Cuban Shores Beckon US Telecom Operators: VZ, S, TMUS, T

President Barack Obama’s decision to normalize U.S. diplomatic and economic relations with Cuba, which has been considerably strained since 1961, is starting to show results. Under his administration, new Cuban policy regulations, which have been approved by the Treasury and Commerce departments, helped the U.S. telecommunications industry to gain initial exemptions from the existing embargo to invest in Cuba.

In Mar 2015, U.S.-based IDT Corp had formed a joint venture with Cuba's state-run telecom company Empresa de Telecomunicaciones de Cuba (ETECSA) to provide direct international long-distance service. In Sep 2015, Verizon Communications Inc. (NYSE:VZ) became the first U.S. telecom operator to offer roaming wireless services in Cuba.

Service charges are $2.99 per minute for voice calls and $2.05 per Mb for data. The user must add Verizon’s Pay-As-You-Go International Travel facility to his/her wireless handset to enjoy the roaming service while travelling in Cuba. This service is offered through the network of Vodafone Group (LON:VOD) Plc. (NASDAQ:VOD) . Moreover, in Mar 2016, Verizon entered into an agreement with Cuba’s ETECSA to offer direct roaming mobile interconnection services between the two countries.

In Nov 2015, Sprint Corp. (NYSE:S) signed the first direct roaming wireless service agreement with ETECSA. Earlier, in Apr 2015, Sprint’s prepaid service division – Boost Mobile – had launched an unlimited voice call and text message service plan to enhance connectivity between the U.S. and Cuba. Starting at as low as $50 a month, the plan allows Sprint’s customers in the U.S. to make calls to Cuba without a long-term subscription contract.

Recently, T-Mobile US Inc. (NYSE:T) has signed an interconnection and roaming wireless service agreement with ETECSA. Notably, T-Mobile US serves the maximum number of customers in the U.S. who are of Cuban descent. Approximately 36.6% of Cuban-born U.S. wireless customers are subscribers of the company. Therefore, it is a logical step for this company to establish roaming wireless service in Cuba.

Meanwhile, in Mar 2016, Reuters reported that AT&T Inc. (NYSE:T) has shown its willingness for a mobile roaming agreement with ETECSA. At present, the company is extensively expanding in Mexico.

We believe, in the long term, Cuba may be a boon for U.S. telecom operators. An opportunity to sell products to 11 million odd customers is something to reckon with. Further, with the waning of communism and the willingness to enter the economic and political mainstream, Cuba is poised to become an attractive emerging market in the future. Moreover, Cuba’s geographical proximity to the U.S. is a major positive from the cost of operations standpoint for these telecom operators.