Cuba (Semi-)Libre? Sí, Pero . . .

Posted on July 17, 2010 by Christine E. Goepp

Despite U.S. efforts to ease entry into the Cuba market, no telecom gold rush has materialized – Por qué no?

It’s no secret that the Obama Administration would like to “reach out” to Cuba in the hope of bringing that island nation and the U.S. closer on a number of levels. One component of that effort involves increased telecommunications links between the two countries, as we reported last December. While it took the FCC a bit longer than other agencies to get with the program, by January the Commission had finally jumped on the bandwagon: as we reported then, the FCC eventually got around to relaxing its longstanding, restrictive policy on telecommunications to Cuba. Having discharged its duty, the Commission sat back and waited for a flood of international 214 applications which would lead to telecom rapprochement with the Cuban people.

This has manifestly failed to happen. Por qué? 

A number of theories and observations were tossed around by a panel of experts at a recent brown bag lunch presented by the Federal Communications Bar Association. Here, we summarize some of the major factors that, according to the panelists, are affecting and will likely continue to affect U.S.-Cuba telecommunications ventures.

Clearly, companies are having a tough time making out a business case for Cuban projects. One factor: the grim market realities at the other end. The Cuban population is poor and its domestic infrastructure lacking. Critically, current U.S. law still forbids selling equipment or otherwise investing in Cuba’s domestic telecommunications infrastructure. So while the relaxation of U.S. policies may enable U.S. businesses to reach the island, those businesses are still prohibited from taking steps to improve their opportunities on the island itself.  For example, building a submarine cable route could turn out to be an expensive bridge to nowhere. 

Moreover, any such project must deal with the vagaries of the Castro government, which has been known to pull the plug on communications projects without explanation or, more importantly, compensation.  Unfortunately, reestablishment of international relations is a two-way street. So the fact that the U.S. may be enthusiastic about getting closer to Cuba does not necessarily mean that the feeling is mutual.  Relations between the nations remain distant, despite the Obama Administrations relaxed policies. The U.S. embargo is still in place, and long memories on the island recall the disbursement of Cuban monies from U.S. bank accounts to satisfy what many Cubans perceive as dubious legal claims. And let’s not forget that the stated goal of the Administration’s policies is to “support the Cuban people’s desire for freedom and self-determination” – not exactly a goal designed to warm the cockles of Castro’s heart. There remain, as one expert on Cuba puts it, “sensitivities”.  

And there’s another complication working against any re-kindling of the U.S.-Cuba affair:  a rival for Cuba’s affections has appeared on the scene. Earlier this year, a survey vessel sailed from Cuba to Venezuela, mapping the route for a new submarine cable – dubbed the “Gran Caribe” – which would eventually link Cuba to Venezuela, with spurs to Jamaica and perhaps Haiti and other islands. This project is apparently designed to bypass Miami and obviate any need for Cuba to look northward for global connectivity. According to the CubaStandard.com, the “Gran Caribe” cable is to be built by Alcatel Shanghai Bell and operated by Telecomunicaciones Gran Caribe SA, a Venezuelan-Cuban state joint venture.

Despite these obstacles, at least some U.S. companies may be able to take advantage of newly-permitted roaming agreements with Cuban providers right away. Others without an immediate hook into existing opportunities may still be inclined to invest in a plane ticket in order to engage in a little brand prepositioning. And still others lacking any particular business plan but nonetheless up for a good time might choose to head on down to research the potential demand for telecom service on, say, a Hemingway-esque fishing boat, or at the Edificio Bacardi, or maybe, mojito in hand, down on the Playas de Este. ¿Puedes oírme ahora?
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Cuba (Semi-)Libre? No Mas!

Posted on January 24, 2010 by Christine E. Goepp

FCC adopts new Cuba policy, finally!

Our last report on Cuba ended with a cliffhanger: the Department of the Treasury's Office of Foreign Assets Control (OFAC) and Commerce's Bureau of Industry and Security (BIS) had eased their Cuba regulations with respect to telecommunications, but the FCC was clinging to its 16-year old, highly-restrictive policy. It turns out that the FCC was waiting on word from the State Department—and once that word rolled in, the Commission moved quickly. 

