Recently, President Barack Obama announced that the U.S. intends to normalize its diplomatic and economic relations with Cuba, which has been considerably strained since 1961.

Although the U.S. Congress can completely lift the broad legal restriction on trade between the nations, Obama’s announcement indicates that agricultural, banking and financial institutions and telecommunications industries will gain initial exemptions from the existing embargo to invest in Cuba.

This truce will allow U.S. telecom operators to export telecom equipment and products to Cuba. The operators will also be able to establish necessary infrastructure in Cuba to offer various telecom services including the Internet.

The export of communications devices, related software, applications, hardware and other items to upgrade the systems will enable Cuban citizens to communicate freely with the U.S. and worldwide.

Cuba is predominantly a less developed country with a population of around 11 million. At present, only 5% of the inhabitants have free access to global Internet connection -- through government institutions, high-end hotels and the black market.

About 23.2% people access the Internet under highly restrictive conditions. The government of Cuba strictly monitors global networks, keeps an eye on the phone connections of anti-government activists and also surveys private email accounts through the installation of software in offices.

Such stringent methods have significantly escalated the price of telecom gadgets and services in Cuba. The price of an average personal computer is as high as $700, while an hour of Internet connectivity may cost 20% of the average minimum monthly salary earned by an individual in that country.

The U.S. telecom and tech giants have so far given a mixed opinion regarding Cuban business opportunities . Google Inc. (GOOGL - Analyst Report) is one major player which may look to tap this opportunity to generate more online customers.

In this regard, T-Mobile US Inc. (TMUS - Snapshot Report) stated that the company will always look forward to promote open telecommunications as U.S. policy evolves. However, telecom behemoths Verizon Communications Inc. (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report) refused to comment on the matter.

Our View

We believe that telecom operators may not reap any near-term gain from Cuban investments as the country is less developed at present and reels under highly restrictive government regulations. However, in the long-term, Cuba may become a boon for telecom service providers. An opportunity to sell products to 11 million customers is something to reckon with.

Further, with the Communist rule quickly losing control and wind of globalization is spreading across the world, Cuba may become an emerging market in the future. Finally, Cuba’s geographical proximity with respect to the U.S. is a major positive in terms of cost of operations.

The U.S. telecom industry is currently witnessing deeply cut pricing competition. This has led the leading telecom operators to forecast a rather dour financial outlook. At this juncture, an opportunity outside the U.S. may bode well for this industry.

Telecommunications is a necessary utility. The need for telecom in both rural and urban areas, and its role in the infrastructure of both developed and developing markets, continues to grow and Cuba is no exception.