David C. McCourt

David C. McCourt Discusses Granahan McCourt's Plans to Bring Connectivity to the Developing World

On Oct 17, 2013, David C. McCourt, Chairman and CEO of Granahan McCourt Capital, a private investment firm with operations in the US and Europe, led off M{2e}'s Strategy Session Series for the 2013-14 academic year before a rapt group of students and faculty in USC Annenberg's Geoffrey Cowan Forum. Afterward, he caught up with M{2e}'s senior program assistant Katelyn Foley for an in-depth conversation about Granahan McCourt's plans to bring broadband access to the developing world. Mr. McCourt served as the Media, Economics & Entrepreneurship program's first Economist-in-Residence in April 2011. M{2e} Strategy Sessions are semi-regular interactions that enable a targeted community of students, faculty, and administrators to share ideas on the future of the information economy with key decision-makers from leading private firms and public institutions in the field.

A podcast of this conversation is also available at the conclusion of the Q&A below.

Granahan McCourt is currently making a push towards providing Internet access to the developing world. Can you share a little bit about the territories you are focusing on first and the types of partnerships that are required to move forward?

Granahan McCourt, as you have maybe heard me say before, always looks for opportunities where we see a regulatory trade change, or a consumer change, a psychology change, or two of those—or better yet all three of those—in order to invest and build a business. And the back story of all this is, we like to take on established providers not because we have a Dave and Goliath complex as much because we think established providers when there is a lot regulatory change or when there is a consumer behavior change or when there is a technological change, the established providers have a hard time competing.

So, with that, we also think that Internet connectivity is no longer simply a convenience, it’s a necessity. It should be like electricity, right? People should go into their house and plug stuff into the web and no matter how much bandwidth they need, they should expect it to work like they would plug in an electrical device. The Internet is increasingly a way to communicate the approach of natural disasters, to help farmers maximize crop production, to help globally integrate health services, and also to provide healthcare and educational support.

You just can’t do your homework and you can’t run an educational system, you can’t run a health system without the Internet. Everybody needs to have it. The areas we are looking at are the unserved and the underserved and our research suggests that there are both viable unserved and underserved markets in South America, Africa, the Middle East, as well as more established countries. Those would be the markets that we would be going after.

We think we—and I don’t want to sound like we are patting ourselves on the back—but we think we have a technological advantage. We are technologically dominant. We have three decades of network experience. We have tailor-made media packaging, along with engineering expertise. We have engineering expertise in satellite, in fiber, in data centers, in cellular, in public private partnerships, in wireless. So we have engineering expertise across all pieces of the technology ecosystem. And of course that is supported by some pretty accomplished financial partnerships that give us an unparalleled opportunity, as well as an unparalleled advantage as we try to accomplish our business goals.

Your company recently acquired e|net, an Irish company that operates fiber optic infrastructure, along with a consortium of companies. How does e|net fit into your overall strategy?

e|net is a public-private partnership. The Irish government actually built those fiber networks around almost a hundred towns in Ireland. We manage and run and grow and develop that network. I think if you’re going to bring Internet access to the parts of the world who don't have it, PPP is going to be a real element to solving the problem. You are going to need to have government intervention in some of these countries where it isn’t economical to do it all on your own. Having the government help you and knowing how to partner with governments and having a good reputation with partnering with the government is a very important arrow in our quiver.

So that’s why we wanted this company. This is the largest public-private partnership in this space in the world. That might be like the tallest mountain in Rhode Island—there aren’t a lot of them. There are a dozen or so of these around the world, and this one is the largest of its type. Maybe there are two-dozen now.

I will tell you why this is certainly the way to do it. The government shouldn’t be in the business of creating jobs; they should be in the business of creating an environment to let businesses create jobs. A government creating jobs is a cost. A business creating jobs is revenue. I will give you a statistic around e|net. The 94 towns that the government built these fiber optics in, if you take the IDA’s statistics—not mine—the IDA says if you take the five years before those fiber networks were built, those 94 towns accounted for 18% of the job growth in Ireland. If you count the five years after they were built, it was 80%. What that says is this network is removing a barrier in creating the environment where the private sector can create jobs. And that is what we are trying to do.

Six out of the world's seven billion people have cell phones. How will Granahan McCourt leverage cell phone ownership when getting people in the most remote areas of the developing world connected to the Internet? Will you be partnering with any hardware providers or telecom companies in this endeavor?

