Desmond Boylan / Courtesy Reuters

Havana Calling

Easing the Embargo Will Open the Cuban Telecom Sector

On January 15, the U.S. Treasury Department announced a significant easing of the 54-year-old embargo on Cuba, implementing U.S. President Barack Obama’s landmark policy shift toward the island. As part of the change, the Office of Foreign Assets Control (OFAC) amended regulations allowing some U.S. businesses to enter the Cuban market. Among the many new rules, the dramatic loosening of restrictions on telecommunications investment has the greatest potential to accelerate the growth of civil society in Cuba. The revised telecom regulations can empower reform-minded elements in the country and promote political change by lessening sector dependence on the Castro regime. At the same time, the new regulations provide U.S. companies with immediate economic opportunities, so long as they are willing to bear the administrative and bureaucratic burdens of conducting business on the island. U.S. firms’ increased involvement in the country—while not free of business risks—could pay political dividends by promoting the development of market and political reforms.

DIALING ABROAD

It was no accident that Obama targeted Cuban citizens’ access to the Internet and other telecommunications services: Cuba has one of the lowest levels of Internet penetration in the world. According to the International Telecommunication Union, only 25 percent of Cubans have access to the Web, and those connections are slow and often monitored by the government. Meanwhile, Cuban telecom penetration rates are the lowest in Latin America: ETECSA, Cuba’s sole telephone company, serves only 18 percent of Cubans—a lower percentage than war-torn Afghanistan. Increasing Internet access will have economic and political benefits for the Cuban people, as Internet connectivity can drive long-term economic development by facilitating efficient information distribution, lowering transaction costs, and reducing barriers to entry for entrepreneurs. According to the World Bank, there is a 1.3 percent rise in economic growth for every ten-percentage-point increase in a country’s high-speed Internet connections.

Cuba’s underserved and largely untapped communications market is an enticing opportunity for U.S. companies. The U.S. Treasury and revised rules clarify old ambiguities: former regulations prohibited any investment in the Cuban domestic telecommunications network but also authorized the provision of services that linked third-party nations to the island. Owing partly to the difficulty of determining when third-party services were terminated within Cuba, U.S. telecom and IT companies avoided the country altogether. Although telecommunications companies are now permitted to conduct transactions that establish mechanisms for commercial telecom services on the island, a patchwork of other U.S. restrictions remains in place. Several decades’ worth of overlapping sanctions may still deter some U.S. firms from entering Cuban markets in the first place, as doing business in a country subject to some sanctions—even if said sanctions are unrelated to the sector in question—increases the risk of running afoul of U.S. law, resulting in hundreds of millions of dollars in fines.

Read the full article on ForeignAffairs.com