Turnin’ Havana to Atlanta: The White House Opens Doors for U.S. Telecommunications Investment in Cuba and Latin America
Historic changes in relations between the United States and Cuba (that touch nerves in Hip-Hop and on Capitol Hill) and new U.S. sanctions against Venezuela may provide increased opportunities for U.S. business generally, and electronic communications technologies and infrastructure providers in particular. This week’s Cuba and Venezuela headlines, combined with recent and historic shifts in telecommunications and broadcasting markets in Mexico, on which we reported, herald historic changes in Latin American electronic communications and infrastructure markets.
As we previously reported, President Obama recently revealed plans to begin normalizing relations with Cuba, resulting in part from the release of two U.S. nationals who Cuba had held for years. This policy shift, buttressed by recent U.S. sanctions against Venezuela, could facilitate U.S. infrastructure investments in Cuba and throughout Latin America.
A fact sheet issued by the White House on December 17, 2014 hinted at the decrepit state of telecommunications infrastructure and services in Cuba. Internet penetration is minuscule; bit rates approximate those that existed in developed nations in the earliest days of dial-up; use of online portals requires registration and is extremely expensive; and access is filtered through government-controlled servers that effectively render the Internet a government-approved intranet. Indeed, some reports indicate that Cuba’s Internet penetration rates lag behind the poorest nations in Latin America and the Caribbean, including Honduras, El Salvador, and Haiti. While political support for the White House move was far from universal, advocates for U.S.-based electronic and communications industry trade groups, including the Consumer Electronics Association and CTIA-The Wireless Association, reacted enthusiastically to the news – as did many Latin American political leaders.
President Obama outlined three steps (also included in the White House press release, available here) to set the stage for normalized trade relations – and investment in infrastructure, services and applications so direly needed in the Cuban electronic communications sector.
First, Secretary of State John Kerry will discuss restoring diplomatic relations with Cuba, including by establishing a U.S. embassy in, and permitting U.S. officials to visit, Havana.
Second, Secretary Kerry will review Cuba’s designation as a state sponsor of terrorism. This development could trigger significant changes to the system of comprehensive U.S. sanctions that currently prohibit most U.S. transactions with, and exports of goods and services to, Cuba.
Third, the United States will increase travel, commerce, and the flow of information to Cuba. This step will clear the way for U.S. financial institutions to open accounts in Cuba and for U.S. businesses to sell communications equipment into Cuba. In addition, the United States will focus efforts on expanding the Cuban people’s access to the Internet.
Ultimately, the President intends to engage Congress in discussions about terminating the trade embargo that the United States has had in place against Cuba for more than 50 years.
It seems likely that these changes will result in authorization to export certain U.S. telecommunications and other related infrastructure and equipment to Cuba in the near future. Equally important, the U.S. government is likely to lift certain financial restrictions to allow U.S. companies to receive payment for business they conduct in Cuba.
Virtually all aspects of Cuba’s telecommunications infrastructure lag behind that of developed countries by at least 20 years. Undersea cables serving the island nation from the mainland are insufficient, wire-based networks rely disproportionately on pre-Revolution copper and circuit-switches, and mobile penetration is the lowest in the region. Opportunities abound, but the pace and form of investment will be restricted by a 50-year Cuban government tradition of fundamental hostility to free enterprise and devotion to controlling all aspects of economic investment and information flow.
The “Venezuela Defense of Human Rights and Civil Society Act of 2014” (the Act) (available here), which President Obama signed on December 18, 2014, should augment the effect of the new Cuba policy on U.S. telecommunications business, as explained below. The Act imposes asset-blocking and exclusion sanctions against persons who have committed certain acts to restrict the freedom of, or otherwise harm, the Venezuelan people. Moreover, and of particular interest to the U.S. telecommunications industry, the Act directs the Chairman of the Broadcasting Board of Governors (the independent U.S. government body that oversees U.S. international media outlets such as the Voice of America and Radio Martí) to:
Evaluate the governmental, political, and technological obstacles faced by the people of Venezuela in their efforts to obtain accurate news and information;
Assess efforts relating to broadcasting, information distribution, and circumvention technology distribution in Venezuela by the U.S. government and otherwise; and
Provide Congress a strategy for expanding such efforts in Venezuela.
Obviously, U.S. companies operating in the electronic communications sector can play a role in both developing and executing strategies to increase access to broadcast and other electronically-delivered information within Venezuela. But the Act offers other potential business opportunities in Latin America, particularly with respect to Cuba. To the extent that Venezuela’s ability to provide economic and other support to Cuba is reduced, the United States may be able to step into the breach.
Many believe that if Venezuela’s President Nicolás Maduro, whose presidency is far from assured due to the current political and economic instability in Venezuela, is ousted, his successor may seek to stave off further pressure from the United States, avoid additional sanctions, and take steps that would provide increased foreign-investment access to the Venezuelan market.
On the other hand, should Maduro survive politically, Venezuela’s continued economic woes could force it to cut aid to Cuba, whose economy has traditionally depended heavily upon assistance from Venezuela. Cuba’s commercial relationship with Venezuela reportedly accounts for 40 percent of Cuba’s trade – and 18 percent of Cuba’s gross domestic product. Without Venezuela’s support, some estimates forecast a contraction of Cuba’s economy of between 4 and nearly 8 percent.
Thus, U.S. sanctions against Venezuela threaten to undermine Cuba’s deep and long-standing economic dependence upon Venezuela, and fundamentally alter the historical relationships among Cuba, Venezuela, and the United States. Coupled with the announcement of first steps toward normalized relations between the United States and Cuba, the Venezuela sanctions portend a potential for increased trade between the United States and Cuba – and a major shift of trade (and information) flows in the Americas and the Caribbean.
The prospect of normalized relations with Cuba and the implementation of sanctions against Venezuela may create rich new markets for investment in software as services, electronic communications, and other infrastructure investment. The easing of restrictions on business in Cuba in particular could create vast opportunities for sales of goods and services and for construction of requisite communications infrastructure both in-country and to serve Cuba from the United States.
The near-total absence of diplomatic and commercial relations between Cuba and the United States for more than 50 years has been an anomaly – and Cuba has maintained relations with many developed industrialized nations across the globe. While U.S. technology and communications companies are market leaders, they face stiff competition from companies based in Europe (most notably Spain), Latin America, and China – among others. To the extent that such competitors already have presences in Cuba, they may have an initial advantage as markets and investment restrictions loosen. But U.S. companies’ leadership, innovation, and geographic proximity is a potent and potentially game-changing combination – in Cuba and beyond.