OPERATOR SERIES: Where Cuba's Etecsa stands amid the digital revolution

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Friday, May 5, 2017

Etecsa is Cuba's state telecoms monopoly, responsible for fixed national, international and public telephony as well as mobile communications and internet and data.

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Being shut off from the world by the US embargo combined with state controls of a communist government have meant Cuba has fallen way behind in the digital revolution.

In 2015, Cuba had the lowest rate of mobile telephony penetration in Latin America with 29.65%, half that of Haiti (68.84%), according to the International Telecommunication Union (ITU).

However, due to new policies from the Cuban government to improve connectivity, starting with allowing normal citizens to own mobile phones for the first time in 2008 and access to the internet in 2013, communications have been improving.

The government has said its goal is to reach internet in 50% of households and 60% mobile penetration by 2020.

The thawing of relations with the US government, started by former US president Barack Obama, who last year became the first US head state to visit the island in nearly a century, have also helped and led to a slew of international roaming agreements between Etecsa and the major US telecom carriers, plus commitments from prominent internet companies like Google, Airbnb and Netflix to activate services on the island nation.

WHO OWNS ETECSA?

The ITU describes Etecsa as one of the last state monopolies in the region. Telecom Italia sold its 27% stake in the company in 2011 to Rafin SA, a company the Cuban central bank describes as a non-banking financial institution that can engage in activities such as export and imports and investments.

The ITU says the remaining 73% is in the hands of the communications ministry (Mincom). However, the official gazette of the justice minister cites the following equity shares: Telefónica Antillana SA, 51%, Universal Trade & Management Corporation SA (Utisa), 11%, Banco Financiero Internacional SA, 6.16%, Negocios en Telecomunicaciones SA, 3.8% and Banco Internacional de Comercio SA, 0.9%.

MOBILE TELEPHONY

2G/3G

Until 2008, mobile telephony was available only to government officials, diplomats, journalists and tourists. That policy was changed by President Raul Castro in 2008 with residents first allowed to register one line; and since November 2014, three lines.

Mobile telephony in Cuba is provided through Etecsa's unit Cubacel, which operates in the 900Mhz band providing 2G GSM nationwide and 3G in the north of the country, and in the 850MHz band with coverage limited to provincial capitals, tourism centers and areas of economic interest. 2G reportedly reaches 85% of the country, according to Etecsa.

In April this year, Etecsa began a 3G pilot in the 900MHz band in Cuba's second city, Santiago de Cuba, initially available near landmark sites. But according to press reports, hundreds of thousands phones in use are not compatible with 3G. Chinese telecoms equipment firm Huawei, which has taken an interest in Cuba in recent years, reached an agreement with Etecsa in 2015 to ship phones that are compatible with all bands in use in Cuba.

Authorities have said that 4G is not viable in the short term due to costs and the country's economic reality.

Statistics

According to the ITU, in 2015 there were 3.34mn mobile users for a penetration of only 29.65%. Nevertheless, that represented a 32% growth rate from 2014 and a 154% increase from the 1.32mn in 2011, showing that the flood gates to mobile communication had clearly been opened. Etecsa said it aimed to clear the 4mn mobile-user threshold by year-end 2016.

Prices

Incoming and outgoing mobile phone calls are paid in Cuban convertible pesos (1 CUC:US$1) making calls very expensive for Cubans, even tourists. Prepaid phone lines also have a 40 CUC activation fee, which includes a 10 CUC initial balance.

The price of receiving or making a local call with a mobile phone in Cuba is currently 0.35 CUC/minute during peak hours (7:00am-10:59pm) and 0.10CUC/minute during off peak hours (11:00pm-6:59am).

In January, Etecsa introduced new prepaid SMS and voice plans that can be topped up using the phone, meaning customers do not have to go to a physical office.

Prepaid customers will be able to purchase credit for local services starting at 1.50 CUC for five minutes and up to 10 CUC for 40 minutes. SMS credit ranges from 0.70 CUC for 10 messages to 2.50 CUC for 45 text messages. Each plan is valid for 30 days after top up.

International calls range from 1.10-1.20 CUC/ minute depending on the destination. Expat Cubans typically buy top-ups for friends and family living in the country using a number of different websites such as www.ding.com and www.globaldsd.com.

However, in April, local press reported an outcry from many Cubans after Etecsa announced it was reducing the amount of bonus minutes awarded for top ups from abroad in its special offers and also reducing the validity of those minutes.