On January 12, 2010, FCC Chairman Genachowski received a letter from the State Department rescinding its 1993 policy letter and setting out new policy guidelines.  Sure enough, a scant nine days later, the Commission issued a Public Notice modifying its process for applications for service to Cuba. While the most burdensome restrictions from the old regime have been removed, applicants looking to serve Cuba should be aware of the following:

  •  Applications for international authority to serve Cuba must be filed separately and are not eligible for streamlining. Service to Cuba will not be covered by a grant of Section 214 global authority under section 16.18(e)(1) of the Commission’s rules, but must be applied for separately under section 63.18(e)(3).
  • Applications will go to the State Department for review. The Commission will submit all Section 214 applications for service to Cuba to the State Department for review. If State does not object within 30 days, the Commission will assume that it does not object to the grant of the application on foreign policy grounds.
  • The International Settlement Policy (ISP) and Benchmark Policy still apply to Cuba, but the FCC is prepared to grant waivers “reasonably limited in duration” based on “unique circumstances presented.” The ISP is designed to prevent U.S. carriers from being whipsawed by dominant carriers in foreign markets by restricting the terms and conditions U.S. carriers may agree to. Under the ISP, any carrier seeking to enter into an agreement with Empresa Telecomunicaciones de Cuba S.A. (ETECSA), which the FCC presumes to have market power in Cuba, must: (a) not agree to a higher effective accounting rate than other U.S. carriers; (b) receive a proportionate share of return traffic; and (c) divide the accounting rate 50/50 with ETECSA for U.S. inbound and outbound traffic. Similarly, the Benchmark Policy is intended to reduce above-cost settlement rates by requiring U.S. carriers to negotiate settlement rates at or below certain benchmark rates. Cuba is classified in the Benchmarks order as a lower middle income country, for which the most recent settlement rate is $0.60 per minute. 
  • The new rules do not authorize investment in Cuba’s domestic infrastructure. This point is made explicit in both the State Department letter and the FCC Public Notice.
  • Applications may also need to be licensed by OFAC or BIS. Companies should ensure that in addition to FCC approval, they have appropriate authorization from OFAC (for travel and payment) and/or BIS (for export of U.S. goods).

Potential applicants should also bear in mind that while the scope of authorized telecommunications activities is broad, it is not unlimited. U.S. telecommunications companies may apply for FCC authorization to: (a) enter into agreements to establish fiber-optic cable and satellite communications facilities linking the U.S. and Cuba; (b) enter into roaming service agreements with Cuban service providers; and (c) provide satellite radio and television services to customers in Cuba.
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Cuba (Semi-)Libre!

Posted on December 6, 2009 by Christine E. Goepp

Treasury and Commerce Departments relax Cuba rules for telecommunications providers, but FCC not yet on board

Mojitos, plantains and panatelas, here we come! Cuba has been re-opened for telecommunications transactions with U.S. companies . . . at least as far as two important agencies are concerned.

Back in April, President Obama directed the federal agencies that administer the longstanding U.S. embargo against Cuba to “reach out to the Cuban people” by liberalizing the rules governing telecommunications to and from Cuba. And while his directive seemed to suggest that things should change immediatamente, it took until July to get things largely teed up, and even then an unexplained last minute delay added two more months to the process. But in September, two of the federal agencies that have historically administered the U.S. embargo against Cuba – Treasury’s Office of Foreign Assets Control (OFAC) and Commerce’s Bureau of Industry and Security (BIS)—relaxed their regulations. As a result, U.S. companies may now: enter into transactions for telecommunications service to and from Cuba; build telecommunications facilities to Cuba; and export telecommunications-related goods to Cuba – all without the need to obtain specific approval in advance. And get this – the new rules authorize travel to Cuba that is incidental to these approved activities. Vamonos, amigos!!

Heads up, though. One communications-related agency has taken a more, er, languid approach to El Presidente’s directive.

The FCC continues to apply 16-year-old State Department criteria for authorizing U.S.-Cuba service, criteria which are more about Cold War Containment than 21st Century Reaching Out. Under the FCC’s current rules, telecommunications service to Cuba cannot be approved under the streamlined process for international telecommunications authority, but rather must be approved on a case-by-case basis. As far as the FCC is concerned, requests for such authority are also subject to certain restrictions established in 1993 by the State Department (e.g., operation within one year, limited equipment and services, and compliance with the FCC’s international settlements policy).

