For AT&T Chief, Time Warner Deal Is the Peak of an Ambitious Climb

With a Southern drawl, a vestige from his childhood in Moore, Okla., he reflected on racial tensions in America. He said his best friend, who is black, had recently spoken to him about the racism he had faced over the years. And Mr. Stephenson addressed the Black Lives Matter movement — becoming the rare chief executive to touch what has become a divisive social and political subject. When someone says, “Black lives matter,” Mr. Stephenson said, “we should not say, ‘All lives matter,’ to justify ignoring the real need for change.”


AT&T’s History of Invention and Breakups

AT&T, once known informally as Ma Bell, is a storied American brand that goes back under a succession of names to the late 19th century, after Alexander Graham Bell invented the telephone.

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He closed with a call to action. “I’m not asking you to be tolerant of each other,” he said. “Tolerance is for cowards. Understand each other.”

To many AT&T employees in the room, it was a surprise. The boss had emerged as an advocate for social justice. He got a standing ovation.

Corporate chieftains — including Howard Schultz of Starbucks; Dan Cathy of Chick-fil-A; and Dan Price, a Seattle entrepreneur who set a minimum salary of $70,000 at his company — often learn the hard way that speaking out on social issues can be fraught with peril.

But several people who have known Mr. Stephenson for years said the moment reflected the people skills — and the willingness to go out on a limb — that have helped drive his career. “I wish everyone at his level would make the same kind of commitment,” said Colin Powell, the former secretary of state, who has worked with Mr. Stephenson on early childhood education and health initiatives.

“The scouts, the education, helping improve an entire neighborhood in D.C. — he’s not just doing it out of the goodness of his heart. They could also be future customers,” Mr. Powell added. It’s something other corporate leaders should learn from, he said.

Lessons From Mexico

Mr. Stephenson grew up in suburban Oklahoma. His family ran a cattle feed business and he studied accounting at the University of Central Oklahoma. But in 1982, while still in college, Mr. Stephenson joined Southwestern Bell Telephone Company, and soon he was working the night shift in a data center, changing out tapes on mainframe computers.

At the time, Southwestern Bell was part of the old AT&T, the sprawling network of telephone systems that connected much of the United States known as Ma Bell. Then antitrust regulators broke up AT&T, shattering the company into seven “Baby Bells” in 1984.

After bouncing around the tax and finance departments for a few years, Mr. Stephenson moved to Mexico in 1992 to help oversee a joint venture in the country for Southwestern Bell, known as SBC. It was a long way from Oklahoma, but Mr. Stephenson adapted quickly. He immersed himself in the culture and sent his children to Mexican schools — and took up intensive Spanish lessons.

“Usually we speak English to Americans,” said Jaime Chico Pardo, a senior Mexican telecom executive involved in the joint venture who later served on AT&T’s board. “But he said, ‘Talk to me in Spanish, or otherwise I’ll never learn.’”

Mr. Stephenson’s time in Mexico also gave him a crash course in empire building.

While running the joint venture there, he became a disciple of Carlos Slim, the telecom mogul considered one of the richest men in the world. “I learned a lot from Carlos,” Mr. Stephenson said during a conference call in 2014. (Mr. Slim is a major shareholder of The New York Times Company.)

Among the habits he learned: keeping an up-to-date list of potential acquisition targets, and being ambitious in striving to make his company bigger and more influential.

In 1996, he moved back to the United States. By 2005, he was a member of SBC’s board — and that same year, SBC and AT&T were reunited in a merger. Two years later, Mr. Stephenson became chief executive.

Upon assuming the role, Mr. Stephenson did something unexpected: He moved the company headquarters about 300 miles north, to Dallas from San Antonio, a decision he called in a recent interview “the hardest I’ve made as C.E.O.”

But the reasons were simple. “First and foremost, to get our people access to great airports,” he said. (Dallas has two international airports.) Also, he said, Dallas had one of the best labor markets in the country for engineers, sales personnel and managers.

Less than a decade later, AT&T has made a big impact on the city. AT&T is the lead sponsor of the Dallas Cowboys’ futuristic football stadium, and has its name on the city’s main performing arts center.

“It’s been amazing for Dallas,” Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, said in an email. “The jobs. The improvement downtown.”

Among Mr. Stephenson’s favored new projects is the development of the Trinity Forest Golf Club, which is designed to lure a big golf tournament back to Dallas.

He professes to be bad at the game himself — “I stink,” he said recently — although he has a 13 handicap, according to the United States Golf Association. But it’s a “thinking man’s game,” he said. “When you spend three or four hours walking 18 holes, you get to know somebody.”

The Deal That Got Away

Since the federal government broke up AT&T more than three decades ago, the company has been deliberately reassembling itself as a media powerhouse. Over the last 15 years, AT&T has struck more than $200 billion of deals. Mr. Stephenson was involved in them all, and has presided over some 44 acquisitions as chief executive.

But until this month, his most ambitious deal was the one that got away. In March 2011, as word spread that Sprint was closing in on a takeover of T-Mobile USA, a rival wireless provider, AT&T and its advisers stayed quiet as they labored on what they had code-named “Project Auto.” To help keep their work secret, AT&T was code-named “Tesla”; T-Mobile “Mercury”; and T-Mobile’s majority owner, Deutsche Telekom of Germany, “Daimler.”


AT&T and Time Warner C.E.O.s

Randall Stephenson, chief executive of AT&T, and Jeffrey Bewkes, chief executive of Time Warner, defended their big merger on CNBC’s “Squawk Box.”

By CNBC on Publish Date October 24, 2016.

Photo by CNBC.

