cuba - lexington institute€¦ · opment, cuba is found at both extremes. in terms of the reach of...

CUBA G O E S

by Philip Peters • November 2001

C U B A G O E S D I G I T A L 1

CUBA DIGITALG O E S

by Philip Peters

Vice President

Lexington Institute

November 2001

2 T H E L E X I N G T O N I N S T I T U T E

On the spectrum of telecommunications and information technology devel-

opment, Cuba is found at both extremes. In terms of the reach of its basic

residential telephone network, Cuba ranks near the bottom among Latin

American countries. Yet Cuba is incubating a group of enterprises that

design and export advanced business and medical software products. And Cuba’s govern-

ment, fully aware of this sector’s importance in economic development, is working to make

the population computer-literate even as it limits Internet access.

This paper examines the state of Cuba’s telecommunications services and the impact of

foreign investment – $473 million between 1995 and 2000 – on the modernization of this

sector; describes Cuba’s “cyber-education” efforts; reports on ways Cubans gain access to

the Internet, legally and surreptitiously; and looks at several examples of businesses that

are using up-to-date technology and commercial practices.

Modernizing the basic phone networkIn the early 1990’s, Cuba’s communicationsministry organized a briefing for senior offi-cials to provide “a comparison of where theworld was going in telecommunications withwhere Cuba was at the time,” according to oneof the briefers. The result? “We scared a lot ofpeople,” he said, and Cuba decided to developits telecommunications and information tech-nology capacity as a high priority, and to maketelecommunications a major part of Cuba’snew foreign investment policy.

Cuba used its own model of telecom develop-ment, however. Like other Latin Americancountries, Cuba decided to take advantage offoreign investment and new technology. Unlike


■ (below) In a Havana youth computer club, neighborhood

children pass a Saturday afternoonmainly playing computer games.During the week the club is filled

with students taking courses.

nearly every other country in the region,Cuba did not use competition among multi-ple service providers to maximizeinvestment and technological innovationand to drive down consumer costs.

Most notably, Cuba did not privatize itsphone company. It retained a state monop-oly and attempted to create conditions thatwould attract the participation of foreigninvestors in that monopoly.

Foreign partners. The first major foreigninvestor was Mexico’s Grupo Domos, aMonterrey-based consortium. In June 1994,Domos agreed to purchase a 49% stake inthe company, ETECSA, a major joint ventureunder Cuba’s new 1993 foreign investmentlaw. Domos promptly sold one fourth ofthat stake, or one eighth of the company, toSTET, the international venture of TelecomItalia. The deal was completed April 1995.Domos promised to invest $700 million inthe first seven years of the venture, andMexico forgave $300 million in Cuban debtas part of the deal. Mexican President CarlosSalinas traveled to Havana to celebrate theagreement.

The joint venture followed a model similarin structure to Mexico’s privatization of itsown phone company, Telmex. ETECSAretained its monopoly status, and theinvestors were committed to reach numericaltargets for expansion and modernization ofthe phone network, and to achieve specificimprovements in the network’s quality ofoperation. By January 2007, 1.6 million lineswere to be in service, the number of lines perhundred inhabitants was to increase to 10nationwide and 20 in Havana, and at leastone telephone was to be installed in eachtown of 500 or more population.

However, Domos soon encountered finan-cial difficulties either because of Mexico’seconomic crisis, or because it made commit-ments that exceeded its financialcapabilities. By late 1995, the deal began tounravel as Domos was unable to meet itsschedule of payments. Reportedly, Domoschief Javier Garza was in Havana inDecember 1995, barely eight months after

the joint venture was finalized, pleadingunsuccessfully for rescheduling of an over-due $200 million payment.

By June 1997 Domos confirmed it had nomore shares in the company, and its partici-pation ended. Telecom Italia, through itsSTET venture, took over Domos’ role as theleading foreign investor. ETECSA is nowowned 51 percent by the Cuban govern-ment, 29 percent by Telecom Italia, 12percent by a Panamanian consortium andeight percent by Cuba’s Central Bank.

An antiquated network. ETECSA faced ahuge task. Cuba’s telecom industry hadreceived only minimal investment since thebeginning of the socialist government in1959. Nearly the entire phone network oper-ated on analog systems instead of moderndigital technology; it was comprised ofequipment of many nationalities. Phonecalls were transferred on switchboards over60 years old; switching centers were anti-quated and made domestic long distanceservice difficult, and wiring to homes wassimilarly precarious. Foreign visitors stillencounter machines they have never seenbefore, such as a wall-mounted box in asmall Havana office building that clicks andrattles in rhythm as it handles calls on thebuilding’s dozen phone lines.

