AT&T’s CEO John Stankey Is Facing the Most Challenging Time of His Career

11 minute read
Updated: | Originally published:

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Even iconic companies can endure a grueling identity crisis. AT&T has long been one of the most respected names in corporate America. Many Fortune 100 companies rely on the telecom giant for vital communications infrastructure and it is a leading provider of wireless phone service for consumers, including 5G. It’s a fast emerging player in broadband with a high-quality fiber offering. It is routinely one of the most significant annual investors of capital in the U.S., investing more than $135 billion in its networks and spectrum over the past five years, according to company sources.

Yet for the past six years, AT&T has been on a costly and distracting foray into the media business, gobbling up DirectTV and Time Warner in huge acquisitions. The company is now back to its core business of connecting businesses and consumers to each other. The consensus view on Wall Street is that AT&T has spent the last two years undoing what it did in the previous six. It has spun off DirectTV and Warner Media to refocus on building on the telecom infrastructure that is the backbone of much of the modern connected economy.

Directing this effort is the CEO since 2020, John Stankey, who has spent his entire 37-year career at the company. For Stankey, 59, it’s been a challenging and sometimes emotional process. In a recent interview, Stankey, made the case for the streamlined AT&T and discussed what he says is the most challenging business environment of his career. Stankey spoke to TIME on June 1, from a conference room outside his Dallas office, where he was testing out a new Microsoft video conference camera that slowly moved to focus on whoever was speaking. “I refer to us as Microsoft’s biggest beta tester.”

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This interview has been condensed and edited for clarity.

When was the last time that you used an actual landline?

I’m probably a bit of an outlier. There is still one in the house and my mother-in-law calls the landline first. My wife and my mother-in-law are active users of it. I sometimes have to pick it up.

How many customers still have landlines?

It’s a very small number, less than 20% of our peak.

My landline is $10 or $12 a month. Are you losing money on the landline business?

Ten dollars does not cover the cost of the landline. Costs of landlines are going up because scale has gone down and the fixed cost structure largely hasn’t changed. When I talk about transforming the business, and altering the cost structure, a major part of that work is shedding all that cost structure associated with excellent, great products for many, many decades that have now run their course. All that cost structure is being re-engineered out of the business right now. And our hope is over the next four or five years, we free ourselves of that.

Why has buying entertainment companies proved to be such a minefield for outside companies?

Every industry has unique characteristics. I think some of the unique characteristics of the media business are incentive structures that are quite a bit different than many publicly traded operations. The incentive structure is very much built around the contributions of an individual or individuals as opposed to inherent value that the corporation owns or builds.

Are you referring to the stars or directors taking a huge cut of a movie or hit show?

It’s not just stars and directors. It’s people who write and showrunners; it’s executive producers who bring packages and talent together. Everybody kind of has a different dynamic around how they can sell and that is very different than many other businesses and verticals. I’m not talking about the cut per say, but what I am suggesting is that a company that has management expertise in their current line of business maybe struggles a little bit when you motivate and incent people in the media industry. It’s just utterly different and very, very unique and bespoke to a particular individual or particular individual’s capabilities.

Right after the deal was announced you paid a visit to HBO headquarters in New York. The meeting was leaked to the press and you were presented in an unflattering light as a sort of clueless telcom guy that didn’t really get the creative business. Is the entertainment industry more of a snake pit than the telco industry?

I think they just are motivated differently. It’s natural for me to walk into a group of 200 people in the communications business and talk about what we need to do to get perfect broadband out to millions and millions of people. It certainly isn’t going to be the kind of an approach that works in media. It’s all about being unique and special and different and your own intellectual property. I don’t find it to be a snake pit. I found it to be a different creative process with people who are incented and motivated differently.

A lot of what you laid out that day for HBO and got so much blowback about, like increasing volume and production, has paid off. HBO added something like 3 million customers in the last quarter.

If I were to be criticized for anything I did that day, it is that I told the truth. HBO is now for the first time in over a decade growing subscribers, growing in relationships, growing the number of hours that people spend watching the service and it’s not lost any of its creative edge. I think that’s pretty damn good.

And now there is advertising on HBO. (And Netflix recently confirmed that it is working on adding an ad-supported optioned to its streaming service.)

There are some customers who choose to pay less per month to get served advertising or a light advertising load and I think that’s probably a good thing because not everybody is wealthy, white-collar upper-middle class, and sometimes people want to pay a little bit less.

