David McCourt, founder and CEO of Granahan McCourt Capital recently sat down with Bloomberg’s Daybreak Europe. Known as a serial entrepreneur having bought and sold twenty different companies in nine different countries, he spoke to hosts Markus Karlsson and Caroline Hepker about whether President Elect Donald Trump’s win will be as fruitful for telecoms as it is expected to be for the infrastructural realm.
David McCourt: I don’t know if it’ll be benefitted from Donald Trump but clearly telecoms is beginning to be looked at as a utility and I think that’s good for the industry and I think that will push a lot of money towards it. I think to look at the telecom industry it might be easier to step back and look at what’s happening to global industries. Globally, from the industrial revolution up to Jack Welch and his tenure at GE when GE was the most successful industrial company on the planet, it was all about incremental change, Six Sigma and incrementally changing your business a little bit at a time. Now, it’s all about blowing up the model. Now it’s all about a revolutionary change.
Caroline Hepker: In the United States we have some big changes in terms of investors; Verizon buying Yahoo and AOL’s foray into online advertising; AT&T’s proposed takeover of Time Warner. You talk about blowing things up, are these deals likely to blow anything up?
David McCourt: No. The regulators are now focused on Time Warner. They’re saying ‘AT&T owns Direct TV so will they make it harder for a cable company? Time Warner owns HBO and CNN so will they make it harder if someone wants to create another CNN or another HBO? Well, of course they’ll make it harder. That’s their job. The regulators are trying to make incremental changes, as opposed to what the regulators could do [which is] blow up the model and say to AT&T and Time Warner, ‘Separate your network 100% from any retail product you sell. Make the network wholesale, open access, like they’ve done in Ireland, and make that network available to everyone at the exact same price’. If you want to have innovation and you want to have people coming up with new innovative products that are delivered over a network, you don’t want the network operator to also be in the retail business. If you look at the places around the world where they did that, costs go down, speed goes up, innovation goes up, jobs go up. Here in the UK, 25 years ago they were talking about BT separating their wholesale network. The regulators talked about it for ten years, then ten years ago they created Openreach and they’ve been saying for ten years that it’s not right and now they’ve said that they’ve got to blow up that model again. That’s a 25-year revolution. That’s a long revolution.
Markus Karlsson: If we look away from the UK, where do you think the rest of Europe is going to go? Are we going to see the rest of Europe going down the US path where distribution and content go more and more together?
David McCourt: I don’t think so. You see it in France where there’s been all sorts of government intervention to build open access networks. You see in Poland, they’ve just put an RFP for open access wholesale networks. They’re talking about doing it in Italy and Ireland. We own a company called enet which is an open access wholesale network. We sell services to seventy other telecom companies, all at the same price, all open access. Town by town, you can take the little places like Wexford and you can see that after we built a network there, Coca Cola moved there and Zurich Insurance moved there, all sorts of people moved there and created a thousand jobs in a tiny little place because there’s great bandwidth, so I don’t think it will go that way.
Caroline Hepker: In 2015 there was a peak in the telecoms industry. People were building 4G networks and it was all looking very bright. Now we have European telecoms as the worst performing shares in the region this year. Why are things now looking so dire for big telecoms here?
David McCourt: From your standpoint and from a lot of your listeners’ standpoint, you’re thinking of big telecom as publically traded, very liquid telecom stocks, and they have been beaten up pretty bad but they’ve been beaten up pretty bad because they’ve been taken on by small startups. From my perspective that offers a huge opportunity.
Caroline Hepker: It’s Telefonica, it’s Telecom Italia, it’s Deutsch Telecom, it’s Orange; they’ve all dropped in the last year.
David McCourt: Let’s look at the model. When I first got into the business, telephone calls were very expensive. Each country had its own telecom provider and all those names you just listed each operated in a country. As globalization happened and GE or Bloomberg or Proctor & Gamble or Coca Cola had multiple offices around the world, the sales guys would come in and say ‘Hey boss, we have the Coca Cola business in New York, they have a new office in London. I can sell them circuits in London, so I’m going to go and lease a circuit to sell to Bloomberg. If we actually owned a network in London, I could offer Bloomberg more service’. So all these phone companies started operating outside of their service area and that game worked good for twenty years, then along came high speed internet and along came all sorts of services that you could use over the internet and they had to put huge amounts of money into the networks to be competitive, so then there’s not enough money. So they’ve got to sell off or pull back, or they just don’t address the network. So BT, Telefonica, France Telecom, Orange, either aren’t investing into those countries or selling them, or pulling back and that’s why their stocks get beat-up, because the investors look at it and they see the amount of capex they have to put in to maintain networks in fifty countries to be competitive against the cable guys, against the phone guys, against the wireless guys. In Irelend we’re a wholesale carrier and we have 70 customers. That means there are 70 international phone companies operating in that little country.
Markus Karlsson: When you say that there are a lot of startups, a lot of challengers, immediately it makes me think of M&A or potential M&A as perhaps some of the larger companies are going to start looking at these challengers and might be interested in them…
David McCourt: I think there will be M&A activity but I don’t think it’s happening in that way. I think that what’s going to happen is they’ll have to sell off [business in] the countries that are less important to them and they’re going to have to pull back in. France Telecom had a strategy once to operate all of Africa because they had very deep connections with Africa. They have all sorts of networks in Africa and they’re slowly going to have to sell all of that off. BT will have to sell off its network in other countries to preserve capital.
Caroline Hepker: What do you see as the most important issue looking at the telecoms sector? What do you think is critical now as we look to 2017?
David McCourt: I think the most important issue is making sure that we get broadband out to everywhere we possibly can, like the model in Ireland where the government intervened and put half a billion dollars towards someone building out infrastructure everywhere they can and operating on an open access wholesale model, where no one has the monopoly of control over something that I think we’ve just agreed is critical to healthcare, is critical to education, is critical for someone to be able to compete; open access wholesale and getting network out to every village, to every farmer, to every person, so everybody can have an equal chance for prosperity.