Will there be Internet-related announcements during the President's Cuban trip?

This week, the Cuban government gave some dissidents one-time permission to travel abroad. I suspect that gesture was related to President Obama's upcoming visit and expect to learn of other agreements when he visits Cuba next month.

I asked a Cuban colleague what concessions he thought might be announced and he mentioned further easing of travel, increased incentives for US investment and a compromise on debt claimed by the US for nationalized property and by Cuba for the cost of the embargo. He did not think Guantánamo would come up, even though President Obama is trying to close the prison. (It seems he was right).

Might there be some Internet-related announcements?

How about an undersea cable from Havana to Florida? Daniel Sepulveda, Deputy Assistant Secretary of State and US Coordinator for International Communications and Information Policy, led a high-level delegation to Cuba in January. Upon his return, he said there are at least a half-dozen proposals — from US and non-US companies — to construct a cable between the US and Cuba.

An undersea cable connecting Havana and Florida would provide backup for the current Cuba-Venezuela cable, add capacity and reduce latency. More important, it would reduce the load on Cuba's national backbone.

Nearly all of Cuba's international Internet traffic is carried over the undersea cable between Cuba and Venezuela. The cable landing is at the east end of the island but most of the traffic is from Havana and other cities to the west, so a cable from Havana to Florida would reduce the need for investment in backbone capacity. (There is also an undersea cable from Guantánamo to Florida, but that remains in US hands and also lands at the east end of the island).

Leaked high-speed backbone diagram

The Cuban government says the Internet is a priority and the US is no longer standing in the way of Internet infrastructure investment. The ball is in Cuba's court and a cable from Havana to Florida would save Cuban investment. This is something ETECSA can and should do on behalf of the Cuba people, even if it requires foreign partnership (for which there is precedent) or subsidy to attract capital.

Copyright is another Internet-related issue. Cuba's "Weekly Package" of entertainment and software is viable because the content is pirated. The government has turned a blind eye toward the organization that compiles and distributes the material because the people want entertainment and need software and there is speculation that it may be Cuba's largest private employer.

Last summer, I asked a senior State Department spokesman whether copyright violation had come up during discussions with the Cubans and he said "no." Might some compromise on copyright have been reached since then?

Today, US content providers are getting nothing from the Cuban distribution of entertainment and software -- something would be better than nothing. The Cuban government likes the Weekly Package because it entertains the people, provides private employment and is a distribution channel for software. Perhaps an agreement could be reached in which Cuba pays small, affordable royalties today with a promise of increases over time in return for dropping prior copyright violation claims.

While I'm dreaming -- how about the Weekly Package as a distribution channel for Netflix?

Another possibility -- an announcement involving Sprint or another wireless carrier. I've noted some of the things Sprint has going for them, but it may not be enough to overcome Cuban reluctance or Chinese competition.

This is all speculation and probably none of it will come to pass (on this trip). That being said, I expect some progress will be announced -- it will be interesting to see what it is.

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Update 2/28/2016

This post on Cuba, the US and cybersecurity (in Spanish), points out that the US and China have an agreement on cybersecurity and there have been cybersecurity discussions between the US and Cuba. Might there be a cybersecurity announcement during President Obama's trip to Cuba?

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Update 3/9/2016

Reuters reports that the administration will announce easing of restrictions on travel and trade before the President's trip to Havana later this month. The report says nothing of the Internet-oriented announcements that I speculated on. It also says about 20 members of Congress will accompany the President and pointes out that several legislators, including Democrats, have criticized the President for continuing to make unilateral concessions to Cuba.

El paquete update -- Cuba's largest private employer?

For several years, I've been tracking Cuba's "paquete semanal," a weekly distribution of entertainment, software, games, news, etc. on portable hard disks and flash drives.

