ETECSA: The Canary’s Eye
Changes in the Ownership Structure of Cuba’s Telecommunications Enterprise, ETECSA— Investments and Disinvestments
“The yellow canary—
With such a black eye!”—
José Martí, Simple Verses
In 1993, two years after the collapse of the Soviet Union, the state authorized the creation of Cuba’s Telecommunications Company, ETECSA (Empresa de Telecomunicaciones de Cuba S.A.). The enterprise began operating in 1994.[1]
The Seed
Concurrently, Mexico was upgrading its infrastructure in preparation for joining the North American Free Trade Agreement (NAFTA)—negotiated under then President Carlos Salinas de Gortari (1988–1994). During that period in Mexico, marked by aggressive deregulation, privatization, and widespread corruption, Cuba welcomed a new player - the Inter-American Telecommunications Corporation (by its acronym in Spanish, “CITEL”), a subsidiary of the Domos Group of Monterrey, Mexico (“Domos”). CITEL entered into a joint venture with Cuba, acquiring 49% of ETECSA for US $1.5 billion. The Cuban state retained a 51% ownership.
Subsequent studies and expert assessments concluded that the 1990s marked a revitalization of Cuba’s telephone infrastructure, largely due to foreign direct investment (FDI). By 1998, FDI reached approximately $123 million, enabling Cuba to replace a hodgepodge of outdated American and Eastern Bloc technologies.
The foreign investment immediately improved telephone service availability. In 1996, Cuba had 3.19 phones per 100 inhabitants (7.1 in Havana). By 2000, this rose to 4.38 nationwide (10.3 in Havana), with projections of reaching 9 nationwide (and 20 in Havana) by 2004.
According to Cuba’s National Office of Statistics (by its acronym in Spanish, “ONEI”), by 2013, Cuba had 17.9 mobile lines and 11.1 landlines per 100 inhabitants—an average total of 29 telecommunications lines.
At the time, one of ETECSA’s major revenue sources was international calling, particularly to the U.S. In 1995, it reportedly earned around $145 million from international calls, largely as a result of Domos’s partnerships with U.S. companies such as WilTel, LDDS Metro Media Communications, IDB, MCI, and Sprint - all authorized by the Federal Communications Commission (FCC) to provide long-distance services between Cuba and the U.S., despite ongoing diplomatic tensions.
The Problems
Soon after, The New York Times published an article titled “Mexican Conglomerate Abandons Cuban Phone Venture”, revealing two key problems with the CITEL investment.
First, following the Cuban military’s downing over Cuban airspace of civilian aircraft from Miami, Congress passed the Helms-Burton Act in 1996 prohibiting, among other things, FDI in Cuba. Moreover, Domos executives and their families began to be denied U.S. visas because of CITEL’s joint venture interest in ETECSA. The Clinton administration identified Domos as one of three companies in violation of Helms-Burton for investing in assets that once belonged to ITT Corporation, the Cuban Telephone Company, which had been nationalized by Cuba in 1960 and the U.S. claimed $130 million in damages. (These series of events are often overlooked in both online commentary and academic analyses.)
Second, Domos itself was struggling financially amid the Mexican peso crisis. This situation destabilized the company and others like it, including Telmex, a former state monopoly partially privatized in the late 1980s. “They were facing financial problems before Helms-Burton, but potential investors grew far more cautious after it took effect,” said a European banker familiar with Cuba.
The Mexican newspaper La Jornada summarized the developments as follows:
“Grupo Domos, then Cuba’s largest foreign investor by investment volume, was one of 20 Mexican companies on the Helms-Burton blacklist, second only to Canada’s Sherritt International, which also received a warning letter from Washington.”
Several other Mexican firms that invested in Cuba during Salinas de Gortari’s administration were identified, including International Textiles Corp., Cubacell Enterprises, and Cemex (which later withdrew from the island, despite the Cuban government stating it had never invested in Cuban cement production).
“At the end of the Salinas presidency,” La Jornada continued,
“Grupo Domos, led by Javier Garza Calderón, signed the most ambitious joint venture ever formed in Cuba, becoming the island’s most significant foreign investor in terms of investment amount and project size. In December 1994, the company secured a 25-year concession for a 49% stake in the aging Cuban Telephone Company.” [2]
The Italians: The Final Move
In April 1995, Domos sold 25% of its shares in ETECSA to STET International Netherlands, a subsidiary of Telecom Italia, for $291.2 million. STET was already active in Brazil, Lebanon, Turkey, Israel, China, and France. Later, Telecom Italia increased its stake in ETECSA to 27%.
The final phase of foreign investment in telecommunications came in 1998, when Sherritt International, a Canadian conglomerate with interests in nickel mining, tourism, transport, and energy, acquired 37.5% of Cubacel—a mobile phone provider formed in 1991 as a joint venture with Mexico’s TIMSA, which had held 10% of the equity. [3]
In 2003, the Cuban government named ETECSA the sole national telecom operator, merging Cubacel and C-COM (a prior state owned enterprise) under Executive Committee Agreement 4996 and Decree 275. [4]
The stated goal was:
“To integrate all fixed-line, mobile, and other telecommunications services into a single joint venture; to oversee research, investment, production, service delivery, and commercial operations in Cuba and abroad; and to ensure access to foreign markets for technical assistance and supplies—ultimately contributing convertible currency to the national economy.” [5]
That same year, Cuba bought back Canadian and Mexican shares in Cubacel, consolidating ownership under Cuban State entities.
2011: Full Nationalization
In February 2011, Cuba announced it had acquired 100% of ETECSA shares, removing all foreign ownership. According to Juventud Rebelde and other Cuban media, ownership was redistributed among five domestic companies:
- Telefónica Antillana S.A. – 51.006%
- Rafin S.A. – 27.003%
- Universal Trade & Management Corporation S.A. – 11.086%
- Banco Internacional de Comercio S.A. – 0.923%
- Negocios en Telecomunicaciones S.A. – 3.825%[6]
That same year, Rafin S.A. paid $500 million to Telecom Italia’s STET for its 27% stake in ETECSA. The total share value at the time was estimated at $706 million. With this acquisition, the Cuban military-linked company became ETECSA’s second-largest shareholder. [7]
Final Thoughts
Updated government guidelines adopted in 2011 (Lineamientos, point 72) called for:
“Increasing foreign direct investment as a key source of economic and social development and the introduction of advanced technologies.” [8]
Yet the 2011 nationalization move presented another Sisyphean burden. Telecommunications were deemed strategic for development, national security, and defense, but the shift away from foreign capital only entrenched inefficiency and dysfunction.
That is the canary’s eye.
Notes:
[2] La Jornada, Mexico City, August 21, 1996
[4] National Law Review, vol. XV, no. 154