However, ETECSA now had funds to invest,and its investment has had a noticeableimpact.

The first step was to create a modern net-work for government and enterprise data,and for the business and tourism sectors. Anearly measure of this investment came dur-ing Pope John Paul II’s January 1998 visit toCuba. Foreign press centers were establishedin Havana and in the provinces for themedia covering the Pope’s visit; the voiceand data links were reliable and of highquality, a resident journalist said, an achieve-ment “unimaginable a few years ago.”

Investment in the basic residential networkalso began to produce changes. Cuba’s“teledensity” (phone lines per hundred pop-ulation) is among the lowest in thehemisphere. But it has increased from 3.2 in


1996 to 4.4 in 2000 (and from 7.1 to 20 inHavana), and is projected to reach 9.0 in2004, just short of Mexico’s currentlevel.

Modern digital switches have beeninstalled in many areas of Havana andin six provinces. About half of all linesare digital now, compared to one per-cent when ETECSA’s program started.Digital service allows calls to be com-pleted faster and more reliably, and witha quality that begins to make dial-upInternet service possible. It also enablesETECSA to offer call waiting, call for-warding, conferencing, wake-up calls,and other supplemental services.

As digital switches are installed anddecades-old trunk lines are replaced,announcements appear in newspaperstelling residents where to apply forinstallation of residential lines. OnJanuary 24, 1999, ETECSA announcedthat 41,000 new residential lines wouldbe installed in Havana. Within four days,54,438 applications were received. Someclaim that political factors determinewho can receive new phone service, sinceapplications are reviewed both byETECSA and by local government and“mass organizations” who examineapplicants’ “revolutionary merits.”

Consumers pay very little for basic resi-dential phone service. In areas not yetserved by digital switches, consumerspay 5.35 pesos monthly (about $0.27) forunlimited local service. (According toofficial data, the average Cuban salary is243 pesos per month, but many Cubansearn far more.) In areas with digitallines, consumers pay 6.25 pesos permonth ($0.31); after 300 minutes of use,their local calls are billed at a rate of 5cents (of the Cuban peso) per minute, orone fourth of a U.S. cent per minute. Along distance call from Havana to theeastern tip of the island costs 3.30 pesosfor three minutes, or about $0.17. Theaverage Cuban household spends 10-12pesos monthly ($0.50-$0.60) on domesticlong distance service.


Cuban telecom by the numbers

A half-billion invested...

Telecom investment ($ million)1995..........................................151996..........................................301997..........................................981998........................................1231999........................................1002000........................................107

T O TA L1995-2000.............................$473 million

...has added new lines...

Expansion of the basic phone network1994 2000 2004

(projected)

Lines in service (thousands) ...................350.............482.........1,064Teledensity (lines per hundred..................3.2..............4.4.............9.4

inhabitants)Call interruption rate, daily average........4.2% .........0.18%International calls completed..................17% ............43%

on first attempt

...improving quality...

Digitalization of the network1996 2000 2004

(projected)

Havana .........................16% ..................60%Rest of country ................4% ..................41%Total .............................10% ..................50%.....................84%

...and access for residential users...

Teledensity1996 2000 2004

(projected)Havana...........................7.1.....................20Rest of country................2.3....................2.9National..........................3.2....................4.4 ......................9.4

...and for the public at large...

Public pay phones1996 2000 2004

(projected)Havana.......................2,994................6,846Rest of country............3,286................7,770National total...............6,280..............14,616 ................50,000

Source: ETECSA

...yet Cuba’s neighbors advance much more rapidly.

Cuba in regional contextTeledensity Teledensity growth Telecom sector International traffic:

1998 1993-1998 investment per capita growth in volume ofminutes 1993-8

Cuba ...................3.5...............9% .................$6.65 ..............454%

Costa Rica .........17.2.............47% .................$9.03 ................83%

Mexico ..............10.4.............36% .............$153 .....................97%

Argentina...........19.7.............68% ...............$38 ...................151%

Trinidad and .......20.6.............30% .............$168 .....................58%Tobago

Peru ...................6.3.............89% ...............$87 .....................96%

Brazil ................12.0.............62% ...............$47 ...................150%

Source: International Telecommunications Union

Cubans generally report that ETECSA’smodernization is improving service.They say that repairs are made in days,not months. Repairmen arrive “knowingwhat to do and having all the equip-ment they need, instead of carryingparts of old phones that they might beable to use to fix your problem,” aHavana resident said. The first Havanaphone directory published in over adecade was issued by ETECSA in 1996and has since been updated.

Wireless services. ETECSA wasgranted a monopoly over basic services– wireline telephone service, data trans-mission, telex, and international longdistance – until 2006. However, otherservices such as cellular and paging areavailable for the participation of othercompanies, and are in theory open tocompetition.

