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The Telecommunications Sector in Cuba

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The Telecommunications Sector in Cuba Table of Contents CUBA 2.0. OFFER ................................................................................................................................2 CUBA 2.0. DEMAND ...........................................................................................................................4 CONCLUSIONS ...................................................................................................................................8 The Telecommunications Sector in Cuba Armando Camacho Costales, National Supervisor National Office of Tax Administration Ministry of Finance and Prices, Cuba Computerization is a critical roadmap in the current Cuban transition. The population's access to the Internet began late, in 2014. It was not until December 2018 that mobile data access services were available. Pilot tests with 4G broadband technology begin in early 2019 on the northern coast, from Varadero to Mariel. Despite the late access to these technologies, the first profound, slow and silent changes related to the use of information and communication technologies (ICT) in Cuba are already being seen. The authorities' proposal to computerize the society is limited not only by this delay, but also by other macro and microeconomic reforms, postponed for more than a decade by the volatility of relations between Cuba and the United States and by international geopolitics. However, the current reforms will not only modify real costs, prices, salaries and pensions - Cuba belongs to the nations with the oldest population in the Western Hemisphere - it will define new macroeconomic and microeconomic contexts, which in turn will determine novel relationships between supply and demand that are characteristic of a centrally planned society in transition, but subject to the influence of one of its strategic goals: computerization, defined 1 in a guiding document: "Comprehensive Policy for the Improvement of the Computerization of the Society in Cuba”.1 The ICT sector, due to its own characteristics of ubiquitous and integrating technologies and of both generic and massive use, has undoubted impacts on supply and demand: from production processes and the commercialization of tangible products and services and, therefore, measurable from the accounting point of view of the neoclassical economy, to their use in intangible processes, which is very difficult to quantify with current statistical methods. The guiding document recognizes this when it establishes the need to "implement the National Computerization Program as part of the National Economic and Social Development Plan until 2030 [...] define the system of indicators that will allow its impact to be evaluated". Defining this system of indicators, evaluating its performance, has been done through a set of standards. Decree Law No. 370 establishes a general and comprehensive programmatic framework for achieving this objective. In Chapter II, “Measuring the Computerization Process in Cuban Society”, establishes the necessary competencies and coordination between the governing bodies and the companies in conjunction with the National Statistics and Information Office (ONEI) in order to modernize the statistical indicators of the telecommunications and information technology sector. Implementing this new system of indicators will make it possible to quantify and evaluate them in accordance with the operating conditions of the telecommunications sector. This is undoubtedly a challenge in the current Cuban context. Cuba 2.0. Offer A starting point would be to design it to quantify supply and demand. Current indicators do not measure with certainty the contribution of this dynamic market relationship in national accounts. There is a small but enterprising technology sector of small or medium-sized private or family enterprises designed under the simplistic legal denomination of "self-employment", which operates outside the official statistics of the telecommunications sector. The new standards that will regulate the enterprise system should recognize and facilitate that the emerging technology sector gains recognition that allows it to operate at the level of private enterprise, with global access to markets, financing possibilities, and access to the best practices and technologies available at the global level. 2 Some of the most successful business models are those that operate globally. This is the case of e-commerce integration with one of the emerging sectors of the Cuban economy: the rental of spaces and/or rooms in the global tourism market and on the international Airbnb platform. In a report published by the platform, the company details its successes in Cuba. For a little more than two years, 560,000 U.S. visitors arrived on the island via this digital platform, an average of 70,000 per month. Twelve percent of Americans who visited Cuba used this channel. At the publication date of the report, Cuba ranked ninth in demand, above traditional tourist markets such as Australia or Thailand. As for the nationals who provide these services, the text indicates that the average age of the owners of the lodgings was 43 years old, and 58% were women. Gross direct revenues of 40 million U.S. dollars were remitted directly to the owners by Airbnb: an average of 2,700 U.S. dollars per user per year. Despite recognized statistical limitations, the ICT sector has been the most dynamic in the last five years. Using figures from the Statistical Yearbook of Cuba 2018, chapter 5: “National Accounts (2019 edition) of the ONEI,2 the transport and telecommunications sector that year represented in current prices 9.0% of the GDP and a growth of 6.4% between 2017 and 2018 (constant 1997 prices), surpassed only by the construction sector, with 9.3%. Note that traditional sectors determining growth during the last decade, such as hotels and restaurants, decreased by 3.6%, and that the sugar industry fell by 43.7% during the same period. Cuba's national accounts do not break down the aggregates of “transport” and of “telecommunications” in the GDP figures. Calculations made according to the gross income and the taxes contributed by ETECSA's Profit Tax - the only provider of telecommunications and internet services in Cuba - determine a percentage of participation in the GDP between 1.9% and 2.7% in 2018 for communications. In the Caribbean nations, the combined transport and communications sector exceeds 15% in the composition of GDP. In Cuba it reaches 9% in 2018, despite sustained growth over the last five years, as can be seen in the following graph. 3 Graph 1 Annual GDP, Transport and Communications Growth from 2013 to 2018 (constant 1997 prices) % growth 6.5 6.4 4.3 4.4 3.7 3.4 3.2 2.7 2.2 1.8 1.0 0.5 2013 2014 2015 2016 2017 2018 PIB Transporte y Comunicaciones See note (i) to Graph 1 at the end of the document. However, there is a strong correlation between GDP growth and the transport and telecommunications sector beginning in 2014, coinciding with the authorization of Cubans to use the Internet. It shows that private consumption represents the most significant part of the contribution of telecommunications to GDP, as is the case in the rest of the emerging economies. Cuba 2.0. Demand According to ECLAC and ITU, the development of the telecommunications sector in Latin America has three well-defined stages: • In the first stage, from its creation until the mid-40s, the sector was basically private and dominated by foreign companies. 4 • The second, from the 1950s to the late 1980s, was characterized by nationalization processes and state monopoly. Cuba is now in this intermediate stage. • The third stage goes from the mid-1990s to the present day. A complex process of liberalization and opening of markets and privatizations; changes in the institutional schemes of regulation and interconnectivity and global competition; integration into value chains, products and services. In the short term, there will be no change towards deregulation or privatization in Cuba. The opening to markets and privatizations harmonize similar elasticities between supply and demand between national and international markets, requiring regulators and operators to provide infrastructures and technologies similar in terms of integrity in quality, competitiveness and access. This is what happens with the demand and consumption of mobile terminals in the Cuban market: 84% of the terminals in the hands of users have been commercialized by individuals through personal imports, not through official sales. The report We Are Social 2019, published by the consulting firm Hootsuite, establishes an increase of 27% for internet users from Cuba between 2017 and 2018. This dynamic is what is expected to happen in the short term with access to other services on the network, whose limitations have more to do with the U.S.-Cuba geopolitics and with the traditional schemes that consider these technologies as a potential internal destabilizing danger, not with financial deficiencies or limitations. Not offering mobile telephony and Internet to the population for decades may be based on political, not technical or financial considerations. For its part, the use of ICT promotes distributed innovation, creativity and conflict resolution with a cost advantage over property-based systems or schemes with petrified vertical hierarchies. Cuba faces its computerization process with a decision-making system and structures that are too vertical and not very dynamic, with inertia to face the current demands of its users and the innovation of
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