I. INTRODUCTION

Facilitating increased telecommunications services between the U.S. and Cuba has been a cornerstone of President Obama’s new policy toward Cuba.  Soon after the President’s December 17, 2014 announcement regarding this new policy, the U.S. Departments of Treasury and Commerce amended their regulations to broaden opportunities for U.S. companies to provide telecom services and infrastructure to Cuba.  Slow action by the U.S. State Department and the Federal Communications Commission (“FCC”) to amend their Cuba telecom policies, however, has continued to pose obstacles to U.S. telecom providers seeking to do business in Cuba.

In recent weeks, the State Department and FCC have taken long-awaited steps to eliminate these remaining barriers.  These actions will bring FCC regulations more in line with President Obama’s Cuban telecom initiatives and facilitate new opportunities for U.S. telecom companies to do business in Cuba.

II. PREVIOUS FCC REGULATIONS

The FCC implements policies and procedures for Cuba-related telecom service based on policy guidance from the State Department.  Until recently, FCC regulations relied upon guidance from State that had not been updated since January 2010.  These outdated directives placed a number of restrictions on U.S. telecom carriers doing business with Cuba that were inconsistent with the Commerce and Treasury Departments’ recent sweeping regulatory changes regarding the provision of telecom service to Cuba.

  1. Inclusion on Section 214 Exclusion List

Under previous FCC regulations, Cuba was the only country on the “Exclusion List” for international Section 214 applications.  FCC regulations require all facilities-based carriers to obtain Section 214 authorization to provide international call service from the U.S. to foreign countries.  While the authorization process for most countries typically is efficient and streamlined, providing call service to countries on the Exclusion List requires a separate authorization that is notoriously difficult to obtain.  Carriers must go through a burdensome application process that includes State Department review.[1]

  1. Non-discrimination Protections

Previous FCC regulations also required that agreements between U.S. and Cuban carriers comply with certain “non-discrimination” protections, which dictate that all U.S. carriers must receive the same effective accounting rate for providing similar call services between the U.S. and Cuba.  These protections were intended to prevent Cuba’s state-owned telecom company from discriminating among U.S. carriers competing to carry international traffic to the country.  U.S. carriers have argued, however, that such protections prevent them from negotiating lower rates and responding to market forces.  Cuba was the only country to which these non-discrimination protections still applied.[2]

  1. Establishment of Settlement Benchmarks

As an additional competitive safeguard, the FCC has established benchmarks governing the international settlement rates that U.S. carriers may pay foreign carriers to terminate international traffic from the U.S.  Under FCC regulations, U.S. carriers must negotiate settlement rates with Cuban carriers that are at or below the benchmark level of 19 cents per minute, or they must obtain a benchmark waiver from the FCC.[3]  In other words, U.S. providers can only offer direct calls to Cuba and roaming service if they pay the Cuban Government a fee no higher than 19 cents per minute.  These benchmark rates have delayed or derailed U.S.-Cuba telecom transactions in the past, as the Cuban Government historically has required a termination rate higher than 19 cents per minute.[4]

III. NEW FCC ACTION

On October 26, 2015, the State Department issued new policy directives to the FCC regarding telecom service to Cuba.  The FCC published a notice announcing its proposed implementation of those new directives on November 9, 2015.  According to the notice, the FCC will:

  1. Begin the process of removing Cuba from the 214 Exclusion List and immediately cease coordinating with the State Department in evaluating Section 214 applications for service to Cuba.

Implications of Change:  Removing Cuba from the 214 Exclusion List means that communications companies that already have global Section 214 authorizations can provide facilities-based services from the U.S. to Cuba without seeking additional authority or engaging in a burdensome application process.

The FCC has sought expedited comment on its proposal to remove Cuba from the 214 Exclusion List.  Comments are due on December 4, 2015, and reply comments are due on December 9, 2015.  According to some industry experts, the expedited timeframe suggests that the FCC may already be in the process of implementing its proposal.

  1. Begin the process of removing non-discrimination requirements currently applicable to the U.S.-Cuba call transfer route.

Implications of Change:  The FCC will no longer require that all U.S. carriers receive the same accounting rates from the Cuban Government, meaning that U.S. carriers will have more flexibility to negotiate rates and to respond to market forces.

  1. Continue to apply the appropriate benchmark settlement rate for telecom services between the U.S. and Cuba, while still allowing waivers as appropriate.

Implications of Change:  The FCC will continue to maintain the same benchmark settlement rate of 19 cents per minute for calls to Cuba, though the FCC will also continue to allow waivers of limited duration on a case-by-case basis.  The FCC’s failure to modify or eliminate these benchmarks may continue to hinder transactions with Cuba if the Cuban Government continues to require higher call termination fees.  The FCC has shown willingness in the past, however, to grant waivers for transactions in Cuba as necessary.

IV. CONCLUSION

The FCC’s new proposed actions bring FCC policy in line with current Treasury and Commerce regulations and President Obama’s policy on Cuba.  While the continued application of benchmark settlement rates may hinder certain transactions, the FCC’s removal of Cuba from the 214 Exclusion List and elimination of non-discrimination safeguards should make it easier for U.S. carriers to compete in the Cuban telecom market.

[1] See 47 C.F.R. § 63.12.

[2] See International Settlements Policy Reform, IB Dkt. Nos. 11-80, 05-254, 09-10, RM-11322, Report and Order ¶¶ 16–20, FCC 12-145, 27 FCC Rcd 15521 (2012) (“2012 ISP Reform Order”).

[3] See 2012 ISP Reform Order ¶ 17.

[4] Jens Erik Gould, Free Cuba Phone Market Urged on Obama by Nokia, AT&T, Bloomberg Business (Aug. 21, 2010). http://www.bloomberg.com/news/articles/2010-08-31/free-cuba-telecommunications-market-urged-on-obama-by-at-t-nokia-verizon.

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