see: http://www.vii.org/papers/cuba.htm

6.1 Ending the Bottleneck in US-Cuba Calling

Development of Cuba's telephone communications with the United States in essence froze in 1962 after the US embargo was imposed on the
island. At that time there were only two direct links -- the 1949 underwater cable, which had 130 telephone circuits, and the troposcatter radio
telephone, with a maximum capacity of 79 simultaneous phone calls.

The cable, owned by AT&T's Cuban American Telephone and Telegraph (after the revolution, ITT had sold its CATT shares to AT&T) and
operated under a service agreement with EMTELCUBA, continued to carry telephone traffic despite the embargo. The US Treasury Department,
which enforces the embargo, allowed AT&T to operate it under a grandfather clause, but prohibited upgrading the technology or expanding the
number of circuits and blocked any payment to Cuba.

In 1987 the cable wore out, leaving only the troposcatter system. The US Treasury permitted AT&T to install a replacement cable comparable to
the old one. When AT&T was unable to locate a cable of an equivalent low capacity and level of technology, Treasury granted permission to
use the oldest cable available, a mothballed segment of an old transatlantic copper-wire cable. The World War II-vintage replacement, with a
capacity of 138 circuits (which can be expanded to over 300 with compression technology), was laid between Cojimar, Cuba and West Palm
Beach, Florida, in 1989 at a cost of US$8 million.

However, AT&T could not activate it until EMTELCUBA signed a new service agreement, which Treasury had to approve. Given the
long-standing hostility between the two governments, the three-party negotiations were politically charged, exceeding complex, and glacial in
pace. The major stumbling block was the US government's reluctance to allow AT&T to pay Cuba its share of the revenues generated from the
new cable. The US administration did not want any hard-currency payments made to Cuba at the very time it was attempting to tighten the
embargo in hopes of toppling the Castro government. Cuba not only wanted full compensation plus the usual installation and maintenance
fees, it also demanded release of its past proceeds, which had been frozen in the United States. Under provisions of the embargo, since 1966
AT&T had been required to place Cuba's share of revenues in an escrow account. (Estimates of the amount range from US$65 to US$130
million; the Cuban foreign minister has put the actual figure at US$100 million (Robaina 1993).) Over some 5 years, Cuba rejected several
iterations of a US government-approved formula before agreement was reached. (Workman 1993; Robaina 1993; Luxner 1991.)

Because AT&T was then the only authorized US carrier to Cuba, the more than 1 million Cubans living in the United States had to squeeze their
phone calls to relatives still on the island through a very narrow bottleneck -- the aging 79 troposcatter circuits. (For comparative purposes, the
Dominican Republic, a Caribbean country with less than half the population of Cuba, had about 1000 circuits to handle a much lower demand
for calls with the United States.) Of the approximately 60 million phone calls attempted from the United States to Cuba in 1991, only about
500,000 were actually connected. Calling in the opposite direction was considerably easier because Cuba was not bound by the rules of the
embargo and connected calls through third countries. Of all international telephone calls originated in Cuba in 1993, 72 percent were to the
United States, immediately followed by the former Soviet Union (4 percent), Spain (3 percent), and Mexico (3 percent) (Lopez 1993; "Phones
Failing..." 1993).

The problem was seriously compounded by Hurricane Andrew, which swept through south Florida in 1992 severely damaging the troposcatter
facilities and toppling a microwave tower that linked it to Miami. Prior to the storm, the transmitter (the only one of its kind still in operation in
the Western hemisphere) was already in serious disrepair and replacement parts to keep the system working were nearly impossible to find.
AT&T decided not to repair the storm damage to this last remaining direct telephone link to Cuba. As a temporary measure, Cuba permitted
AT&T to route a limited number of calls -- about 2000 per month -- from the United States through ItalCable, Italy's intercontinental telco, with
which EMTELCUBA had signed a joint venture agreement in 1991. (Workman 1993; "AT&T Says Cuban Government..." 1992.)

Circuitous calling routes quickly developed. In 1992 several companies in Canada, which had direct dial access to Cuba and were outside the
jurisdiction of the US Treasury Department, began to offer service. Popular with Cuban exiles, these companies typically charged US$45 for a 10
minute call -- US$3 per minute plus a US$15 handling fee -- three and four times more than AT&T's rates. E-mail through Canada also was a
reliable means of communicating with Cuba. These technical and legal end-runs satisfied some of the demand for phone service to Cuba but
resulted in lost revenues to AT&T, caused tension between the US government and Canada, and reduced the possibilities that Cuba would
relent in its dispute. Consequently, the US government began to reconsider its telecommunications policy toward Cuba. (Nordheimer 1994;
Holmes 1993.)

Enactment of the Cuban Democracy Act of 1992 set the stage for a reversal of US policy. Intended to tighten the trade embargo on Cuba and
facilitate the fall of the Castro government, the new law also required the president to permit adequate telecommunications services between the
United States and Cuba and authorized him to license payments to Cuba for its portion of the service. The sponsors of the legislation were
persuaded that more telephone traffic would undercut the Cuban leadership and were supported by Cuban-Americans eager to call relatives on
the island. The legislation received broad, bipartisan congressional support. Then-presidential candidate Clinton endorsed it, and President
Bush signed it into law. (Gunn 1994; Skrzycki 1993.)

Citing the new law as authority for powers it already had, but now with sufficient political cover to respond to lobbying by US telecom
companies upset over losing business opportunities in Cuba, the Clinton administration changed course and authorized US telecom companies
to share their proceeds with Cuba. In 1994, after extended and highly contentious haggling, Cuba dropped its demand for payment of the
escrowed revenues and agreed to a standard bilateral arrangement for future compensation --a 50 percent split of toll calls up to a limit of
US$1.20 per minute plus a US$1.00 surcharge for collect calls originating in Cuba. The Clinton administration approved the deal and direct dial
service began in November 1994, ending the long drought in US-Cuban telephone communications. (Robaina 1993; "FCC Gives... Go-Ahead"
1994.)

Despite continued hostile relations between the two countries in the 1990s, telecommunications was one of the very few areas in which the two
governments had serious and sometimes productive negotiations, further indicating the importance of electronic communications even between
adversaries.

As of 1995, five US companies had either launched new telecommunications services to Cuba or were seeking approval from both governments
for future services: AT&T, formerly the exclusive US carrier to Cuba, had activated its undersea cable from Florida and was authorized to
expand service to a predicted 10,000 calls daily, a volume several fold larger than was previously allowed monthly; MCI Telecommunications
was licensed to provide direct-dial telephone service to Cuba via satellite; IDB WorldCom Services was planning direct telex and telegraph
services to the island; LDDS Communications had announced it would provide long distance service to Cuba; and WilTel International had
agreed with Cuba to lay a fiber-optic cable from Florida and was applying for US permission. Other services by other companies were also
anticipated.