I've noted that the compilation and distribution of the material is well organized and complete, leading to speculation that it is run by the Cuban government -- it generates revenue, provides jobs and acts as an "opiate of the masses" -- who needs the Internet when you have el paquete? (There is precedent -- there used to be a government storefront in Havana where one could bring floppy disks and get copies of the latest software releases).

Even if the government does not run el paquete, they turn a blind eye to its very visible advertising and distribution. In return, the package (like the illegal local area networks) does not include any politically sensitive material.

ABC News reports that el paquete is Cuba's number one private employer, bringing in $4 million a month:

They do not cite their sources, but it is not an outlandish claim. I don't know how many people are employed in the private sector, but, considering the goofy list of jobs that are eligible for self-employment, it is believable that this popular, ubiquitous service could be the leading private employer.

And $4 million a month does not sound like a lot of revenue for such a widespread operation. According to the ABC report, terabyte hard drives with the week's material are delivered to customer's homes for 5 CUC (about $6.50). The subscriber copies as much as he or she wants and the drive is picked up the next day. That subscriber may, in turn, distribute material to others on flash drives or their own portable hard disks.

Elio Hector Lopez, who claims to be the head of el paquete, described a different price structure in a Forbes interview:

Most customers get the drive at home, where they exchange it for last week’s drive and the equivalent of $1.10 to $2.20. (Distributors selling to other distributors charge ten times as much.)

Regardless, $4 million seems plausible. Lopez went on to say that the original founding group had broken up, but evaded the interviewer's questions about operational details.

The following video gives a view of the distribution of el paquete:



It includes an interview of "Dany Paquete" (shown above), a 26-year old "who looks more like a lazy college sophomore than a kingpin of a national blackmarket of pirated media." He is one of two competing national distributors in Havana.

The documentary does not disclose details on the gathering of information, but suggests that editors in Miami and Havana select movies, music, etc. each week.

Dany sounds more like an MBA business man than a drug dealer and is unafraid to appear on camera. The Cuban government clearly tolerates el paquete. Even if officials are not being paid off, it satisfies many consumers, making them less likely to press for open Internet access. Had he been writing today, Karl Marx would have said "el paquete is the opium of the masses."

I recently had an opportunity to ask a senior State Department spokesman whether el paquete copyright violation had come up during discussions with the Cubans and he said "no," but the agenda of Bilateral Commission includes discussion of claims for damages. The focus will no doubt be on Cuban claims for damages resulting from the embargo and US claims for nationalized property -- might that be stretched to include "Orange is the New Black?"

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Update 11/25/2015

A recent news report sheds light on the economics of el paquete distribution. It features the video shown below -- an interview of an anonymous distributor of el paquete to end users. He pays $2 a week for the paquete and the price he charges his customers is a function of the amount of data they copy. For example, eight Gbytes costs 10 Cuban pesos, about 50 cents. To become a distributor, he had to invest in a computer -- an old tower PC -- and portable external hard drives.

Distributing el paquete is a side job. He earns about $32 a month, which he uses to buy extra food -- and he sees the latest episode of his favorite TV shows.

What is the effect U.S. trade restrictions on IT exports to Cuba?

The Senate Finance Committee is researching the economic impact of U.S. embargo on trade with Cuba and I was asked to testify before the US International Trade Commission on the effects of the U.S. restrictions on our exports of telecommunication equipment and services to Cuba. I have a chance to revise the testimony, and would appreciate feedback.

Click to download Word or PDF versions of the draft.

Here is the testimony introduction:

The Commission has asked for testimony on the effects of the U.S. trade restrictions on our telecommunication exports to Cuba. Since there is a great deal of uncertainty about the Cuban plans and policies and U.S. policy is also in a state of flux, I will lay out a framework for discussing the issue rather than attempting specific predictions. This framework can be modified and fleshed out by future research. I will focus on Internet-based telecommunications, which are subsuming traditional telephony.

Potential U.S. exports to Cuba include:

• Personal Internet access devices
• Internet services for fees or advertising
• Internet infrastructure
• Internet service provision
• Digital entertainment and other content
• Sensor-based Internet access devices – “the Internet of things.”