We hear that OFAC has been leaning on the Commission to get with the program, and there is some hope that that may happen in the near term. Until then, companies can still avail themselves of the OFAC and BIS regulations to begin the necessary negotiations and to send employees to Cuba for the purpose of advancing their projects.

The OFAC general license to provide telecommunications service is very broad. All transactions for the provision of telecommunications services between the U.S. and Cuba are authorized, as well as the provision of satellite radio or television, and implementing roaming service agreements with Cuban providers. Similarly, contracts with non-Cuban service providers and Cuban individuals for service to Cuban individuals are authorized. To provide these services under the new provisions, companies must notify OFAC within 30 days after commencing or terminating service to Cuba and must make semiannual reports showing any payments made to Cuba or a third country in connection with the service.

The BIS general license relates to exports. It allows companies to apply for case-by-case authorization to export or reexport all telecommunications items (including commodity, technology, or software) which are “necessary to provide efficient and adequate telecommunications links between the United States and Cuba”, including links through third countries and satellite links. (This eliminates the previous requirement that the items be commodities and part of an FCC-approved project).  

While the new rules authorize a broad array of transactions relating to telecommunications services and goods, the terms governing telecommunications-related travel are less expansive. Travel transactions must be directly incidental to participation in professional meetings for approved purposes (such as marketing, sales, and performance related to telecommunications services contracts, or establishment of facilities). The traveler must be an employee of a U.S. telecommunications company and must keep to a “schedule of activities [that] does not include free time, travel, or recreation in excess of that consistent with a full work schedule.” For sales of telecommunications-related items under the BIS rule, travelers must comply with the above limitations and must submit 14-day advance notice to OFAC as well as a written report within 14 days of return. And of course, anyone looking into making deals in Cuba should do their homework regarding Cuban law, making sure to obtain all appropriate travel permissions through the State Department.

Taking a tip from Bing Crosby, Olga San Juan (“the Puerto Rican Pepperpot”), and Irving Berlin, we’ll see you in C-U-B-A, where we’re sure you’ll be “Havana” good time.
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New Cuba Rules "In Limbo"

Posted on July 17, 2009 by Ron Whitworth

It looks like the Obama Administration’s effort to open the door for U.S. companies to provide telecom services in Cuba has taken a step forward, and then a step (or maybe just half a step) back. But either way, there appears to have been movement recently – enough to justify this reminder to keep on your toes if you’re thinking about moving into the Cuba market.

Last April the Administration announced its intent to lift many of the longstanding U.S. sanctions against Cuba.  On the telecom side, the Secretaries of State, Treasury and Commerce were directed to enable providers to: enter agreements to establish fiber-optic and satellite links between the U.S. and Cuba; enter roaming service agreements with Cuban telecom providers; provide and pay for telecom, satellite radio and television services for Cuban customers; and export certain donated communications devices.

The Office of Foreign Assets Control (OFAC) began crafting new regulations immediately to effectuate the President’s directive.  We spoke with an official in OFAC’s Licensing Division on July 17, 2009, and were told that those rules have been finalized and delivered to the White House. 

That’s the good news.

The bad news? We were also told that, while the rules were slated to be published in the Federal Register on July 15, they were pulled at the last minute for reasons unknown.  According to the official, the White House has requested some changes to the rules, but OFAC is apparently uncertain as to what those changes entail. The official stated that upon the resolution of the White House’s concerns, the rules will be published immediately, but as of right now, the rules are “in limbo.”

Once the rules are published in the Federal Register (the official would not offer a prediction on when that will happen), they are currently expected to become effective immediately.  At that time, the FCC will be directed to abandon the policy directives it received nearly 16 years ago from the State Department, and replace them with a new set of application procedures as constructed by OFAC and the White House.

As frustrating as this latest twist may be, it at least indicates that things are moving on the Cuba front. And if the new rules do become effective immediately upon Federal Register publication, things could happen fast. All the more reason to check back often with www.CommLawBlog.com.
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