Nearshore Americas

Cuba Ripe For Internet Development, But Foreign Investment Still A Ways Off

Cuba is a tantalizing, complex and ultimately slow-building market that has significant upside despite the presence of a political and governance obstacle course that has so far suppressed swelling demand for better Internet facilities within the country.  This was one of the conclusions drawn from a special “Cuba ICT Outlook” panel at yesterday’s Telecommunications Industry Association (TIA) conference in Dallas, Texas featuring Tim Finton, Senior Counselor for International Communications and Information Policy at the U. S. State Department, Dr. Margaret Crane, a professor of Latin American Studies at Columbia University featuring and Nearshore Americas Managing Director Kirk Laughlin.

The panelists agreed that Cuba’s Internet infrastructure is underdeveloped. There was also broad agreement that it’s too early to know how exactly the U.S. embargo will eventually come to an end.

Given uncertainty over regulations and the U.S. embargo, a rapid opening up of the island is unlikely. “Don’t pack your bathing suits just yet,” Crane warned, urging the audience to “think in steps, from 1-5 years.” A particularly thorny issue concerns the claims of many Cubans who fled for the United States after Fidel Castro came to power on January 1, 1959. Many still assert claims to land and other assets that were seized by the Castro government, and those claims could include assets being bought by investors today. Crahan warned, “Foreign ventures and join investment in Cuba will remain limited for some time.”

Finton shared the backstory on how the U.S. government moved toward President Barack Obama’s Dec. 17 announcement to normalize relations with Cuba. In 2009 he was part of the team that began quiet discussions to find ways to help U.S. companies expand the opportunities in Cuba’s telecom market, working around various parts of the prohibitions that make up the U.S. embargo. These efforts produced few immediate results, ultimately because they could not find banks willing to finance deals significant assurances. But the “Cuba team,” as Finton calls it, reconvened in 2014, sensing a new climate for U.S. companies to do business in Cuba. This time their ambitions were wider; they wanted to help improve IT infrastructure on the island, not just lay a cable to Cuba.

Now Finton thinks there is a critical mass of interest to make meaningful changes in U.S.-Cuban relations, and how business is done in Cuba. He pointed to Airbnb as one example where a startup was able to move fast to establish a presence on the island, thanks in large part because its business model fits into the existing Cuban program of casa particulares.

Change Is On Its Way

In a 20-minute presentation, Laughlin told the crowd of more than 150 TIA member and other conference attendees that Cuba has a pent-up capacity that could rapidly advance the country’s ICT infrastructure.

A snapshot of Cuba’s ICT infrastructure is bound to look bleak. The Internet penetration rate is only 26%, and the percentage of Cubans who regularly access the Internet, as Americans and most everyone else knows it, is far lower. Laughlin detailed how radically different online networking is in Cuba from the rest of the world. When Cubans get online, they rarely access a global Internet; instead, many Cubans only have access to a domestic intranet that allows them to check email, and navigate among a limited number of websites. And because one hour of global Internet access at a state-run “navigation room” costs almost a week’s pay, those Cubans who access the Internet overwhelmingly do so at work, where Internet access—albeit monitored—is free for employees.

Reinforcing this outlook, Laughlin introduced findings from a survey conducted by Nearshore Americas over a 10-day period in May. He pointed out that of the 300-plus Cuban IT professionals polled, over 45% connected to the Internet from work at a connection speed of 1Mbit or less, while just 5% reported having ADSL installed in their home.

Beneath the surface though, seismic forces are building for change. To this end, Laughlin explained key trends that could drive a rapid modernization of Cuba’s ICT sector.

First and foremost, Laughlin highlighted the role of Cuba’s IT professionals. Despite the odds—imagine a career as a computer scientist at university and you do not have Internet at home—Cuba enjoys a large pool of IT talent. At one point Laughlin surprised the crowd by introducing a breakdown of the specialties of software developers in Cuba. Roughly 65% of respondents are experts in .Net, Java and PHP; somewhat surprisingly, nearly 10% of Cuban IT professionals reported expertise in Ruby on Rails. Almost half of respondents polled mentioned working with foreign firms.

Adding to the pressure for better connectivity, Laughlin noted the growth of mobile phone usage. In 2008, only 300,000 Cubans had a mobile phone subscription, but since then the number has steadily increased, surpassing 3 million phone subscriptions last month. Although some Cubans may prefer to stay with mobile, many more would surely prefer to have greater Internet access along with it.

Finally, Cuba’s sole telecom provider, state-run ETECSA, is now under pressure, as one its favorite excuses for not modernizing the telecom sector more rapidly, the U.S. embargo, will become less and less a barrier to the flow of U.S. technology and equipment to the island. Indeed, shortly after the Dec. 17 announcement, the White House announced a policy expressly intended to ramp up sales of telecom equipment to the island.

Sign up for our Nearshore Americas newsletter:

Preliminary details of ETECSA’s plans to lay optical fiber across the island were revealed at the TIA conference. More disclosures around the ETECSA plan will be provided in an upcoming Nearshore Americas research study set for release in early July, “Assessing Cuba’s Appetite for ICT Transformation.”

During the Q&A session, Laughlin fielded a query akin to “Why now?” It’s valid given the sclerotic nature of reform over the past 50 years in Cuba. “Pressure is being exerted internally in Cuba, the citizens are expecting better performance, better connectivity. There is also a consciousness among the Cuban leadership about this issue,” he said.

Signs of this can be seen in the acceleration of government experiments to open more navigation rooms, lower prices at navigation rooms in far-flung provinces like Guantanamo, as well as recent investments to expand bandwidth at major universities on the island.

Cuba may not be likely to welcome a major glut of foreign investment in the near term, but there is clear evidence around the move to improve connectivity.

(Nearshore Americas will host a webinar in July to further examine Cuba’s prospects for BPO and IT services. Stay tuned for more updates.) 

Sean Goforth

Add comment