• August 19, 2015

Aubrei Barton

In February 2015, Netflix made a risky, but strategic, decision to expand into the country where few people have internet access. Only 1 in 5 people in Cuba own mobile phones, and 1 in 200 have access to broadband.

Potential for Telecom Expansion

While most developing countries like neighbors Jamaica and Dominican Republic have broadband penetration rates over 5 percent and steadily increasing, Cuba had less than a .05 percent penetration rate in 2013 (World Bank). That low rate, however, signals the potential for an enormous boom in the telecom industry.

And the recent improvement in political relations between Cuba and the United States may help the industry gain the cooperation of the Cuban government in ensuring transparency in their state-owned telecom firm, ETECSA, and in opening the market to competition and restructuring.

An 1895 map of the first telephone network in Havana, Cuba on display in the ETECSA Telephone Museum. Source: Wikimedia Commons.

Compelling Numbers Make the Case

The economic impact of an increase in broadband might also prove persuasive in opening the market. Christine Zhen-Wei Qiang of the World Bank notes how an increase in broadband increases efficiency, innovation, and competition across all industries in developing countries.

Using statistics from the World Bank and the International Telecommunications Union, my analysis shows that if just 10 out of 100 Cubans were broadband users in 2015, GDP would increase by almost 1.4 percent, or $3.6 billion. In 2004, Jamaica’s telecom sector accounted for only 4 percent of Gross National Income (GNI) based on purchasing power parity (PPP), but that grew to 5.7 percent in the ten years after liberalization and privatization.

This suggests, according to my regression analysis, that even if Cuba’s GDP grows at the same rate it has for the past ten years, a liberalized telecom sector could contribute nearly $7 billion annually to GDP by 2025 a near doubling of the market size that would exist without liberalization or private capital. When considering other factors, such as the potential boom in tourism and foreign direct investment from the United States, the increase in GDP due to telecom sector liberalization could be even larger.

Nathan Associates recently assisted with the privatization and restructuring of telecom services in the island nations of Kiribati and Palau. Competition will increase in those countries and allow for expansion of telecom services and lower prices for consumers. Done well, telecom liberalization in Cuba will benefit investors and private firms, but most of all will benefit consumers who will enjoy better services, from phone calls to video streaming. ¿Aló Cuba, me escuchas?

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