Cellular phone service is one such sec-tor. Since 1994, the company Cubacelhas offered this service and now hasmore than 6,500 permanent subscribers –business executives, officials, foreignexecutives, and in at least one case, asuccessful Cuban entrepreneur. Theservice covers about 41% of Cuba’s pop-ulation area. In February 1998, SherrittInternational, a Canadian company thatis Cuba’s largest foreign investor,bought a 37.5 percent stake in Cubacelfor $38.25 million.

Cubacel’s service is expensive: a sub-scriber pays a one-time activation fee of$120 and a monthly charge of $40. Forairtime, one pays $0.30 per minute foroff-peak hours and $0.40 per minute forpeak hours. (Visitors can rent phones bythe day and pay higher rates.)International calls carry an additionalcharge: $2.45 per minute to the UnitedStates, for example.

Cubacel operates in the TDMA format,which is not compatible with Europeancellular phones. A second cellular com-pany, C-Com, is preparing to operate aGSM-format system that will giveEuropean visitors “roaming” capability;


■ (above and right) In Central Havana, near theintersection of Salud and Infanta streets, ETECSAworkers install new lines following installation of adigital switching center nearby. They are replacinglines that are more than 50 years old. The modern-

ization increases network capacity, allowingresidential lines to serve the entire building instead

of the handful of apartments served before.ETECSA is considering the use of wireless technol-

ogy to expand local service in urban areas – aninnovation that would avoid the expense of laying

lines to each block and each residence.


U.S. financing for Cuba’s telecom development

In the early 1990’s Cuban policymakers faced the question: How to attract foreigninvestment in Cuba’s phone company?

With dozens of countries privatizing and opening to competition, there was a rush ofinvestment capital flowing into the modernization of developing countries’ phone net-works. But Cuba was neither privatizing nor allowing competition.

Some investors might be attracted by an opportunity to gain a concession in a publicutility shielded from competition, and investors in many sectors in Cuba are known tothink not only of their immediate balance sheet but of the valuable foothold they have ina market that will expand when the U.S. embargo ends.

But any investor would have to doubt the profitability of renovating and expandingCuba’s telephone network when Cuban consumers only pay 6.25 pesos per month –the equivalent of $0.31 – for basic residential service.

The finances of ETECSA, Cuba’s phone monopoly, are unknown, but one can reasonablyspeculate that the low revenues from local service are compensated by the two busi-ness sectors where ETECSA collects dollar revenues – the business and tourismsectors, and international service.

In international service, ETECSA enjoys an advantage perhaps unique in the world.

From the beginning of international phone service until the 1980’s, national monopo-lies charged artificially high rates for international traffic, using the revenue tosubsidize domestic service. In the 1990’s, as competition became possible, the sys-tem of monopoly rates has eroded severely, as competing companies attempted toincrease their revenues by charging rates based on their actual costs. Cuba, however,continues to have a monopoly handle its international phone service, and this monopolycharges a wholesale rate (a “settlement rate” in industry parlance) of $0.60 perminute for traffic to and from the United States, and higher rates, according to U.S.industry sources, for traffic to and from other countries.

The net revenue impact of high international rates would not be significant if U.S.-Cubaphone traffic was balanced, with roughly equal numbers of minutes flowing in eachdirection. However, the ratio of the U.S.-Cuba traffic is more skewed than on any LatinAmerican route – more than 20 minutes of phone traffic originate in the United Statesfor every minute that originates in Cuba.

From the 1960’s until the early 1990’s, phone service was available between Cubaand the United States, but Cuba received no revenues. Because of the U.S. tradeembargo, payments owed to Cuba by U.S. companies were paid into a blockedaccount and held for future payment pending achange in U.S. embargo policy.

This situation changed when the Cuban DemocracyAct of 1992 allowed American companies to payCuba, instead of depositing Cuba’s revenues in theblocked account. This change took effect in late1994, and the impact began to be seen the follow-ing year. The volume of Cuba’s international trafficgrew more than seven-fold between 1993 and1998, when it reached 174 million minutes, andbecause nearly all these minutes flow to Cuba, theyrepresent a large revenue stream for ETECSA. By2000, American companies were paying Cubaabout $84 million annually to handle this traffic.

Ironically, while American policy bars Americancompanies from investing in the improvement ofCuba’s domestic telecommunications system, rev-enues from phone calls originating in the UnitedStates seem to provide a large share of the capitalthat Cuba’s phone company and its foreign partnerare using for that same purpose.

