Telecommunications in Cuba and the U.S. Embargo: History, opportunities, and challenges
Since President Obama announced the United States’ new policy to normalize relations with Cuba, talk about opportunities for U.S. telecommunications companies has flourished. That reaction only intensified when the Treasury Department and the Commerce Departmentpublished amended rules on January 16, 2015, implementing these policy changes, which authorize commercial telecommunications services linking third countries and Cuba (as well as within Cuba), services incidental to Internet-based communications, and the export of communications items.
This is not the first time that the United States has relaxed sanctions on Cuba with the hope of expanding direct communications between the two countries and encouraging change in Cuba. The first attempt took place in 1992 when the Cuban Democracy Act allowed for telecommunications services between the two countries, but the effects were limited and short-lived. The U.S. relaxed sanctions again in 2009, this time to allow U.S. telecom companies to establish fiber optic and satellite links with Cuba and to enter into roaming agreements with Cuban carriers. Despite hopeful talk about an investment boom, those measures changed little.
The question now is whether the new regulations will achieve what has been elusive for more than two decades. Interest by U.S. entities is understandable given that the newly implemented changes plainly go beyond anything that has been done before. But with the new opportunities come challenges and potential minefields for U.S. investors looking to Cuba. A more sober analysis is in order, particularly one that takes into account the history of U.S.-Cuba telecommunications relations, the state of the telecommunications industry in Cuba today, the potential limitations that come from the statutory framework that continues in effect despite the relaxation of sanctions, and, critically, Cuba’s own telecommunications policy.
History of U.S.- Cuba telecomunications relations
The history of U.S.-Cuba telecommunications relations is long and contentious. Undersea cables supporting telegraph and telephone service connected the two countries for decades before the Cuban Revolution. International Telephone and Telegraph (ITT), a U.S.-based conglomerate, had a majority interest since the early 1900s in the Cuban Telephone Company, the dominant telecommunications provider on the island.
It all changed after the Cuban Revolution in 1959 and the imposition of the embargo a few years later. The new Cuban government led by Fidel Castro confiscated the Cuban Telephone Company. The U.S. allowed AT&T to use its undersea cable after the embargo, but only if it did not add new capacity to it. This positioned AT&T as the dominant carrier for telecommunications between the U.S. and Cuba through the late 1980s, when the cable finally became unusable and long distance calls from the U.S. to Cuba had to be routed through third parties using satellite uplinks. During that time, and as a result of the embargo, AT&T could not make any payments to Cuba for the origination and termination of long distance calls, depositing them instead in an escrow account. The controversy over the release of these funds became another contentious chapter in U.S.-Cuba relations.
A glimmer of hope emerged in the mid-1990s after the enactment of the Cuban Democracy Act. After long negotiations, Cuba dropped its demand for the release of the AT&T escrow funds and reached an agreement with the U.S. on compensation for terminating calls. The FCC authorized various U.S. carriers to provide direct-dial service to Cuba (via satellite) under guidelines developed by the State Department, and at least one U.S. entity presented a plan to install and operate a new undersea cable between the two countries—the first direct cable since the Cuban Revolution. But both the plans for an undersea cable and direct dialing between the U.S. and Cuba were short-lived. The statutory prohibition on any investment in the domestic telecommunications network within Cuba, which was enacted in 1996, hindered any plans that required connecting an undersea cable to the Cuban domestic telephone network, and the U.S. ultimately did not approve the plans for a new undersea cable.
Direct dial service was shut down in 2000 when the Cuban government suspended the service after the U.S. released the long distance escrowed funds as compensation for damages arising from the Cuban air force shooting down of a Brothers to the Rescue plane in 1996.
Little has changed since then. A U.S. company proposed and received approval under the regulations enacted after 2009 to build and operate a new undersea cable between the two countries, but to this day it has been unable to reach agreement with the Cuban government. Instead, the Cuban government went ahead with a plan sponsored by Venezuela to lay an undersea fiber-optic cable connecting that country to Jamaica and Cuba. This was an interesting—and revealing—move by the Cuban government, since it would have been cheaper (and it would have taken less time) to connect to any of the many international undersea cables that already pass nearby. Cuba, however chose the more expensive cable that bypasses the U.S. altogether.
(From: The National Law Review)