Some of these markets, for example, providing Internet infrastructure and service, are more severely impacted by U.S. restrictions than others.

U.S. restrictions are only one impediment to the sale of these goods and services – there are others that are out of our control:

• Cuban government fear of free information exchange
• The Cuban economy
• The absence of domestic Internet infrastructure
• Socialist values and practices
• Foreign competition
• Domestic competition from state monopolies

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Update 6/26/2015

An anonymous reader has the opinion that my testimony document underestimates the potential of the Cuban market. They listed the following examples:

Web hosting service -- the reader is "middle man" for ten Web sites hosted in Canada and knows of many others.

Specialized professional audio/video equipment that is only made in US, or were US products traditionally have much better quality. Examples include products from Avid, M-Audio and Alesis. Their products are sometimes bought by Cuban companies in third countries using a foreign nationals or foreign companies as middle man. Other times they have to settle for lower quality products from China or Europe.

Computer assisted Medical equipment -- this is a big opportunity because the Cuban government spends a lot on health care every year

Specialized Software -- for example Oracle databases, which are pervasive in Cuba.

The reader went on to say that some US companies refuse to sell their products to Cuban even in foreign countries. For example Dell dealers refuse to sell laptops to people with Cuban passports in Madrid and Barcelona.

Note that the specialized software is pirated, as is much of the software and content distributed in the weekly "paquete." Copyright infringement will be an issue in any discussion of liberalization of US trade policy. Also note that the medical and audio/video equipment is sold primarily to government enterprises, not private individuals or cooperatives.

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Update 1/16/2016

The FCC has removed Cuba from its exclusion list, opening the door for U.S. telecom carriers to provide facilities-based telephone and Internet service to Cuba without separate approval from the Commission. (Cuba was the last remaining country on the Commission’s
Exclusion List).

The ball is in Cuba's court, but I do not expect them to pick it up any time soon.

Dreaming -- this would be a good time for ETECSA to experiment with satellite Internet as an interim measure.

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Update 3/7/2016

The anti-Castro Internet advocacy group Foundation for Human Rights in Cuba has suggested that the choice of Huawei for the home-access pilot in Old Havana was motivated by Huawei's expertise in censorship and surveillance. (The Old Havana pilot deployment is quite limited, but Huawei is also the equipment vendor for forthcoming DSL home connectivity and Cuba's WiFi hotpots).

I mentioned the Foundation assertion to Doug Madory, Director of Internet Access at Dyn Research and he disagreed, saying:

No not really. There are plenty of companies that offer products that can be used for surveillance and censorship -- see the usage of Blue Coat of Canada in Syria. Huawei is both inexpensive and not western. Those are probably bigger reasons.

At The Economist event (last December) I spoke with the country manager (of a US firm) for Cuba and he said he was in the room for one of the main presentations from Huawei to ETECSA. He said Huawei had brought a dozen engineers and had put a lot of work into their proposal for a telecom build-out. Huawei wanted this deal very much.

Huawei opened a Cuban office and began replacing Cisco routers 16 years ago and they, and other Chinese companies, have established strong relationships with Cuba. The US may have been the dominant supplier of Internet infrastructure and other IT equipment and services at one time, but companies like Huawei are now effective competitors.

This was an unintended side-effect of the embargo, and it remains to be seen to what extent the US can recover.

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Update 4/22/2016

Last summer, I was invited by the US International Trade Commission (ITC) to testify on the likely impact of dropping US trade restrictions on the export of telecommunication equipment and services to Cuba. Others were invited to testify on other industries.

I was unable to make it on the day of the hearings, but submitted written testimony and met with the ITC staff a couple weeks later when I was in Washington.

