taking over
the world, Cuba is poised to become a potential emerging market for the
future. Further, Cuba's geographical proximity with respect to the U.S.
is a major positive in terms of cost of operations. The U.S. telecom
industry is currently witnessing cut-throat pricing competition. At this
juncture, an opportunity outside the U.S. may bode well for the industry.

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The views and opinions expressed herein are the views and opinions of
the author and do not necessarily reflect those of Nasdaq, Inc.

Source: Is Cuba the Next Investment Hub for US Telecom Companies? -
NASDAQ.com -
http://www.nasdaq.com/article/is-cuba-the-next-investment-hub-for-us-telecom-companies-cm568126