Unlocking Cuba's Telecoms Market: Growth & Challenges - Essay Sample

Introduction

The Cuban telecoms market accounts for a significant portion of the national gross domestic product. Currently, Cubans find it easy to use services and activities for transmitting data or voice, always in real-time, for individual and business motives. Modern technology and competition have accelerated the growth of the national telecoms market. Modern telecommunications is handling the similar issues faced by its frontrunners. As telecoms have grown over the previous two decades to become a very capital-competitive market, corruption within the government has influenced how the nation has developed its communications policies, infrastructures, and regulations.

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As early as the 1980s, the services sector is gaining significance in the country with its growing contribution to national output. The trade-in services has significantly evolved because of the advancement in technology and deeper integration. However, the telecoms market remains one of the most protected markets that are highly sensitive to national security. The telecoms market is subject to comparatively complex regulations because of its specificities because of a great level of investment, conditions of natural monopoly, and economies of scale. The Cuban telecoms market is defined by high barriers to entry. The implementation of the monopolization intervention by the Cuban government has presented opportunities and failures at the same time.

Overview of Cuban Telecoms Market

Cuba is positioned 153 from a possible 157 countries in terms of telecom infrastructure (ICT4 Cuba, 2020). The national telecoms market remains a peculiarity with control by the Cuban government. The nation is characterized by the lowest mobile phone and penetration rates of the internet as well as fixed-line teledensity. The telecoms market is regulated by one telecommunications firm, Empresa de Telecomunicaciones de Cuba S.A. (ETECSA), that is entirely state-owned. Currently, the corporation is tasked with handling the national landline phone services, provisions of internet, telegram network, and mobile phone network. In 2008, ETECSA was 73% regulated by the government and the rest by Telecom Italia, holding monopolies in both mobile and fixed services. It provided TDMA, GSM, and AMPS services through its branch CUBACEL, but mobile rates during that moment were illegal for a significant majority of Cubans in 2013, the corporation became 100% owned by the government after its fallout with Telecom Italia over claims of corruption. According to the 2019 World Corruption Index, Cuba is ranked position 60 (Yea, 2013).

The mobile phone market in Cuba is at a rising growth rate. Most of the Cubans have embraced the idea of owning mobile phones to communicate with individuals locally and internationally. This has been attributed to the fact that there is a high population of youth.

The telecommunication industry in Cuba launched the 3G platform in December 2017 following the execution of investments worth millions of dollars. Cuba is characterized by the worst performance among the Caribbean nations in terms of internet service coverage, telecommunications, and cellular telephony. The region has started the shift towards 5G technology. In contrast, Cuba experiences a delay of more than two decades compared to the rest of the nations regarding telecommunication and infrastructure.

Following a month since the launch of the 3G platform, ETECSA documented that 1.8 million users consumed the internet on their smartphones. The rates for consumption of the internet are high compared to the mean monthly salary of $30 that the Cuban employees receive. For a Cuban to receive 600 megabytes, the consumer is obligated to pay 7 CUC ($ 7 USD), for 1 gigabyte (GB) 10 CUC ($ 10 USD), 2.5 GB 20 CUC ($ 20 USD) and 4 GB 30 CUC ($ 30 USD). The plans entail an extra 300 MB for local portals.

The 1.8 million users that pay for the package with $7 would epitomize yearly revenues of $151.2 million. It is projected that in the next few months, the client base of those consuming the internet service would reach 3 million. Arguably, this would imply revenues of 252 million when computing with a monthly rate of $7.

Before the launch of the 3G platform in the market, the coexisting commercial channels to penetrate the internet in Cuba were the Wi-Fi points, internet payments through the Nauta Hogar service, and the navigation rooms of the monopoly positioned in the entire provinces. ETECSA is providing various stopgap internet services spanning from home DSL, navigation rooms, and Wi-Fi hotspots through the lately rolled out 3G mobile service is the most significant one.

Access to Information

The development of telecommunications has evolved to be a significant move towards minting millions of dollars to the national economy. The launch of the internet to the cellular telephony in Cuba is a new choice that adds more to the state's vacuum coffers. However, paving the way to the internet service poses a very high political risk for the government intimidating the control it has often had over the handling of the information that they take into account as sensitive. The internet paves the way for an opportunity that Cubans have to access and offer information massively, something that has been prohibited to Cubans.

Opportunities

With a population of more than 11 million individuals and an increasing client base of active mobile users, the scope for the expansion of the communications system in the country is high. Monopolizing the telecommunication services will assist the operator in creating opportunities.

