Cuba is the most attractive telecoms market for potential investors in the Western Hemisphere due to its large population of some 11 million people and feeble penetration rates for fixed and mobile telephony, both dial up and broadband Internet, and PayTV services.

In addition, the geographic proximity to the United States, the large Cuban immigrant community and strong historical ties between the two countries make the island a natural expansion market for US operators.

On April 13, US President Barack Obama issued a memorandum titled 'Promoting Democracy and Human Rights in Cuba's allowing US telecoms providers to:

Enter into agreements to establish fibre-optic cable and satellite telecommunications facilities linking the United States and Cuba;

License US telecommunications service providers to enter into and operate under roaming service agreements with Cuba's telecommunications service providers;

License US satellite radio and satellite television service providers to engage in transactions necessary to provide services to customers in Cuba.

Business opportunities

US telecoms operators should be cautious about their real business opportunities in the island as the White House announcement does not and cannot imply immediate business presence or commercial exclusivity for US telecoms providers in Cuba.

Furthermore, US telecoms operators are not well positioned to gain a footprint on the island in the short to medium term due to regulatory restrictions in place, both in the US and in Cuba.

Some foreign operators already have a business relationship with the island. Most undersea fibre cables passing near Cuba are not controlled by US telecoms companies, and most satellite fleets with footprints on the island are foreign owned.

There are potential challenges for US telecoms providers interested in launching commercial services in Cuba.

The US will need to review its current regulatory framework to implement the necessary modifications needed to guarantee that US-based telecoms service providers would not be subject to lawsuits from parties with asset claims in Cuba.

The Obama administration must define the impact of its new policies towards Cuba and how it may alter the status of the Helms-Burton Act and its application to non-US telecoms service providers.

Any agreement between US telecoms operators and local monopoly Etecsa must be approved by Cuban authorities.

US-based telecoms operators will not be able to provide services directly to consumers until the local Cuban telecommunications market is liberalised through appropriate implementation of regulatory changes.

After liberalisation, US operators will require service concessions to be able to provide commercial services in Cuba.

Cuba's telecommunications market has limited foreign investment. As of the first quarter of 2009, Telecom Italia had a 27 per cent participation on the local mono-poly, Etecsa/Cubacel.

Fierce competition

If Telecom Italia were to divest its stake, the most likely buyer would be Telefonica of Spain.

Once liberalisation of Cuba's telecoms market is announced, US service providers will face fierce competition from international players such as:

América Móvil/Telmex, Mexico: the largest telecoms provider in the Caribbean by number of subscribers with operations in Dominican Republic, Jamaica, and Puerto Rico.

If telecoms service holding Columbus Communications is acquired by Carlos Slim, América Móvil/Telmex would become the strongest telecom provider in the Caribbean basin, allowing numerous synergies with a prospective Cuban operation;

Cable & Wireless/LIME, United Kingdom: the largest fixed-line service provider and second-largest mobile network in the English-speaking Caribbean;

CANTV/Venezuela Telecom, Venezuela: currently a shareholder in a Cuban/Venezuelan enterprise that is deploying a 1,630km undersea cable linking Cuba with Venezuela with a secondary cable linking Cuba with Jamaica;

Digicel Caribbean: as of the fourth quarter of 2008, the largest mobile service provider in the Caribbean with presence in most non-Spanish speaking markets of the Caribbean and El Salvador;

Millicom, based in Luxembourg: has operations in Bolivia, Colombia, El Salvador, Guatemala, Honduras and Paraguay;

Oi of Brazil: the company's second objective after acquiring Brasil Telecom is to expand into international markets. Unlike the digital inclusion project with Mozambique's Soico TV, entering the Cuban market will provide Oi with the means to expand its subscriber base rapidly. In addition, Oi's subsidiary Brasil Telecom GlobeNet has a 22,000km undersea cable system with landing points in Florida that could easily and inexpensively be expanded into Cuba;

Telefonica of Spain: one of the largest telecoms providers on the planet with over 250 million subscribers. Telefonica has strategic participation in the controlling council of Telecom Italia.

Third-party distributors

Most satellite fleets that have footprints in Cuba are not US-based companies. A clarification on the status of the Helms-Burton Act may provide the necessary incentive for firms to start negotiating commercial relations with Cuban authorities, for example, Intelsat of Bermuda; SES Global, Luxem-bourg; Loral-Telesat, United States; Satmex, Mexico; Hispasat, Spain; Venesat, Venezuela; and Star One of Brazil.

The memorandum does not deal with infrastructure or terminal vendor issues, so the current prohibitions on these products will continue, preventing the commercialisation of mass-connectivity products such as WiMAX or CDMA 450 by US equipment providers.

Equipment costs are one of the main barriers to the rapid uptake of telecoms services. The exclusion of US equipment vendors has allowed for third-party distributors to continue selling in Cuba at a higher cost; and places US vendors at a disadvantage against companies that already have commercial relations with Etecsa/Cubacel, including Alcatel Shangai, Erics-son, and ZTE.

GSM mobile services in Cuba use European spectrum frequency band in 900MHz, with limited coverage of GSM on the US 850MHz band.

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