These figures are conservative estimates of Cuba’s net inbound international phonetraffic – the excess of incoming calls over outgoing – which determines how muchCuba collects from foreign phone companies. Traffic increased dramatically after1994, when the United States began to permit normal payments to Cuba’s phonecompany to terminate calls from the United States. U.S. industry sources estimatethat about two thirds of Cuba’s overseas calls come from the United States. Source:International Telecommunications Union.

America is calling

Cuba’s incoming international phone traffic, millions of minutes

1993..........................................23.6

1994..........................................36.9

1995........................................114.3

1996........................................104.5

1997........................................133.4

1998........................................174.0

initial installation will be inHavana, Varadero, and the coastalzone in between. Unlike ETECSAand Cubacel, C-Com is fundedentirely from Cuban capital.Movicom, a company that providestrunking and paging services, isalso funded from Cuban sourcesonly.

Internet developmentCuba’s admirers and detractors agree thatbroad popular use of the Internet has barelydeveloped in Cuba. They would disagree asto the reason why – lack of resources, or adeliberate policy of restricting information –and to a degree, both would be right. Yet itis also the case that in spite of the difficul-ties, more Cubans use the Web than areofficially accounted for.

Cuba began to use computers in the 1960’s,established satellite links with Soviet data-bases in the early 1980’s, and by the 1990’shad dozens of computer networks in opera-tion, each serving a field such as science,medicine, education, tourism, or bankingand commerce. Connection with the Internetcame haltingly; at first, it was through anightly phone call to an Internet node inCanada where a day’s accumulation of e-mail was transmitted in each direction;today, it is through normal commercial linksthat give Cuban Internet users access to e-mail and the Web.

However, Cuban Internet users are rela-tively few. Part of the explanation is rootedin government policy, for four reasons. Firstis the Cuban government’s general policy of

controlling information flows of all kinds.Second is the Cuban leadership’s skepticismtoward globalization. Third, the Internet’sinformation resources and communicationscapabilities represent significant changes inCuba, and Cuba tends to absorb majorchanges only gradually. Finally, Cubans canperceive a national security issue: “It is notparanoid to think carefully about how touse the Internet without giving additionaltools to the people who want to trip up theCuban economy,” Cuban official JuanFernandez Gonzalez told Industry Standardmagazine last year.

Yet even if none of these four factors werepresent, there would still be obstacles – thefirst of which is the Cuban phone networkitself, over which Internet traffic must travel.

Only half of Cuba’s phone lines are servedby digital switches capable of handlingInternet traffic. On the lines served by digi-tal switching centers, Vice Minister ofCommunications Roberto de la Puerta says,“theoretically, you can get [dial-up] Internet.At the most, the speed will be 9.6 or 14 kbps[kilobytes per second]. The copper wire is 40years old, at least. It has probably been cutfour times by hurricanes, and it gets wetevery time it rains. The local switch may benew but the cable may still be 40 years old.”A Cuban technician who says that lack ofinfrastructure is a “pretext” for restrictedInternet access nonetheless agrees that dial-up access is only practical where newswitches and lines have been installed; theold lines may reach a speed of 14 kbps,“with horrible noise on the line.”

The task of modernizing Cuba’s telecommu-nications network and extending it to alarger segment of the population – a prereq-uisite for expanded Internet use – isdaunting. Yet the network has improvedtangibly in recent years, the installation ofdigital switches continues, and a nationwidefiber optic ring is being installed. Technicalobstacles, therefore, are being addressed.

As a result, full Internet service is nowavailable to businesses and official institu-tions only; individuals are not permitted to


purchase dial-up service. A look at Cubanportals (cubaweb.cu or islagrande.cu) showshow Cuba is using the Internet to project itsimage and point of view, and to use elec-tronic commerce to sell tourism packagesand services.

Cubaweb lists dozens of official sites, includ-ing Cuban news media, the tourism sector,businesses, scientific and technical institu-tions, a directory of e-mail networks anddomains – and links to electronic commerceopportunities such as gift deliveries, moneytransfers, airline reservations, and car rental.

Some individuals have home Internet connec-tions, however, because their employer authorizesthem to have it. Five Cuban companies provideInternet service, at high cost: an individualaccount costs $75 for 100 hours monthly.

Estimates of the number of e-mail accounts inCuba are in the 35,000 – 40,000 range. ACuban official says a study is under wayregarding the possibility of allowing individ-uals to purchase dial-up service. It is a safebet that Cuba will proceed slowly toward thepoint where the Internet serves as a domesticand international personal communicationstool for the majority of the population.

