The ‘Romanticism’ of Cuba — and the Long Road to Telecom Growth

Cuba tech

The opening of the Cuban technology, media and telecommunications sectors to U.S. investment could benefit baseball, pre-paid cell phones and Shark Week — among others.

In addition to waiting for certain freedoms and flexibility that would come if the U.S. abandoned its trade embargo for Cuba, companies are waiting to see if Cuba will be able to build up its infrastructure, create workable regulations around issues such as intellectual property and deal with challenges like allocating the wireless spectrum.

Discussing the opportunities and challenges in these industries at a panel during the recent Cuba Opportunity Summit were Enrique Martinez, president and managing director of Discovery Networks Latin America, Guillermo Santa Cruz, vice president for Mexico, Latin America and U.S. Hispanic at IMG Media, and Luis Coello, founder and CEO of CubaMobile. The conference was sponsored by Knowledge@Wharton, The Lauder Institute and Momentum Event Group.

Coello started working in the Cuban telecommunications sector in the mid-1990s selling phone cards. He got a license from the U.S. government to do business with Cuba’s state run telephone company, but faced challenges in routing calls and processing payments. With the announcement on December 17 that the U.S. would resume diplomatic relations with Cuba, Coello is now planning to launch a prepaid cell phone venture over the summer.

“The opportunity [in] Cuba is: What is there that we can bring to the rest of the world?” –Guillermo Santa Cruz

“Long distance is not pre-pay right now; no carrier is able to bill the call,” Coello said. “They’re able to post-pay, but they cannot pre-pay.”

He expects the market for the first year to be about 60,000 to 80,000 customers, adding that the average customer will pay around $60 a month. “Cuba has an expensive per-minute rate, but it’s not a high margin,”he noted.

Beyond Baseball

Although President Obama’s December 17 announcement prompted IMG, which packages sports content for distribution around the world, to begin talking about how its existing Cuban business would change, Cuba is not a newcomer to the international sports market, Santa Cruz said.

“The international sports market in Cuba is not unique; it is part of a lot of things that are already going on,”he said, noting that the Cubans participate in major world sporting events such as the Olympics and the World Cup in soccer.

While baseball is “key” to the Cuban market, it’s not the only thing, Santa Cruz noted.

“What we’ve been hearing about baseball in Cuba here in the U.S. is players coming out of the country to play in the [American] major leagues,” Santa Cruz said. “But the opportunity [in] Cuba is: What is there that we can bring to the rest of the world?”

For example, the local baseball leagues in Cuba could become a draw to U.S. viewers in the way that the English Premiere League is in soccer. “In the U.S., we tend to think of sports as football, baseball, basketball and hockey,” Santa Cruz said. “But [around the world] we do really well with rugby, we do really well with cricket.”

Broadcasting sports from Cuba is “almost like welcoming back a lost relative, Twitter ” he added. “Cuba had a tournament in golf; there was Grand Prix racing in Cuba, and all of a sudden, that went away in the 1950s and 1960s.”

He noted that IMG is already doing business with Cuba because the country buys the rights to broadcast the Olympics and World Cup. The Cuban government respects intellectual property rights in those arenas, but Santa Cruz pointed out that such events are put on by international federations that are often based in countries like Switzerland and, in order for Cuban teams to take part, the government needs to stay in their good graces. “How will that extend to other areas, where it’s scripted content or documentaries or telecom?” he asked.

“You have to realize, this is not going to change overnight. There needs to be an infrastructure that gets built up.” –Enrique Martinez

Cuban Chrome

“Is there the right environment for us to have a business in Cuba?” is a major question for Discovery Network, Martinez said. “IP rights don’t exist there right now,” he noted. “Programs are transmitted on state-run television. Are they going to accept the IP rights and rules?”

He noted that some people living on the island gain access to movies, digital versions of magazines, TV shows, music videos and websites from the U.S. and elsewhere through non state-sanctioned weekly “packets.” Those who use them pay a few dollars a week to hand over their hard drives or memory sticks to distributors, who download the content onto the storage device, which people then take home and enjoy over the next week. “There is clearly an appetite for a variety of different types of content.”

Discovery is currently in every country in Latin America except Cuba, and while the island is a relatively small market, “it’s the last one to conquer,” Martinez said. “You have to realize, this is not going to change overnight,” he noted. “There needs to be an infrastructure that gets built up.”

The network already has three documentaries in the works that are being filmed in Cuba. Among them is a series called Cuban Chrome, which focuses on the country’s car culture, and is believed to be the first-ever American reality series filmed on the island. Martinez noted that discussions to film the series began long before the December announcement, and that it took almost a year to get the proper permits from the U.S. and Cuba. A film crew was actually on the ground in Cuba that day.

“Another project is a sanctioned collaboration between marine scientists in Cuba and the U.S. focusing on sharks,” he said. “We plan to use it for a number of different [purposes], but definitely for Shark Week.”

“In the beginning [growth will come] through the satellite, because you don’t need any infrastructure on the island to do it.” –Luis Coello

‘The Last Thing You Give Up

Currently, Internet access in Cuba is only available through one underground cable from Venezuela and via unreliable satellite links. Less than a quarter of all Cubans have access to the Internet and the island’s 90 Internet cafes often charge as much as $4.50 a minute to get online.

“Most content is coming through satellite,” Coello said. “In the beginning, [growth will come] through the satellite because you don’t need any infrastructure on the island to do it.”

It’s possible to bring in from the outside everything needed to broadcast a sporting event in Cuba —“it’s just how do you keep it going,” Santa Cruz pointed out. “How do you start it and keep it going in an environment where you don’t have everything you want as far as hotels, as far as sponsorship. Think about when someone brings a golf tournament to your city —where in Cuba will all that come from?”

Santa Cruz predicted that telecommunications is one sector where the government won’t entirely give up its heavy involvement. He noted that when there is a revolution in any country, the first thing that happens is the group opposing the current regime tries to take over the television stations or the newspapers. “The last thing you give up is the media,” he said. “It would follow that it will be a long road for them to give up things like spectrum.”

As the Cuban market opens up, the panelists, all three of whom are Cuban-American, expect a lot of experimentation from various groups to see what sticks. Though there are a lot of challenges to breaking into the Cuban market, Santa Cruz noted that “whether it’s romanticism or eagerness to go back to a market that was once very important, people are lining up to go back to Cuba.”

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