Monday, January 26, 2015

Internet Prospects

Tech eyes Cuban payday

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Tech companies see a potential windfall in the Obama administration’s decision to ease trade restrictions with Cuba — and they’re racing to cash in.

The historic announcement late last year is leading to a rush of business interest to plug the island nation in to the rest of the world.

While the landmark change in policy is still in its infancy and companies have a long way to go before they feel comfortable spending millions on new projects, officials are eagerly working the phones to iron out how they might bring the Communist nation into the 21st Century. 

“You’ve got a greenfield,” said Scott Belcher, the head of the Telecommunications Industry Association.

“You can leap over the last five generations of telecommuncations technology and build out a pretty robust system,” he added. “In that sense it’s a wonderful opportunity. It’s the least developed telecommuncations system in the Americas.”

Communications technology was one of the few industry sectors that Obama singled out last month for expansion into Cuba, along with a concerted diplomatic push to establish an embassy and roll back legal restrictions between the U.S. and its island neighbor just 90 miles off the coast of Florida.

Currently, Cubans’ ability to access the Internet is abysmal.

In 2013, just 26 percent of the country used the Internet, according to the International Telecommunications Union, an agency of the United Nations — but most of them could merely access a walled-off network of largely Cuban websites and services. The portion of Cubans who have actual unfettered access to the true, global Internet is estimated to be closer to 5 percent.

“Cuba remains one of the most heavily restricted environments for Internet use in the world, and it has been that way for quite some time,” said Laura Reed, a research analyst at Freedom House, a pro-democracy organization.

Poor infrastructure keeps the speed for most people’s Internet near dial-up levels, leaving even those with access to the Web unable to take full advantage of it.

Access is also prohibitively expensive for many on the poor island nation. A one-hour trip at an Internet café, for instance, can cost an average worker’s salary for the week.

It’s worth remembering that Alan Gross — the contractor whose release from Cuban custody in December allowed the two governments to reach a rapprochement — was arrested in Cuba for smuggling in electronics equipment, including equipment to create Wi-Fi hotspots.

The Obama administration is trying to change that situation.

“I believe in the free flow of information,” Obama said last month, in announcing his new policy. “I’ve authorized increased telecommunications connections between the United States and Cuba. Businesses will be able to sell goods that enable Cubans to communicate with the United States and other countries.”

Following up on that announcement, the Treasury Department this month updated regulations to authorize exports of some communications devices into Cuba without a license, including computers, cellphones and digital cameras. It also authorized telecom companies to build infrastructure and run Internet connections between Cuba and the U.S. or another country, as well as allowed Web companies such as social networking sites to operate in the country.

But not everyone is entirely clear just exactly what those rules mean.

For instance, phones and laptops clearly count as communications devices, but what about a speaker, which might complement those other devices? Would those qualify under the administration’s new licensing rules?

“It’s going to take a while to test those waters,” said Sage Chandler, the vice president of international trade at the Consumer Electronics Association. “We have to first make sure we understand the rules of the game.”

Those regulatory ambiguities have kept many lawyers tied up in phone calls and meetings in recent days.

“The phones are ringing off the hook with people that want to talk about the issue and understand the situation,” said Jack Nadler, a partner at Squire Patton Boggs who has worked on opening up telecommunications markets from Hungary to Myanmar.

The new rules are also just the first step in a much longer legal process that is rife with potential obstacles.

For one, many companies would like to see the Obama administration take Cuba off the list of state sponsors of terror, a distinction it shares with Iran, Sudan and Syria. Countries on the list are subject to special sanctions and exports are put under extra scrutiny.

To roll back the full embargo would take an act of Congress. So would authorizing the Export-Import Bank — an institution many Republicans have long been leery of — to facilitate American companies’ dealings with Cuba.

Key Republican lawmakers have already objected to the Obama administration’s move, which could result in a protracted battle in months to come. That’s not likely to inspire much confidence in company boardrooms.

“Imagine you’re AT&T and Verizon, and you’re sitting there saying: ‘Huh, do I want to lay cable in Cuba?’” said Belcher, the telecom industry group head. “I could start, then the House could pass legislation ... to prevent us from normalizing relations, and then I’ve just made a pretty big investment that I’m not going to get the benefit from.”

Havana needs to show that it can play ball, too.

If the Cuban government maintains too much control over the market, that could discourage companies from jumping in. Or if it clamps down on people’s access to the Web once firms do get involved, that could discourage the Obama administration and private companies from pushing the issue.

Multiple industry sources expected business groups to plan exploratory trips to Cuba in the next few months, to start to taking leaders’ temperature about their intentions.

As it stands, Cuba’s 11 million people largely without access to the Web are too attractive an opportunity for companies not to be eyeing seriously.

“Anybody that thinks they’re going to jump into Cuba, it’s going to be easy and they’re going to make a lot of money quickly, they’re going to be sorely disappointed,” said Nadler. “But I think companies that recognize this as a high-risk but potential high-long-term-reward situation ... will have some good opportunities in an exciting but very challenging market."

“For the last 50 years, Cuba has been forbidden fruit,” he added. “Everyone wants to taste forbidden fruit.”

“At the same time, forbidden fruit is sometimes very bitter.”

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