Who uses the Internet. The followingvignettes illustrate the varied ways in whichCubans use the Internet:

■ Post office e-mail facilities. In the sum-mer of 2001, Cuba’s post offices began tofeature a new service: e-mail and Intranetaccess moderately priced in dollars. For$4.50, one can purchase a magnetic card thatgrants three hours of access to a computerwhere a user can establish an e-mail accountand use a Cuban Intranet based on the portalislagrande.cu. (The screen where these userscreate their accounts can be found at correos-decuba.cu; click on the “tu correo” icon onthe right side of the screen.) The e-mailaccount allows the user to communicatewith any e-mail user worldwide. While $4.50is a significant purchase for a Cuban earningan average peso salary, it represents largesavings over international telephone rates;for example, calls to the United States arebilled at $2.30 per minute. Thirty of thesefacilities are in operation. In a Havana postoffice, six terminals were available for use,and they were full on a Saturday afternoonwith five people waiting in line. Customersincluded young people using chat rooms, aCuban sending e-mails to friends in Spain,


■ (above, right, and left) ETECSA’s modernization includes expansion of

public telephone service. Thousands ofpublic pay phones have been installednationwide, their number more than

doubling to 14,616. Users pay Cubanpesos for domestic service on some

public phones, and dollars for international service on others.

Some accept prepaid cards; one shownhere has a streetside operator

accepting payment for domestic long distance calls.

and an Asian visitor to Cuba. The room is“always full,” the sales clerk said.

■ Other Internet cafés. Hotels have alsobegun to offer Internet service with full Webaccess, but at prices up to $12.00 per hour.An Internet café in the Capitolio building inCentral Havana charges $5.00 per hour.

■ Workplaces. Employees of some min-istries and enterprises are using the Internetin their work. A 25-year old who works in agovernment office explains that he and hiscolleagues take advantage of this opportu-nity to establish free e-mail accounts onYahoo or Hotmail, and to communicate withfriends in Cuba and abroad.

■ Writers’ union. Off the Plaza de Armas inOld Havana is a small cybercafé establishedby the union of writers, artists, and com-posers. The café, called El Aleph, is open tounion members, members of the book insti-tute, and a few artists. It opened inNovember 2000 and charges a monthly feeof 10 pesos ($0.50) for the use of its sevencomputers. An administrator explained thatthe café has acquired a rooftop dish thatwill, once connected, provide a direct link tothe server of the Ministry of Culture, withhigher speed and greater bandwidth – andfull Internet access. Users correspond via e-mail and take courses in the basics of

personal com-puter operation.

■ Universityaccess. Students’ability to gainInternet accessseems to dependon the depart-ment in whichthey study.Students of inter-nationaleconomics andmathematics saythey have accessto terminals withInternet serviceand use the Webin their research.Two undergradu-ate accounting

students said they have no such access intheir department. Students use these termi-nals to establish free e-mail accounts.

■ Friendly loan. Earlier this year, an entre-preneur who rents rooms in his homegreeted an American guest and asked aseries of surprisingly detailed questionsabout Senator Jim Jeffords’ decision toswitch parties. His questions were up todate because he regularly reads CNN.comon his friend’s home computer; his friend isa journalist and is authorized to haveInternet in his home. The entrepreneur has afree e-mail account that guests use to makereservations in his home.

■ Black market dial-up service. A Cubanprofessional has full Internet access in hishome because his ministry’s networkadministrator gave him the server’s pass-words. He reads foreign news sites regularlyand has a free e-mail account on Hotmail.Others buy passwords for monthly fees of$20-$30 on the condition that they log inbetween 7:00 p.m. and 6:00 a.m. and onweekends. One Cuban told of a company inhis neighborhood that closed for the monthof August, resumed operations inSeptember, and received an $1,100 bill forAugust Internet service because its accesscodes were apparently stolen and sold onblack market.

■ Internet entrepreneurs. A 26-year-oldCuban who works in a state enterprise hasno Internet access at his work, but he earnsmore from Internet-related work than fromhis salary. He has learned webpage designand html on his own and occasionally bypaying for instruction. In turn, he gives les-sons to beginners for $1 per hour. For a feeof $50, he designs and places webpages forentrepreneurs who rent lodging and wish touse the Internet to advertise their serviceand make reservations. His cost for pageplacement is zero, because he places themon free sites such as Yahoo or LatinChat. Acursory search can yield many pages adver-tising rooms in private homes in Cuba;some pages are for individual homes, othersresemble real estate agency pages becausethey group dozens of homes, displayingphotos, descriptions, and floor plans.

1 0 T H E L E X I N G T O N I N S T I T U T E

■ (below and right) The Palacio de Computación in central Havana, a former Sears Roebuck store where

Cubans learn computing skills. Inside on the ground floor, students

sign up for practice time on a bank ofcomputer terminals.