The full ITC report has now been published. The report goes into considerable detail on a number of industries and their analysis suggests opportunities for increased U. S. exports of agricultural and manufactured goods:

They also looked at travel, financial and telecommunication services. The summary of their telecommunication services finding is:

Despite the underdeveloped nature of the Cuban telecommunication services market, and Cuba’s reported new receptiveness to investment in the sector, it is unlikely that U.S. carriers will enter the Cuban market for services beyond mobile roaming agreements and/or direct telephone services. The primary reasons for this reluctance include concerns that payments to the Cuban telecommunications provider (for connecting telephone calls in Cuba) will be garnished to satisfy judgments by winning plaintiffs in U.S. civil lawsuits against the Cuban government; Cuba’s longstanding ambivalence towards foreign investment in the telecom sector; and the small, low-income nature of the market.

The entire report is 437 pages, including the executive summary. The one-sentence takeaway is that "U. S. exports of agricultural, manufactured goods to Cuba could increase if U.S. trade restrictions were lifted, but significant Cuban barriers to foreign trade and investment would remain."

This rings true when we consider the minimal progress that has been made during the 16 months since the start of US-Cuba rapprochement and the recent Communist party congress.

US-Cuba talks on telecommunication and the Internet

Both sides moving slowly

Last week, a US government delegation visited Cuba to discuss telecommunication and the Internet. I've not seen any official release on the meetings, but a few "off the record" quotes by US attendees have been reported in the press:

Latin American Herald Tribune:

• "The United States has identified 'real potential' for faster and more accessible internet and mobile phone services in Cuba, a 'big' trade opportunity for U.S. telecommunications firms in coming years."
  
• “There has already been an express wish by the U.S. private sector to invest in this."
  
• “Cubans create an attractive environment for investment and the provision of services.”
  

Phys.org:

• "[The Cubans] are looking for mechanisms by which, in the first instance, they can expand connectivity while at the same time retaining their mechanism for market management, which is obviously vastly different than ours."
  

Reuters:

• "I believe they are extremely eager to [modernize] ... They are falling behind, and that's denying their people access to knowledge and to the opportunity to grow as an economy and as a people, and they're aware of that,"
  
• "There's real potential here if there's a real will on the Cuban side ... as long as the Cubans create an environment that's attractive to investment ... and attractive to the delivery of services, I believe those services will reach the island."

In general, the US seemed to reiterate the position that our Internet infrastructure and service firms are now authorized to do do business in Cuba and the ball is now in Cuba's court -- what will they allow, what do they want and what can they afford?

I've also had a chance to speak off the record with folks with knowledge of the meeting, so can add a little to these quotes.

The meetings were "constructive" and relatively informal. Previously, US government contact had only been with and through the Ministry of Foreign Affairs, but this delegation also met with representatives of the Ministry of Communication, the Ministry of Foreign Trade and Investment and ETECSA, the monopoly Internet and telecommunication service provider.

Hearing this, I recalled the early days of the Internet in Cuba, when academics and technical people met freely and informally with members of the Cuban networking community and people from different ministries -- Science Technology and the Environment, Public Health and Higher Education. In those days, the topic was the Internet; today it is business and politics.

The discussions focused on domestic infrastructure, not undersea cables. I asked whether the Cubans had shared specific information on their current domestic
infrastructure. They had not, but the folks I spoke with have gathered a rough picture over time. They think there is a fiber backbone connecting each province (including Isla de la Juventud?) with more fiber in Havana and the tourist areas. There is a mix of equipment from China, France and Vietnam -- the US has competitors.

I asked about the undersea cable being installed between Florida and Guantanamo and was told that it was not mentioned and that Guantanamo is for future discussion -- perhaps in five years.

The delegation met with people from ETECSA as well as the government and I asked about the structure of ETECSA and its relationship to the Ministry of Communication. I was assured that although it is owned by various organizations, ETECSA is definitely a government run operation with revenue of about $1 billion per year.

