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Free Cuba Phone Market Urged on Obama by AT&T, Nokia, Verizon

Nokia Oyj, AT&T Inc. and Verizon Communications Inc. are urging the U.S. government to ease rules that keep them from operating in Cuba even after President Barack Obama loosened telecommunications regulations last year to promote democracy on the communist island.

Nokia, the world’s biggest mobile-phone maker, is urging the U.S. to ease its 47-year-old trade embargo so it can sell handsets to Cuba. AT&T and Verizon, the largest U.S. wireless providers, urged regulators to make it easier for U.S. companies to directly connect calls to and from Cuba.

The companies’ pleas come after Obama said in April 2009 that greater contact with the outside world would reduce Cubans’ dependency on President Raul Castro’s regime. Still, other regulations prevent companies with U.S. operations from entering the market, according to a July report by the Washington-based Cuba Study Group, which advocates for an open economy.

“We don’t understand why the regulations stopped where they did,” Jose Martinez, head of government relations for Latin America at Nokia, said in an Aug. 20 interview from Miami. “There doesn’t seem to be a desire at the bureaucratic level to change the rules to allow cell phones.”

Cuba has the lowest mobile-phone penetration in Latin America. As recently as 2008, about 20,000 to 30,000 people, mostly foreign diplomats and senior officials, owned mobile devices. That number has grown to 800,000 since Castro lifted a ban on most people owning them, the Cuba Study Group says.

Roaming Service

AT&T and Verizon may be interested in setting up roaming service for U.S. customers who visit the island as a first step into Cuba, said Jose Magana, a senior analyst at Pyramid Research in Cambridge, Massachusetts.

The country of 11.4 million people could become the largest telecom market in the Caribbean, topping Puerto Rico’s $1.6 billion market, Magana said. If the market remains mostly closed, annual revenue could still reach $400 million by 2013 from the current $80 million, he said.

Magana said roaming service in Cuba wouldn’t have a measurable effect on earnings for AT&T or Verizon.

Nokia fell 1.6 percent to 6.72 euros in Helsinki at 11:03 a.m. New York time. AT&T rose 1 percent to $26.90 in New York Stock Exchange composite trading while Verizon increased 1.4 percent to $29.85.

Obama, in an April 13, 2009, memorandum lifting travel restrictions to Cuba for Cuban-Americans, directed the U.S. government to allow companies to provide communications services to the island, saying it would “decrease dependency of the Cuban people on the Castro regime.”

Little Changed

In practice, little has changed, as companies wishing to operate in Cuba risk violating sanctions still in place, said Christopher Sabatini, policy director of the New York-based Council of the Americas business group. These include the 1992 Cuban Democracy Act that prohibits investment in Cuba’s telecommunications network.

“It’s so self-defeating,” said Sabatini, who helped prepare the Cuba Study Group report. “It’s like we just sent them a toy cell phone and said, ‘This will be great. Use this.’”

Cuba’s Foreign Ministry didn’t respond to a request for comment.

AT&T and New York-based Verizon wrote to the Federal Communications Commission this year urging it to grant an April request by TeleCuba, a Miami-based company that sells calling cards, for the FCC to waive rules that fix a maximum rate a U.S. provider can pay the Cuban government for connecting calls.

Market Foothold

The wireless providers’ letters may be aimed at supporting their interest in setting up roaming service in Cuba without taking sides in a politically delicate issue, said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore who covers Verizon and Dallas-based AT&T.

Establishing a foothold in Cuba could be lucrative because mobile phone penetration may increase to 80 percent of the population in four years, from 10 percent to 25 percent now, should providers be allowed to invest in the market, King said.

AT&T has no specific commercial plan associated with the letter, spokesman Michael Balmoris said. Verizon spokesman Jeffrey Nelson, and John Taylor, a spokesman for Overland Park, Kansas-based Sprint Nextel Corp., declined to comment on whether their companies were seeking a roaming agreement for Cuba.

The branch of the U.S. Treasury Department that enforces trade sanctions allows U.S. providers to pay Cuba for services including roaming, said a Treasury official who declined to be identified, citing agency policy.

FCC Rate Cap

Still, under current FCC rules, U.S. providers can only offer direct calls to Cuba and roaming service if they pay the Castro government a fee no higher than 19 cents per call, said an FCC official. That prevents U.S. operators from offering these services because Cuba demands 84 cents a call, according to the official, who declined to be identified because of the sensitivity of the issue.

The FCC is considering whether to waive the rate cap, the FCC official said.

U.S. rules also keep Nokia from selling handsets in Cuba, even though it is based in Espoo, Finland, because the unit that exports to Latin America is based in Miami, Martinez said.

“There is an enormous amount of frustration that the rules weren’t clear enough,” said Judith O’Neill, a telecom lawyer at Nakhota LLC consulting firm in New York.

Tommy Vietor, a spokesman for the Obama administration, declined to comment, as did State Department spokesman Philip Crowley.

Castro Government

While the entry of U.S. companies also hinges on the willingness of Castro’s government to let them in, the Cubans would probably be open to the idea because they want the inflow of cash amid an economic slump, Sabatini said.

Cuban state phone company Etesca, based in Havana, has a monopoly on all fixed-line and mobile services. Milan-based Telecom Italia SpA has a 27 percent stake in the company.

“The rules are so unclear,” Ralph de la Vega, AT&T’s chief of wireless, said in an Aug. 20 interview. ‘Until there’s real change there’s not much we can do about it.”

To contact the reporters on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net

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