Writing in national daily Vanguardia, Laura Betancourt speculated that the state company was cracking down on alleged illegal channels for bringing money into the country or on reselling of airtime on the black market.

Indeed, in February this year, the Cuban government blocked incoming SMS from foreign online messaging platforms to combat allegedly fraudulent companies that Etecsa claimed were costing it an estimated US$6mn a year.

Messaging companies reportedly use a device called a Simbox that works as an improvised phone exchange that connects to Etecsa's Nauta internet server to deliver text messages. By comparison, one such service, DimeCuba, charges US$0.05 per SMS sent to Cuba compared to the US$0.60 charged if going through Etecsa.

INTERNATIONAL CONNECTIVITY

Until 2012, Cuba was dependent for international connectivity on expensive satellite connections, including Russia's Intersputnik, as well as a few antiquated undersea telephone cables to the US.

In January 2013, Etecsa began to receive international internet service from the Alba-1 submarine cable, which runs from Venezuela to Cuba and Jamaica, and was built by Venezuela-Cuba joint venture Telecomunicaciones Gran Caribe (TGC). It was activated by Telefónica.

Though Cable & Wireless Communications activated a service from Jamaica in May 2013, it was later suspended in August of that year.

A significant announcement came at the end of April this year, when Google confirmed it will start an internet caching service, operating as the first foreign ISP in Cuba.

This will mean that Cubans will have faster access to YouTube and other popular web content. Etecsa will use the Google Global Cache (GGC) to cache YouTube and other high-bandwidth content locally in order to have it delivered faster.

INTERNET

Cuban authorities once called the internet "the great disease of the 21st century," due to its 'counter-revolutionary' information. The government even went as far as setting up its own version of Wikipedia called Ecured in 2010.

However, since 2007, Cubans have been able to own a computer and since June 2013 island residents have been allowed to sign up for public internet access with Etecsa under the Nauta brand, which includes a .cu e-mail address.

The number of individuals using the internet climbed to 37.31% in 2015 from 27.93% in 2013, according to the ITU. However, that has been largely due to the internet kiosks and public Wi-Fi hotspots Etecsa has introduced around the island, now numbering 353.

Paying for internet access is still prohibitively expensive in a country where the average monthly salary is 25 CUC.

Users pay 1.50 CUC/hour for international web surfing and 0.10 CUC for local websites, which are still limited.

Not surprisingly, in 2015, only 5.6% of households had internet access at home, while 13% of households had a computer, according to the ITU.

Last December, however, Etecsa said it was undertaking initiatives to improve internet access across the country, slashing the price of residential internet plans by 25%. It announced the introduction of the Bolsa Nauta plan to access email on prepaid mobile phones and a residential fixed broadband pilot in Havana using ADSL.

In March, Cuba began commercializing the fixed residential broadband service. Nauta Hogar consists of 30 hours of surfing with prices ranging from 15 to 115 CUC for 128kbps to 2Mbps.

Users pay an additional 30 CUC for equipment and installation costs.

THE FUTURE

Reviewing user forums, Cuban consumer complaints center on patchy internet speeds and poor customer service as well as being disconnected for getting slightly behind on their payments. According to Etecsa, subscribers with outstanding bills have seven days before service is suspended, and then 30 before it is disabled.

Etecsa has said it does not have the resources to invest and keep up with demand. The situation may change if, or when, the country opens up to foreign investment.

In January 2016, the US Federal Communications Commission (FCC) took Cuba off its restricted list, opening the way for US investment in Cuba's telecom market without specific approval from the regulator. AT&T has called for the FCC to go a step further and remove regulations restricting improved mobile telephone service (IMTS) traffic arrangements between Cuba and the US.

The Republican Party did not hide its opposition to Obama's strategy of working towards lifting the US embargo on Cuba and it is difficult to guess what President Donald Trump will do. While the Republican administration would be ideologically inclined to undo the historic Obama-Castro rapprochement, the new US president is still a businessman above all, and may see the potential for US investments.

Etecsa director of institutional communications Luis Manuel Díaz Naranjo recently said that the company sees 2,000 new mobile subscribers sign up per day.

The tide of digital innovation and thirst for knowledge on the part of Cubans and entrepreneurial Americans may be something that is bigger and stronger than both the US and Cuban governments.