Stability of Prices

In the Cuban telecommunication environment, there is a promise of stability of prices. As the telecoms market is a monopoly, ETECSA is the only seller of internet and mobile services, and the prices are evaluated by the ETECSA based on their wishes and whenever they would desire to change the price. Due to this, the prices of a monopoly will remain stable compared to those in a competitive market.

Revenues and Profits

The approval of ETECSA as the only seller of internet and mobile network services to Cubans has increased revenues for the organization (García, 2020). It is vital to understand that monopolies are always a source of limited competition and entry of other sellers in the market as they are encouraged. This is due to the fact that monopolies can earn high profits as they are the only sellers in the market, and this become good sources of revenues for the authority which the society can reap benefits from.

Failures

Governments should embark on regulating telecommunication services if they have a strong reason behind it to believe that markets will not offer a suitable solution. The telecoms market is apt to fail in many aspects regarding the provision of access to corporations. First, regulation over access to the coexisting fixed-line networks provides the incumbents with substantial leverage in signing the interconnection agreements. By refusing to sign the agreement, an incumbent has the capacity to delay the penetration of a telecommunication firm into the market. In an environment characterized by lack of government control, the incumbents have natural incentives to abuse their leverage. The abuse can constitute exorbitant fees on interconnection, the use of these fees to subsidize the engagement of the incumbent in mobile markets, and discrimination in the delivery of access services.

Economists and government institutions in many nations have raised their concerns regarding the access problem. The telecommunication firms have incentives to charge the high interconnection fees for terminating the calls. In Cuba, the initiator of the call is mandated to pay the entire charges. When a fixed-line client calls a mobile customer, the fixed-line will pay for the service of emanating the call and terminating it. Competition among mobile phone corporations is bound to create pressure for low prices for some facets of mobile service. No telecommunication firm would care to deliver cost-effective call termination fees as its clients would no longer pay the fees (Ionica, 2013).

Involuntary negotiations to bring an interconnection agreement between a mobile network and a fixed-line network, the latter might not oblige to costly call termination fees suggested by the mobile network. When there is a lack of significant competition characterized by traffic of residents and visitors from urban areas did not entirely recover the expenses.

The inability of Cuba to privatize its telecoms industry from one controlled by the state has left the authority with the arduous accountability for offering services in many facets of communication to constitute telephone landline service, mobile cellular, internet data service, and satellite T.V.

Cuba carries on the privatization of its telecoms industry, though does not appear keen on the liberalization of the sector. Whereas the government has acknowledged its incapacity to withstand or grow its infrastructure because of the burdening expenses of the government, its ideology appears to impede the government from moving forward as proven by its 2011 decision to assume state ownership and control of ETECSA, purchasing out the rest of its foreign partner in business, Telecom Italia, for U.S. $706 million (Yea, 2013).

One of the failures of implementing the monopolization of the telecommunication industry is that ETECSA will be denied foreign investment. The lack of competition will deny the Cuban government's capacity to lure foreign investors that will offer infrastructure services to enhance consumer choices (Li et al., 2019). Poor implementation of the substantial technologies will deteriorate the breadth and scope of the telecommunication services. As a result of this, there will be less interest from non-telecom associated corporations that depend on efficient broadband access, such as those engaging in business process outsourcing industries.

The monopoly of telecommunication services will lead to deterioration of the managerial quality. The decrease in management quality will be a probable result of monopoly. The existence of the same corporation will cease the recruitment of managers that have management and technical experience around the world. The government of Cuba has not pursued many choices to enhance the efficiency of the ETECSA, such as making the necessary changes to top management and outsourcing with restrained outcomes.

The monopoly of ETECSA will lead to a decrease in the productivity of the employees. The productivity of the organization's workers is gauged by the revenue in each staff, which is lower than comparable firms in the region. A monopoly can decrease productivity, particularly when the staff ownership of the corporation is grounded via employee stock ownership plans (ESOPs). The enforcement of the performance-oriented pay schemes, enhancements in the wage structure, and increased flexibility in employment are other channels to improve productivity, resulting in high levels of total factor productivity.

The monopoly of the Cuban telecom market has resulted in an inadequate telecommunications infrastructure in the country, which is underdeveloped and outdated in most cases. Priority is given to international, domestic use, while locals receive poor service. It is only the state that controls the telecoms market, which means no competition from local or foreign investors.

The price of mobile phones and fixed lines is high for most Cubans to afford, while access to the internet is restricted by the state. The state regulates the kind of information that can be made available to its people, including sites to be viewed online. The country lags...