Connectivity Providers Database

From: Nelson Valdes <nvaldes@unmb.bitnet> Date: Tue, 5 Jul 1994 01:14:06 -0400 (EDT) >From THE inCUBAtor, JUNE 1994 For more information, e-mail to <jjyoung@igc.apc.org> The Cuban contract has been structured in a way that is "viable financially, politically and legally" says Grupo Domos Foreign participation in the privatization of the Cuban telephone system appears to be the most improbable of ventures. The country cannot receive remittances from its biggest long- distance market, the US. The local currency is not convertible. The telephone network, largely untouched since the 1959 communist revolution is rapidly deteriorating. And the privatized company may be subject to compensation claims dating back to its nationalization. But Mexico's Grupo Domos, which will spend nearly $1.5 billion over the next several years to purchase 49 percent of Cuba's telephone monopoly, Emtel-Cuba, and to modernize the island's telecommunications infrastructure, believes it has structured the contract in a way that is "viable financially, politically and legally." If it is right, the move, by simultaneously improving business services and setting a precedent for long-term private investment in Cuba, could set off a wave of foreign investment in the country. The big price tag for the company, which had some US telephone company executives gasping in disbelief, is not quite as large as it seems. Domos will pay out about $500 million for its share in the company, as much as half of which is expected to come from a foreign partner with telecommunications technology that the British investment bank Rothschild believes it has lined up. Another $200 million in long-term preferential rate financing will be obtained in a swap deal liquidating the Cuban government's outstanding debt with Mexico. The remaining $500 million, half of which the Cuban government will have to put up, will be invested over a seven-year period in an ambitious modernization program. The plan calls for a three-fold expansion in the network's penetration to one million working phone lines. As part of the arrangement, EmtelCuba has received a 55-year monopoly concession on local and long-distance service as well as data and image transmission. Still, Domos's ability to recuperate its investment depends on two uncertain things: a change in US policy towards telephone communications with Cuba and the convertibility of the Cuban peso. Currently all transmission charges due to Cuba for telephone traffic between the island and the US go into an escrow account behind held for potential legal claims against Cuba. For this reason Cuba limits direct calls from the US to 300 a day and all other calls between the two countries get routed through third-party nations. However, while tightening the US blockage of Cuba in most other ways, a 1992 law authorizes the US Federal Communications Commission to increase communications links between the two countries and the US Treasury to allow dollar payments to Cuba for telephone calls. As a result of that change, WilTel International, a large long- distance carrier in the US, signed an agreement in March with EmtelCuba to build a fiber optic line from the tip of Florida to a point near Havana. The deal and the mechanism to remit payment to Cuba are awaiting White House approval, but the concept has been agreed to in principle, according to WilTel executives. WilTel estimates that in 1991 60 million call attempts were made from the US to Cuba and that, in the first year of liberalization of telephone services, between 25 and 50 million minutes of calls would be handled. EmtelCuba would be entitled to about 60 cents per minute plus a surcharge of about $3 per collect call made from Cuba to the US. The prospect of change in policies by a post-Castro government does not worry Domos. "A new Cuban government will not be more to the left than the current one. It will have to be more capitalist," says Pedro Sepulveda of Domos. Domos also discounts the uestion of compensation claims, arguing that the infrastructure is practically worthless while no new investment could be subject to such a claim. Yet others are not so confident. "If you buy anything Castro nationalized you buy then you are buying into a potentially dangerous logic," says one telephone executive who has regular dealings with Cuba, "because by purchasing something from his government you are validating the right of confiscation. If it was okay for Castro to confiscate and then privatize, wouldn't it be okay for a new government to do the same thing?" Claims by US citizens on property in Cuba, including EmtelCuba, are almost certain as part of any move by the US to lift the blockade, according to Jorge Dominguez, a Harvard professor at the Inter-American Dialogue in Washington. Yet Prof. Dominguez is optimistic the deal can work because Cuba needs to modernize its telephone system to bring its economy up to a functioning level. "This is very different from other private investments in Cuba . . . because it is a long- term project, it will have an innumerable multiplier effect on the economy and shows the openness of the Cuban government to privatization," he says.