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Cuba legalises mobile phones, but the market outlook remains bleak

The Cuban government announced last week that it will allow the general public to purchase prepaid mobile phones - a privilege previously only afforded to key government officials and foreign workers. Despite the previous restrictions, some Cubans had managed to acquire mobile phones from foreigners. Nevertheless, usage has remained low. According to Analysis research, mobile penetration stood at only 1.8% at the end of 2007, up from 1.6% in the previous year.

The change of policy follows the handover of power from Fidel Castro to his brother Raul in early 2008, following an extended period of illness. A number of economic changes have been implemented in signs that the new leader is trying to address some of Cuba's economic woes.

Empresa de Telecomunicaciones de Cuba SA (ETECSA), which is co-owned by the government (73%) and Telecom Italia (27%), holds a monopoly over the Cuban mobile market. It launched a GSM network in 2001, but coverage is limited to large towns and cities.

ETECSA charges for mobile services in Cuban convertible pesos, which are worth over 20 times more than Cuban pesos - the currency in which most people are paid. In addition, the operator's USD120 activation fee is likely to deter potential occasional users.  However, despite the high cost, according to reports in the local media carried by the BBC, long queues have formed outside phone company offices since the announcement was made as Cubans clamour to get mobile phones.

Analysis believes Cuba could have achieved a mobile penetration rate of 50-60% by now, if it had opened its market to competition. The apparent correlation between GDP per capita (PPP) and mobile penetration in Latin American markets suggests that Cuba, which has below-average GDP per capita for the region, could have achieved this penetration level if it had followed a similar growth trajectory to that of other Latin American markets, which are open to competition. Cuba might even have exceeded this penetration rate because of its relatively even distribution of wealth. 

Mobile services, although now legal, will continue to be prohibitively expensive for most Cubans until a competitive telecoms environment can be established. Recent legislation is, therefore, unlikely to have a noticeable impact on Cuban mobile market. However, the market's latent opportunities will be attractive to operators, including América Móvil, Telefónica and Millicom International Cellular, which will undoubtedly be watching Cuba with interest.

See also: Raul Casto allows Cubans to possess Mobile Phones 

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