Information technology educationRegardless of Cuba’s restrictive policytoward the Internet, it is clear that a buddingprogram of information technology educa-tion – called the “informatización of Cubansociety” – is increasing Cubans’ awareness ofinformation technology and the Internet, andwill create greater demand for Internet accessin the future.

The program operates in schools, youthclubs, and special centers for computer learn-ing (Palacios de Computación) that are teachingcomputer basics to a wide variety of Cubans.

Havana’s Palacio de Computación was inaugu-rated by President Fidel Castro on March 7,1991. Near the Capitolio building in centralHavana, it is housed in a former SearsRoebuck store – a cavernous, air conditionedbuilding that bustles with students and con-struction noise from interior renovationsunder way. It receives 250-300 students daily.Children from nearby schools attend classesduring the daytime. On a weekday after-noon, scores of older students were present –young professionals, nurses, military andpolice officers, a painter wearing his work-clothes, a 23-year-old secretary hoping that athree-month course would improve her jobskills and qualify her for a new job; a 12-year-old computer fanatic whose motherdrove him from his home across the bay.

The facility has 51 personal computers. Onthe ground floor are workstations on which students can practice; upstairs are class-rooms where they learn the basics of Windows,Excel, Word, Outlook, Powerpoint, and relatedprograms. Advanced courses include program-ming and Web design. The Palacio has a web page (www.pal.jcce.org.cu) that explains its programs.

A network of 174 youth computer clubs givesyoung Cubans a chance to learn computerbasics. The network, which began operationin 1987, is expanding and is expected to dou-ble in the coming years. They feature aCuban-designed course (Cipni 3.0) that takesstudents through a progression includingWindows, Word, Powerpoint, Paint, e-mail,Internet and use of web pages. According toa June 2001 Cuba press report, 300,000 stu-dents have completed courses in these clubs.

One such club in Havana’s Vedado neighbor-hood offered an air-conditioned refuge froma summer Saturday afternoon’s extreme heat.About 15 10-to-15-year-old youths wereinside experimenting on banks of personalcomputers. One was using Microsoft’sEncarta program to learn about China andNepal; another was drawing pictures in thePaint program; others played a variety ofgames. During the week, the club hostsschoolchildren for formal instruction in basicsoftware programs and games. “Saturdaysare for fun,” the director said, and “we haveto push them out of here.” The computersare not connected to the Internet – “not yet,”the director said.

Cubans are not able to buy personal comput-ers for private use. Computers are sold atdollar stores, but only to commercial cus-tomers. At a Havana store that sellsappliances and electronic goods priced indollars, customers can buy computer compo-nents – Logitech keyboards, chassis, Intelmotherboards for Celeron processor, fans,microphones, monitors. Microprocessorswere not available, but sales clerks said thatanother store sells them. And as is the casewith many other goods, Cubans can resort tothe black market to get parts or entire com-puters, many assembled from collections ofparts obtained from myriad sources andmade to work as a unit.

C U B A G O E S D I G I T A L 1 1

Information technology in business The most concentrated use of informationtechnology in Cuba occurs in the commer-cial and government sectors to increaseefficiency, access to information, and profitability.

Perhaps the most advanced endeavor inthis field is the Information TechnologyGroup (GTI, for Grupo de Tecnología deInformación), a collection of 25 companiesthat perform programming, softwaredesign, and other IT services. Two of GTI’scompanies, a software designer and anadvertising and graphic design agency, arejoint ventures with foreign partners.

GTI’s companies are located in everyprovince of Cuba. They include 4,000employees, of which 2,500 are profession-als. Clients contract with membercompanies, or they may bring a project toGTI’s central management, which will finda member company, or a team assembledfrom various member companies, to carryout the job.

GTI’s mission is to foster leadership ininformation technology, telecommunica-tions technology, and systems automation.Its main function is commercial, servingthe Cuban market and making export salesto countries such as Spain, Guatemala,Panama, Costa Rica, Chile, and Peru. GTIhad export sales of $14 million in 2000,compared to under $7 million in 1999.

GTI also has a social function; it designsprograms and installs infrastructure foreducational programs in youth centers, itinstalls e-mail/Intranet centers in postoffices, and participates in other parts ofCuba’s information technology educationprograms.

In an interview, a GTI executive displayeda typical businessman’s interest in achiev-ing efficiency, finding customers andincreasing sales. Like many of his col-leagues, this executive has worked abroadin Cuban businesses. His main challenge isfinding a competitive niche in Spanish-lan-guage software markets. Unlike Americanexecutives in this sector, he did not com-plain of a shortage of skilled technicallabor – “What I need is project managers,”he said. Cuba is training information tech-nology professionals at eight universitiesand 14 technical high schools, he said, andsome professionals in other sectors areretraining to work at GTI companies. Forexample, a retrained nuclear physicistdesigned the Patris telemedicine program,which transports photographs, x-ray, sono-gram images, and other data betweenmedical facilities. This software has beenexported to Peru, Spain, and Ghana.