I also asked about possible legal roadblocks -- civil damage claims by Americans and Cubans. They said that there is precedent for settling such claims and some funds will change hands, but this will not be a deal-killer. Cuba being taken off the list of state sponsors of terrorism will also ease these problems. (Stefan M. Selig, the Commerce Department’s undersecretary for international trade has said Cuba will be removed soon).

I asked whether they had discussed copyright violations, for example, in el Paquete, the weekly distributions of software, entertainment, news and other content on flash drives. This was not discussed, but it too will be the subject of negotiation.

I don't know how these things go, but I imagine the government representatives who traveled to Cuba will now meet with and inform US businesses that might are interested in offering things like satellite connectivity, terrestrial wireless equipment, fiber, networking equipment, service, etc. -- giving them some insight into what to expect in terms of regulation and demand. Presumably they are also in touch with companies like Google, IDT and Netflix that have begun investigating and offering service on their own.

The emphasis of these talks was on Cuba as a customer rather than a vendor, and I hope future talks and policy changes facilitate bi-directional business.

One thing is for sure -- these talks were only a small first step. US companies are interested in Cuba, but will move cautiously, realizing that Cuba is poor, has only 11 million people and, more important, they remain a dictatorship with over 50 years of a bureaucratic, socialist economy. That will change, but not over night.

If I were running the show in Cuba, I would also go slowly -- adopting some short term measures, while planning for the long term. I would talk more with equipment vendors than service providers and look to the example of Stockholm instead of Miami. Most important, I would be thinking about the role of ETECSA -- the Cuban Internet should serve the people, not increase government/ETECSA revenue.

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Update 4/6/2015

I speculated that the government officials associated with the delegation to Cuba on telecommunication and the Internet would be letting US companies that were interested in doing business in Cuba know what they learned and on April 1, three officials gave keynote presentations at the Wharton School's sold out Cuba Opportunity Summit attended by 200 executives, investors and analysts at the NASDAQ in NY.

The keynote speakers were Roberta S. Jacobson, Assistant Secretary of State for Western Hemisphere Affairs, Stefan M. Selig, Under Secretary of Commerce for International Trade and Maria Contreras-Sweet, Administrator, Small Business Administration.

The rest of the summit consisted of panels of expert investors, academics, government officials, etc., including one on opportunities in technology, media & telecom. (Two other industry-specific panel sessions were on opportunities in tourism, payments and retail banking and pharmaceuticals and biotechnology -- immediately "hot" industries). You can see the see the entire agenda here.

As far as I can determine, the sessions were not archived -- the main purpose of a meeting like this is to allow people to meet and network -- but several short interviews were published on the Wharton Web site:

• Hugo Cancio on Cuba's Entrepreneurial Environment (interview summary and 16 minute podcast)
  
• Mark Entwistle on on Opportunities for Business in Cuba (interview summary and 17 minute podcast)
  
• A post on U.S.-Cuba Relations: What ‘Big Steps’ in Diplomacy Mean for Business summarizing remarks of Roberta Jacobson and Stefan M. Selig

Netflix comes to Cuba -- only Fidel and Raúl can afford it for now *

What about YouTube?

Netflix has joined Google as one of the first US companies to offer an Internet service in Cuba, but few Cubans can afford the $7.99 monthly Netflix subscription and home access is nearly all over dial up connections. DSL bandwidth at public access points, hotels and some work places can only support low quality Netflix streams and Cuba's second generation cell network will not support mobile viewing.

Forgetting access, how about Copyright? Netflix cannot afford to violate copyright deals with its suppliers and in Cuba they have to compete with Cuba's weekly pirate distributions of movies, TV episodes, magazine, software, Web sites, etc. and similar material delivered over local WiFi networks.

It would be interesting to know what sorts of royalty rates Netflix is paying for the material they plan to stream in Cuba and what content will be available.

Given the economic, copyright and infrastructure constraints, I suspect that, for now, Fidel and Raúl Castro will be the only Netflix customers in Cuba and they will only be able to watch old Cantinflas movies and Netflix productions like House of Cards and Orange is the New Black.

