First U.S. telecom company connects directly with Cuba

A line forms outside the ETECSA, the Cuban state telecommunications company on February 20, 2015 -- the day after IDT finished negotiating an agreement that allows direction interconnection of long distance service between the two countries.
A line forms outside the ETECSA, the Cuban state telecommunications company on February 20, 2015 -- the day after IDT finished negotiating an agreement that allows direction interconnection of long distance service between the two countries. EFE

The first U.S. company to strike a long-distance deal with Cuba since the Obama administration announced a telecom opening toward the island is now handling direct calls to Cuba.

“Now we can terminate and make calls directly to Cuba,” said Bill Ulrey, vice president of investor relations for Newark, New Jersey-based IDT Corp. Previously, U.S. carriers couldn’t make direct calls to Cuba and had to use a non-U.S. carrier for the final connection.

IDT reached an agreement with Empresa de Telecomunicaciones de Cuba (ETECSA), the island’s national telecom provider, to exchange international long-distance traffic in February, and the Federal Communications Commission gave IDT the green light for the deal earlier this week.

IDT began doing business with ETECSA on Wednesday.

The telecom opening, which was announced in December as part of the White House’s plan to renew diplomatic relations with Havana, allows U.S. companies to sell personal communications equipment in Cuba, as well as to work on projects to improve Cuba’s outdated Internet and telecom infrastructure.

At this point, it’s unclear how far the Cuban side is prepared to go with the telecom opening but developments are starting to percolate on both sides of the Florida Straits.

A U.S. delegation led by Daniel Sepulveda, the State Department Bureau of Economic and Business Affairs’ coordinator for international communications and information policy, will head to Havana later this month to meet with their Cuban counterparts.

The goal is to “see what’s possible from their standpoint,” said Assistant Secretary of State Charles Rivkin.

Cuban officials say they’re ready to work with U.S. telecommunications companies.

“We confirmed we’re ready to receive U.S. telecom companies to explore business opportunities — business that could be of benefit to both sides,” Josefina Vidal, the Cuban Foreign Ministry official heading the Cuban delegation, said after the first round of U.S.-Cuba talks in January.

Rivkin said that the bureau already has received a lot of feedback from U.S. companies. “This is a potential opportunity for them; there is interest,” he said. “We’re really just beginning the process.”

President Barack Obama offered a similar but more limited opening for U.S. telecom companies in April 2009 but there really weren’t any takers.

The problem, said New York lawyer Jose W. Fernandez, was “the regulations weren’t terribly clear on how close to Cuban territory a U.S. cable could get. Now that’s become clear.”

Cuba is still a poor country with a low GDP that will continue to hamper opportunities, “but from a business point of view the cost-benefit ratio has changed. Now they know they won’t be hammered by U.S. regulators,” said Fernandez, a former assistant secretary of state for economic, energy and business affairs.

IDT’s Ulrey said he isn’t sure whether the new telecom opening was the impetus for Cuba’s agreeing to the company’s proposal.

“We had conversations for a period of years hoping there would be interest and nothing happened,” he said. “But then we submitted it to them again last year and we began to negotiate it but it’s not clear whether their willingness was a part of the ongoing negotiations.”

The United States and Cuba began secret, high-level talks in mid-2013 that led to the diplomatic breakthrough.

“This is an important first step in the liberalization of telecommunications between the U.S. and Cuba,” said Bill Pereira, IDT chief executive. “Ultimately, the agreement will make it easier and more affordable for our customers to call friends and family in Cuba.”

However, Ulrey said that in the short-term there won’t be significant savings for customers because IDT will still be competing in the direct interconnection business with other non-U.S. companies.

The company currently charges 83.3 cents per minute for a retail land-line call to Cuba and 76.8 cents per minute for a call to a cellular phone using its Boss Revolution app. New rates haven’t been announced yet.

IDT also will be able to sell its interconnection service to other U.S. carriers that provide service to Cuba.

Ulrey said the agreement helps IDT get its foot in the door. Eventually, it would like to offer the same telecom and payment services in Cuba that it provides in other Latin American countries. Among its services are topping up a prepaid phone, which allows someone in the U.S. to go online and transfer minutes prepaid in U.S. dollars to a friend or family member abroad.

Young Cubans are “hungry” for better telecommunications, said Rep. Anna Eshoo, a Democrat from California, after returning from a House delegation trip to Cuba last month. “They understand the power, and the empowerment that comes with the tools that come about as a result of broadband.”

Only an estimated 5 percent to 25 percent of Cubans have any type of Internet service.

“I’d love to come back and see 95 percent penetration,” said Eshoo, the ranking member of the House Communications and Technology Subcommittee.

The Internet and broadband are the “essential tools for a 21st century society” and “they are transformative,” she said.

Since Obama’s Dec. 17 announcement, Cuba has temporarily cut the the price at state-run Internet cafes from $4.50 an hour to $5 for two hours and 16 minutes. That price is good until April 10. The government also has said that it plans to open more than 100 additional Internet cafes this year.

Last year, ETECSA also launched a mobile email service,

In February, Netflix announced that Cubans with high-speed Internet connections and access to international payment methods would be able to subscribe to the service and watch popular movies and TV shows for fees starting at $7.99 per month.

But few Cubans would be able to leap those hurdles, and at this point the Netflix move seems mostly symbolic. Most Internet service in Cuba is dial-up and so slow that it’s only good for emails and laboriously surfing the Web.

A Netflix spokeswoman said the company doesn’t release subscriber information and wasn’t able to say whether anyone in Cuba had signed up for the service.

“The world will know that if Cuba doesn’t want people to watch Netflix, it won’t be because of the U.S. embargo,” Fernandez said.

But he said there’s still more the United States could do if it really wants to encourage better communication and connectivity in Cuba.

The rules, he said, should make it explicit whether U.S. companies are able to set up a storefront to sell cellphones and other consumer communications equipment and franchise such operations to Cuban entrepreneurs.

“This would have the effect of promoting private enterprise,” he said. “The United States could push the envelope even more.”

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