As is increasingly common in the Cubanworkplace, GTI workers receive a base


■ The Ministry of Informatics (information technology) and

Communications, near the Plaza de laRevolución. The Ministry was created

in January 2000 to manage telecom-munications investments,

telecommunications policy, and topromote information technology

education. The Ministry also hasjurisdiction over the postal service;

inside this building is a postal facilitywhere Cubans can open e-mailaccounts and use computers to

communicate worldwide; the computers have access to Cuba’s

Intranet, organized around the islagrande.cu portal.

salary in pesos and have an opportunity toreceive bonuses, paid in dollars and tied tocompletion of a project, quality, or speed ofdelivery. A typical GTI programmer, theexecutive explains, earns a monthly base payof 400 pesos, and a good work record canadd 400 pesos and $30 to $50 to that amount,quadrupling the base pay.

Desoft is a GTI member company, a jointventure with Italian investors, whose 50employees produce software for businessapplications. Its flagship product is Zun, asoftware package for hotel management thatincludes applications for front office, inven-tory, point-of-sale, supply, accounting, andother management tasks. Zun is used inCuban hotels – 12 of the foreign chains operating in Cuba have purchased it – andhas been exported to Latin America. Desofthas also produced:

• software that manages traffic on Cuba’spay telephones, solving incompatibilityproblems in a network of equipmentimported from many countries;

• flight information display systems at airports;

• Vigil, a security and authentication program for Cuban cigars that works byembedding a chip in cigar boxes; at thepoint of sale abroad, a reader can deter-mine when the box of cigars was shipped,when it cleared customs, and other information.

An American information technology execu-tive recently evaluated GTI’s capabilities –the languages its programmers use, the tech-nology it employs, the applications itscompanies are creating – and was pleasantlysurprised. “I expected them to be a step ortwo behind the industry,” he said, “but theyare right on the cutting edge.”

GTI’s companies are housed separately,mainly in residential neighborhoods scat-tered across western Havana. Planning isunder way for a new GTI facility on thecoast east of Havana near Guanabo, a placesome call a future “Silicon Beach.”

Other companies provide examples of theways information technology is being usedin Cuban business, and is changing Cuba’scommercial culture.

• A 262-employee Matanzas architectureand engineering firm is revamping itsoperations as part of Cuba’s state enter-prise reform. It has invested heavily ininformation technology, and an executivecomplains of the premium he pays forAmerican equipment by importing itthrough Panama. In five years the firmincreased its stock of personal computersfrom four to 112 and created a local areanetwork for internal communication,management systems, and to facilitateproject teamwork. All architecturaldesigns are on the network. In early 2001,the network had external e-mail capabil-ity, and executives said they were waitingfor full Internet access.

• An executive in a Cuban foreign trade com-pany seeks a better way to track projectsand transactions carried out by her team of15 employees. She is in discussions withthree Cuban companies who were compet-ing to design business software to monitorprojects, create a database of past transac-tions, and make that database available toher purchasing agents so they will have arecord of vendors’ price histories each timethey discuss a new transaction.

• GIGA is a glossy magazine dedicated tocomputing and information technology. Arecent issue included articles on virusesand cyber-attacks, microprocessor technol-ogy, database creation, and training fornetwork administrators.

• K-Gen Ltd., a Scottish software producer,entered a partnership with the Cubansoftware design firm Softel, a member ofGTI. A K-Gen executive says the agree-ment makes his firm a “front door” forforeign companies seeking to use Softel’sservices and to contract with Cuban soft-ware designers generally. He said it willaddress his country’s main bottleneck ininformation technology development, the“chronic lack of trained staff.”


• Opciones, a business newspaper, includesclassified advertisements for Cuban firmsoffering network security services; all-around information technology training;business software, either off-the-shelf orspecially designed; computer repair; andconsulting services for companies wishingto make greater use of information tech-nology in management, databases,accounting, and other functions.

• Tour and Marketing Ltd., a tourism com-pany now engaged in e-commerce,reached $700,000 in revenues in 2000. Theuse of a web page to sell tours and travel-related services has contributed to atripling of revenue over the firm’s 1995level. The company’s president, StevenMarshall of Yorkshire, England, has devel-oped other ventures: a company thatdesigns and hosts web pages;Cubagiftstore.com, an on-line retail anddelivery service that enables peopleabroad to send gifts to Cuba; and mostrecently, a wireless broadband service forprivate networks, to be used mainly byhotel chains for internal communication,data management and public informationkiosks. Marshall says he finds “qualifiedpeople very, very easily. These are some ofthe most qualified people I have seen inmy life. We provide training in meetingdeadlines and teamwork, and our Cubanstaff are very punctual, precise in whatthey do, and very good at sales.”