I’m sure we will partner with hardware companies. We are talking to companies now. Those 1 billion more cell phones we need to get the cell phones up to the population, our business is not to distribute and provide them. I think our purpose is to decouple the cell phone usage question from the question ‘Is the Internet connectivity available?’ Everything we do we assume has to have a mobile element to it. People are going to use a mobile device if there is Internet. So we decouple that if we think about it.

The real challenge for us is delivering meaningful and useful Internet connectivity and content to the three billion people who don’t have it. That can take different forms. What gives us the advantage is what I said earlier is that we operate across all those businesses: fiber, satellite, cellular. We have an advantage. Because the fiber guys want to use fiber as a solution, the satellite guys want to use satellite, the cellular guys want to use cellular, the Wi-Fi guys want to use Wi-Fi. A guy that has a WiMAX license want to use WiMAX, the guy with a point-to-point microwave license wants to use point-to-point microwave. Everybody wants to use what they have and that’s natural.

But it doesn't create innovation like someone who is totally agnostic about the technology. If you remember, when the Internet first started, there was one industry with a trillion dollars in the ground in America and that was the phone companies, and they came up with that innovative product called dial-up Internet access—I say this tongue-in-cheek obviously. But dial-up Internet access was developed because the phone companies were trying to shove data to a voice network. They weren’t trying to build a voice network—they were trying to shove data through what they already had. And that’s how engineers work. That’s how businesses work. They try to figure out how to get more revenue out of their existing assets. To a certain extent that’s what they are supposed to do. But in this case there is a technological shift.

Remember earlier I said we like to operate with a technological shift, or a consumer shift, or a behavioral shift. In this case, it was all three. But there is a technological shift and these guys are still trying to get more revenue out of their existing network and they come up with a product called dial-up Internet access. When we started Corporate Communications Network, which was the first competitive phone company in America, my early premise was that there were more computers talking to computers than there were people talking to people.

So I said ‘Can [we] build a network around computers talking to computers cause that’s the dominant traffic?’ And we lucked out because we were able to ride voice virtually free on our network. To be honest, that was a lucky break for us. We built a network around an opportunity we saw and we could ride voice virtually free in that network. Now interestingly, the meaningful variable now is video. Video is a dominant traffic. Now the question is ‘How can you build a highly reliable network in these regions we are talking about that has to have the capacity to move huge amounts of video?’

Granahan McCourt in the 80s built and we designed and fielded the first successful and competitive digital cable company. We built the first competitive phone company in the United States, Corporate Communications Network. We were the first ones at RCN to bundle voice data together. That is sort of becoming the modern standard today. What we think now is the same thing we thought back then: If we give the customer what they want and we back into how we are going to make money, if we maintain that mentality and we continue to go to these areas where there is a technological shift, a consumer behavior shift, and in some cases a regulatory shift as well, and we partner with the right companies, we are not going to get into the area we are operating in and we are not going to be able to get $200 per subscriber like we could in our cable and phone bundles in the States.

We operated in Mexico and we were selling a robust video product and a voice product and we had every system from Hermosillo to Guadalajara. We basically had the entire west coast of Mexico, and we were averaging about $15 a subscriber. That was a fair price for that demographic, that socioeconomic environment. They were getting a good product before we built our networks. There was a two-year wait for a land line phone. We brought that down to less than thirty days. We offered a product at a fraction of the cost of the incumbent.

That is a low cost product but again you give the customer a product that they want at a price they can afford to pay and then you back into a business plan. The alternative is saying I am going to use the existing assets I have and to try to get more money out of it and to keep on getting the price higher and higher and keep on trying to shove the stuff through old technology. It’s not going to work in this case, in our view anyway.

How does satcom compare with cheaper alternatives such as the Google Loon Project? What do you think has prevented other companies from making investments in this arena?

Google has the money and the brains to do whatever they want. They’re trying all sorts of things. The Loon Project is fascinating. We have to remember that project started before the advancement and development of drones. I would think that if there was some unmanned something that was going to be in the sky at a low orbit, whether a hot air balloon or something else, to try to offer a sort of lower orbit communications capabilities, I think a series of constellations of drones would be a better solution than what people traditionally think of when they think of the Loon Project.

I think that’s because the drone technology and capability have been so advanced. On the military side, they are going to be able to use them for so much. I think that would be a more likely way the project would go in my view. The new satellites have reusable spot beam technology. Not only are they steerable and reusable, they have ten times as much capacity. So these satellites, therefore when they have more capacity, the operating costs drop. I think it is going to be a solution that’s a combination of satellites integrated with wireless mesh networks, some fiber, different network technologies, different storage capabilities to put the content and manage the content and distribute the content closer to the customer.