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On a macro basis what is your reading of the health of consumers right now? Is it still your view that people are a bit flush?

There’s still an awful lot of money sitting in people’s bank accounts from what I would consider to be some of the government-subsidized distributions that took place and changed people’s cash position. I do think consumers are still relatively healthy but it only takes a couple of quarters of 8% of inflation…[to eat into those cushions.] We’re going to see a softening of the economy that’s going to be driven by the fact that people aren’t going to have discretionary money and that softening will probably cause the economy to slow down. You will probably see things kind of normalize on jobs and employment.

What is your operating assumption for inflation going forward?

Six percent for the balance of this year, We may be in a position by this time next year where the Fed is successful in halving the current rate of inflation

AT&T buys a lot of stuff. Where have you been hit the hardest in supply chain issues and shortages?

Anything that has chips in it.

What else?

We deploy backup generator cell sites so when the power goes out, the power stays on for cell sites. The manufacturer we were working with ran out of a small plastic silicon part. It cost about a buck. Everything else is there: engines, transfer switches, and here’s one thing and it holds up a $30,000 generator because you can’t get that one little plastic $1 product.

Have you readjusted wages in this tight job market?

Our annual pay increases this year are at a level that I haven’t seen in the better part of a decade. In some of our tech disciplines, we did some fairly sizable, double-digit base adjustments to deal with the dynamics of the market.

Do you think the current restrictive immigration policy has contributed to the labor crisis?

Do I think a more informed immigration policy would be good for the United States? Yes, I do. What the pandemic taught us is that there’s an awful lot of work that can be done from any place and that companies are learning to run much more distributed operations. If that’s the case, if we can’t bring the workers to us, that would really not be healthy for the United States [because well-paying jobs will go to remote workers overseas who would prefer to be in the U.S. and could be contributing to the U.S. economy and communities.]

With the variety of challenges—inflation, labor, supply chain—can you recall a more challenging environment for a business to operate in your career?

No. My timing was impeccable. I walked into this job with a pandemic and a high degree of social unrest. You forgot that in your list. We still have a more polarized society on social issues than we’ve ever had; a supply chain that is as fragile and as broken as it’s ever been; a policy that has driven record levels of inflation; the oddest job market I’ve ever seen in terms of people’s motivation. I’ve never operated in this dynamic an environment. And right now we got war thrown in on top of that.

How is your fiber business and the competition with cable going?

I used to go to cocktail parties and the question was, ‘Why can’t I have better wireless service in my house?’ Now the question is, ‘When do I get fiber in my house? I hear it’s really good.’ We’re building as fast as we can. The issue is how fast we can build to address a market that is incredibly receptive.

You refer to this time as the Golden Age of Connectivity and you are investing heavily in your networks. You project a five-fold increase in data over your network over the next five years. What’s going to drive that?

That’s a very conservative view of what’s likely to happen. Case in point: the day after you get your 5G phone you use nearly 40% more data than you use the day before. Why is that? Because it’s faster, you wait less, you surf more. It wasn’t some killer application that drove it. What happens if Mark Zuckerberg is successful building the metaverse? What happens if that window of autonomous vehicles emerges and we need to pull data down to truly become self-driving, shared-use vehicles? Those kinds of things could impact that forecast only upwards. What happens if remote medical imaging takes off? All these things are all in play right now.

What services will consumers be paying for in five years that they don’t pay for now?

Well, that’s a hard question. If regulations change where the consumer isn’t the product that list could be very long. I believe Europe is going to do some things that will probably make privacy a higher priority. I suspect there will be some structural changes in how people ultimately price products and services and you may have to pay 30 cents a month for an email account in a market that is a little bit more protective of privacy.

For your company, what is the single most challenging technical problem you’re trying to solve in the near term?

We as a company have to get really good at writing software that allows our network to do better things for you.

You recently sported a new look, a new hairstyle. Tell us about that.

I made a bet with the company earlier that if they delivered the financial plan for the year I would shave my head. They had a great financial year and I shaved my head in January and was a chrome dome for a period of time. The temperatures are back up to 90-plus degrees here in Dallas. I’m thinking of taking it off again this weekend.

Correction: June 27, 2022

The original version of this story misstated John Stankey’s age. He is 59, not 60.

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