What about YouTube?

Google executives recently visited Cuba -- did they talk about YouTube? I imagine a much higher percent of YouTube content can legally be distributed in Cuba than is the case for Netflix, but the vast collection of YouTube video would cause problems for Cuban censors. Which Cubans would be allowed to access YouTube?

Google does not block YouTube, so it is available to the few people with an international Internet connection, but I have not been able to find anyone who has seen YouTube in Cuba. It is not available in Universities, and, even if it were, student bandwidth caps would limit or eliminate viewing. Does anyone reading this in Cuba have access to YouTube video?

(I am guessing that Netflix video is streamed from inside Cuba, perhaps from this ETECSA data center, but YouTube is not).

I joked about the Castro brothers being the only Netflix customers in Cuba, but hotels and other senior government officials probably also have access. While that is not enough to justify going into Cuba, Netflix had gotten valuable publicity and demonstrated that they are a global company.

Finally, everyone is focusing on Netflix, YouTube and other companies selling goods and services to Cuba. My focus is on the goods and services Cuba can sell to the US and the rest of the world. (We took a giant step in that direction with the announcement that many types of "goods and services produced by independent Cuban entrepreneurs" could now be imported into the United States).

How long will it be before there are Cuban channels on YouTube and Netflix is commissioning videos made by Cubans? Maybe Google should open their next YouTube production center in Havana.

*Note -- I revised this post after communicating with people in Cuba and at Google and Netflix.

Cuban government support of the weekly "packages"

Cuban blogger Isbel Diaz Torres has written a two part post on the information "packages" that are distributed each week in Cuba.

In part one, he lists 12 factors that lead him to believe that the Cuban government may be behind these weekly packages. I will not list the 12 factors here -- you can see them in his post -- but he makes a compelling case that the package service could not run as smoothly as it does without government participation or approval.

In part 2 he discusses the motive the government might have for supporting the service. Since the weekly packages include current television program episodes, movies, magazines, etc., they supply weekly entertainment, eliminating what may be the key factor behind people's desire for Internet access. He also lists other, very limited, services that the government argues substitute for Internet services. He speculates that the government wants to be able to claim that Internet access is not needed because Cubans have everything they want without it.

One cannot know whether Torres' hypothesis is true. The weekly packages are surrounded in mystery. I have asked many people who distributes them and how they get the material into Cuba and no one seems to know.

If the government is behind the weekly packages, I would suggest a simpler motive than trying to rationalize a lack of Internet access -- money. The packages are a going business with an established curating and distribution organization. Someone is making money and it might be the government or a friend of the government.

The Cuban government says information technology is now a priority, but they are limited in what it can afford.

They could surely afford to institutionalize and upgrade the weekly "sneaker net" if they were sincere. The people curating and distributing the material could be recognized as small businesses and new types of material -- like news and education -- could be included.

The big stumbling block would be copyright. The government might not want to acknowledge copyright violation. If they chose to worry about copyright, they could negotiate block licenses with the owners of the material. Since they not getting any royalties for Cuban distribution today, low royalties, perhaps with a promise of increases over time, could be negotiated.

I've made a couple of other low cost proposals the Cuban government could implement in the short run -- a satellite pilot trial leading, if successful, to a broader roll out.

If they are sincere in the desire to prioritize information technology, they could also get behind and extend the weekly packages.

Cuba's answer to bit torrent

Yoani Sanchez posted an anecdote about her 20-year old neighbor who exchanges and sells foreign television programs, music and films in a "dizzying variety and quantity" on flash drives.

Her post reminded me of the early days, when you could walk into a government storefront in Havana and get the latest software from the US copied onto floppy disks. You had to bring your own floppies and, if you wanted a copy of the manual, your own copier paper. I was surprised at how current the software was.

Do others have anecdotes or data on the traffic in flash-drive content -- cultural or political?