It’s going to be a whole combination of solutions that are used to get a product that looks and feels like a product that a 25-year-old man or woman needs to run their life today. And at a price point they can afford. Whether they are living in a favela in Brazil or they are living somewhere in the Middle East where infrastructure has been ruined by the years of war or was never developed through no good policy or corruption or whatever the reason is. Or just not enough GDP to support it. You have to get the price point down and you have to use a combination of technologies to do that.

What do you think are the biggest technical and cultural challenges to providing Internet access to the developing world?

In developing countries, I think it is a combination. It’s socioeconomic issues. There are education issues, illiteracy issues, bad government policy, lack of government policy, corruption, apathy. I think it’s all those things, and that recipe is going to be different parts corruption, bad policy, different parts policy, different parts apathy. It’s going to be different pieces in different countries. But it’s going to be all those things. And that’s why it’s going to be harder for the bigger, more established countries to be able to attack some of these problems because there is so much uncertainty. I think it is going to be a little easier for someone who has spent thirty years operating where there’s a lack of technological infrastructure where there is high cost to access, where there again is technological change, regulatory change, political change. I think it will be a little easier for us.

News and location services have been greatly affected by satcom. What other types of information do you think satcom will revolutionize in the future? For example, is video streaming something that could be revolutionized in the same way as radio?

The types of information is only going to be limited by our imagination. The telecom revolution started by what I mentioned a second ago, which was there were more computers talking to computers than there were people talking to people. The telephone industry basically hadn’t changed in a hundred years, right? The big revolution in the telephone was to go from the rotary dial to a push button phone. Or to go from black to the slim line princess pink phone. There was really no change.

And then the network couldn’t handle the amount of data. They tried to. They tried to develop dial-up Internet access to run that data through the network. Now the majority of traffic is video. Far and away, it’s video based. Now we have to think about all these solutions around video consumption and how you manage and manipulate, store, and move, and view all that video content.

What’s interesting is three of the four top countries in the world with the highest YouTube users are in the Middle East. That’s a region with relatively low Internet penetration compared to North America and Europe. But it is indicating that online video streaming is most definitely a part of the global revolution in telecom and if you don’t have a network in the ground there and you don’t have someone who is willing to pay $150 a month for it, you are going to have to come up with a very unique technological solution.

It has to be mobile. It has to be untethered to any cable. It was only a few years ago that business people traveled with one of those silly blue cables in their briefcase so they could plug their computer into the jack in the wall of the hotel. That was only a couple of years ago. Some hotel had just finished putting those things in every desk drawer and now they are totally irrelevant. They have been overcome by events, right?

Are there any additional investment areas that piggyback off of satcom that you could see your company investing in, particularly in the developing world? For example, you spent much of your career in the content creation business. Would you ever re-enter that business?

We are soon going to announce a new network and it’s obviously web and mobile based, and the new network will put us right back in the content business. Interestingly, I’m working with the Dean of Annenberg and I’m trying to figure a way to work with the Annenberg School on some of this as well. I have huge respect for the M{2e} program at Annenberg. I think that media, economics, and entrepreneurship, people need to understand all three legs of that stool, maybe there is a fourth leg of that stool, which is globalization.

You used to be able to get journalism degree, or a degree in film studies and you could go out and get a job. Now, there is less money in the industry. The money has been spread out over so many more places because of the Internet and all the content on the Internet. You have to understand the economics of the business now to be successful. You have to have a more entrepreneurial spirit and a mindset to attack these problems. You can’t just go knock on the door of USA Today or the New York Times and expect to get a job. All these companies are downsizing.

I think it’s key that students learn how to tie all that together. We are attempting to work hand in glove with Annenberg on some of these ideas we are launching. But we are going to launch and get back into the TV business. We are going to get back into the content business. We were in the business for a long time. We’re the proud recipient of many Emmys and we are very proud of that.

We did try to get into the content business in the Internet with News Corp six years ago. We were ahead of our time. We bought a software company that was the first to produce or allow a full motion video to be shown on the Internet. We thought we had a dog that could speak with that asset, and it turned out that it was a lot of expense and there was no revenue. We had to figure out how to make the revenue model work. We think we have figured out how to make the revenue model work now. In addition to the network strategy we have for the developed world, we have a content strategy. So we think both of these parts of the world need content in a network solution and we are going to try to bring both of them to the same regions.