• In December 2000, Cuba’s Central Bankreports that 15,000 banking sector employ-ees had been trained in Cuba and abroadin computing and information technology.The sector used 750 computers in 1994and 13,000 by the end of 2000.

• An October 2001 press report tells of aGTI member company that automated theprocesses of a propane gas plant and as aresult expanded capacity by 16 percentwhile reducing electricity consumption by16 percent. The company also uses “smartbuilding” technology to reduce water andenergy consumption in hotels.

ConclusionCuba’s telecommunications and informationtechnology development is similar to otherdevelopments in the Cuban economy: thechange has been significant compared toCuba’s position a decade ago, but it is notcomparable to the rapid change this industryhas seen in other developing countries.

One may argue that a different strategy, or amore open economic system, would bringmore rapid progress. Yet it is clear that inspite of the limitations, this sector’s develop-ment has brought clear public welfarebenefits. Greater numbers of Cubans haveaccess to affordable phone service. Quality ofservice improves step by step as the phonenetwork incorporates modern technology.Computer literacy is expanding. A small soft-ware design industry is getting started. TheInternet has come into use as an informa-tional and commercial tool, to the benefit ofofficial institutions and enterprises and, unin-tentionally, thousands of citizens who findways to gain access for their private uses.

Some observers say that Cuba has the poten-tial to become a Latin American leader ininformation technology, and Cuba certainlyhas assets to realize this status: an educatedworkforce, government commitment to tech-nology development, a demonstratedcapacity to attract foreign investment andpartnership. But Cuba faces considerable for-eign competition in software developmentand other sectors, and it lacks the culture ofopen access and competition that has driventechnological innovation elsewhere.Continued progress therefore seems likely,while regional leadership does not.

Continued progress is also likely in basic tele-phone service and Internet development, dueto the increasing use of modern technologyand the renovation of the public telephonenetwork. Such progress would be acceleratedby economic developments that allow greaterresources to be dedicated to this sector, andby government policies that would promotegreater competition and investment and pub-lic access to these services.


The United States is relevant to these devel-opments only by its absence. American lawlimits U.S. companies to the delivery ofinternational long distance traffic and pro-hibits them from engaging in any business“beyond the gateway,” i.e. any developmentthat would contribute to the development ofCuba’s domestic telecommunications net-work. The assumption behind this policy isthat if Americans engaged in this business,the Cuban people would not benefit. Thestory of Cuba’s continued telecommunica-tions and Internet development – andCubans’ access to these services – will there-fore be written by Cubans themselves andthe foreign partners who are slowly bring-ing the island into a digital future. ■



Further reading

The Cuban Way: Capitalism, Communism and Confrontation, by Ana Julia Jatar-Hausmann, Kumarian Press, 1999.

An ample listing of Cuban websites with Cuban media, speeches, announcements,decrees, other official information, and news on Cuba’s economy, is found atwww.cubaweb.cu.

“Cuba, the Internet, and U.S. Policy,” Briefing Paper #13 in the GeorgetownUniversity Cuba Briefing Paper Series, by Nelson P. Valdes, March 1997. The seriesof papers on economic, social, and political topics, is found at:www.georgetown.edu/sfs/programs/clas/Caribe/cbps.htm.

Information on the Palacio de Computación and the youth clubs, including organiza-tion, history, programming languages, and curriculum, is found atwww.pal.jcce.org.cu.

Lexington Institute studies on Cuba’s economy and U.S.-Cuba relations, and othermaterials are found at www.lexingtoninstitute.org/cuba.

Studies by the author published by the Alexis de Tocqueville Institution: “CubanAgriculture: Slow Road to Recovery,” March 1999; “Cuba’s New Entrepreneurs: FiveYears of Small-Scale Capitalism,” August 1998 (text available at www.adti.net;authored by Philip Peters and Joseph L. Scarpaci); “Cubans in Transition: The Peopleof Cuba’s New Economy,” March 1999; and “A Different Kind of Workplace: ForeignInvestment in Cuba,” March 1999 (a study that includes discussion of the ETECSAtelecommunications joint venture); all available for sale at the Alexis de TocquevilleInstitution (www.adti.net).

To contact the author:[email protected]

Photos by Philip Peters

The Lexington Institute gratefully acknowledges the

financial support provided by the Ford Foundation

for this study.

cuba - lexington institute€¦ · opment, cuba is found at both extremes. in terms of the reach of...

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