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And then, on a Sunday, AT&T announced an audacious $39 billion takeover of its smaller rival — a move that would have made it the nation’s biggest carrier and reduced the number of major American service providers to three from four.

Critics emerged quickly, and vociferously. AT&T believed it could get the deal through the thicket of regulatory approval. “When you get to the facts, this is a deal that gets approved,” Mr. Stephenson said at the time.

Yet the T-Mobile case proved to be one of overweening ambition and an inability to read the political terrain.

In the view of Gene Kimmelman, then a senior official in the Justice Department Antitrust Division, Mr. Stephenson and his lieutenants were willing to compromise and find ways to placate the government. But the problem was that the government was opposed to the very idea of AT&T’s buying T-Mobile in the first place.

“It was obvious from the get-go that they were willing to spin off assets and accept certain conditions on their deal,” said Mr. Kimmelman, who is now chief executive of Public Knowledge, an antitrust public advocacy group. “They didn’t understand that this was a situation where antitrust officials thought the deal was dangerous.”

By year’s end, Mr. Stephenson was forced to walk away, paying T-Mobile $3 billion in cash and valuable wireless spectrum. But the AT&T chief learned some lessons from the defeat, according to people who know him. Mr. Stephenson was soon more engaged in Washington, becoming chairman of the Business Roundtable, a pro-business advocacy group. It reflected a realization, friends say, of the significance of politics in business at that level.

“He learned from that,” said W. James McNerney Jr., who until last year was chief executive of Boeing, and has worked closely with Mr. Stephenson.

Among the biggest flash points for AT&T of late has been the company’s cooperation with the National Security Agency in spying on the torrent of internet traffic that flows through the nation’s communications pipeline. Government documents leaked by Edward J. Snowden, the former N.S.A. contractor, describe AT&T as showing an “extreme willingness to help” the agency, and the bond between the government and the telecommunications company as “a partnership, not a contractual relationship.” AT&T said it was simply government orders.

The first sign that Mr. Stephenson’s ambitions had not been tempered came in 2014, when AT&T agreed to a $49 billion takeover of DirecTV. This added some 38 million satellite TV subscribers to the empire, giving the company more clout to negotiate with content providers — companies like CBS, Fox and even Time Warner, which produce the television shows and movies that AT&T funnels to customers’ screens.

Yet while AT&T is best known for its wireless phone plans, its operations encompass more areas: broadband internet for consumers and businesses; DirecTV subscriptions in the United States and Latin America; and, more recently, a joint venture focused on online video, Otter Media.

Expansion has cost Mr. Stephenson some allies. Though AT&T has flirted with the idea of an international empire in other ways — it weighed a bid for Vodafone, the European wireless giant, several years ago — Mr. Stephenson has instead kept his cross-border ambitions closer to home. Around the time of the DirecTV deal, AT&T also bought a Mexican service provider, Grupo Iusacell S.A., and Nextel Mexico. Along with the acquisition of DirecTV’s Latin American business, this put Mr. Stephenson in direct competition with his former mentor, Mr. Slim.

“Carlos and I have spoken, and he’s a very dear friend,” Mr. Stephenson said at the time of the deal. “And now he’s going to be a competitor, and we recognize that, and off we go.”

Turning to Video

A few years ago, Mr. Stephenson began to appreciate that the primary purpose of AT&T’s data networks was no longer transmitting voice and text messages — it was transmitting video. So he set about trying to understand the media business. He focused on DirecTV’s exclusive rights to the full lineup of Sunday-afternoon National Football League games. And he created Otter Media with Peter Chernin, a media executive with his own production company.

“He had an understanding that his business was already being dominated by video,” Mr. Chernin said.

And then he turned to his Carlos Slim-inspired spreadsheet. Buying Time Warner is the final step in what AT&T calls a “vertically integrated” conglomerate: One part of the company would produce “Game of Thrones,” Batman movies and CNN, and then make them available on satellite TV, smartphones and tablets. All the while, the same company would also collect copious amounts of data on its customers, helping advertisers more perfectly target audiences while collecting more money to pay for content.

“We did this with one thing in mind,” Mr. Stephenson said. “You’ve got to change the game. This is an environment just begging for innovation.”

Skeptics of Mr. Stephenson’s strategy instead see more dangers in having one company own both the “pipes” of the internet and some of the most valuable content to flow through them. “What’s most clear is that the new AT&T is like the old Ma Bell, in that it intends to be the dominant player,” said Mr. Kimmelman of Public Knowledge. “It’s not a monopoly — but certainly a dominant force in the market.”

As was the case when AT&T bid for T-Mobile, criticism of the Time Warner deal has come swiftly from both sides of the aisle. Hillary Clinton urged a thorough review, while Donald J. Trump called for an outright rejection of the takeover.

Mr. Stephenson professed no surprise at the response. “When we’ve done large-scale deals, that first day there’s always a lot of commentary on it,” he said. “People have been calling for a thorough review — it’s just the volume level.”

He also discounts the warnings that merging AT&T and Time Warner will be a repeat of the disastrous union of AOL and Time Warner, considered the worst deal of all time. “AOL was just bought for $4 billion,” Mr. Stephenson said. “I don’t think anyone is going to buy AT&T for $4 billion.” (AT&T has a market value of more than $220 billion, though its stock has dropped about 7 percent since news emerged of its plans to buy Time Warner.)

Asked what AT&T would do if its effort to buy Time Warner, like its bid for T-Mobile, ended in tatters, he said: “I’m not even thinking about that, to be quite honest for you. We’ll get the deal done.”

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29 October 2016 | 9:00 am – Source:


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