member in the early 2000s asking,
‘Do you ever think voice will just
move off those landlines and onto
mobile predominantly?’ and a lot
of people said, ‘No way. There just
isn’t enough capacity, not enough
spectrum.’ And lo and behold, look
what happened.” When he later
asked about accessing the Internet
through the cell network, “it was
the exact same reply: ‘No way! It
can never happen.’ And along came
the iPhone. Then we asked, ‘What
is now becoming the most desired
application on these devices?’
Video. ‘And could you ever accom-
modate video?’ ‘No, there’s no way.’ ”
He was learning a lesson: When
the engineers tell you it’s impos-
sible, don’t believe them. “Full
video transportability we just
believed was going to be impor-
tant,” he recalls. Crucially, he also
decided he wanted to do more
than just offer a wireless network
that could handle video; he wanted
to offer video itself. But there was
a problem: “We couldn’t get the
rights to do any of it.” The solution:
“DirecTV was available,” and like
cable companies, it had rights to
carry a lot of video programming.
So AT&T bought DirecTV in 2015,
and “within months we were able
to take that full portfolio of con-
tent that DirecTV had the rights
to, and we were porting it to the
mobile device.”
Buying rights merely whetted
Stephenson’s appetite. Thinking
about the future, his team con-
cluded that if the coming 4G and
5G networks would be mainly
vehicles for delivering video, then
“controlling your destiny to some
degree would be really important—
that is, owning premium content,”
he says. “And that’s what took us
down this path of desiring to own a
big portfolio of premium content.”
It was a $104 billion decision.
T
HE FUTURE was par-
ticularly appealing to
Stephenson because
the past, AT&T’s
phone business, had been look-
ing so bleak. Lost in the drama
over the Time Warner acquisi-
tion is AT&T’s financial reality:
Though it generates tons of cash,
its overall business is in decline.
Operating revenues in wireless
and landline phones and broad-
band plus DirecTV, accounting
for 71% of the total, were all lower
last year than they were two years
earlier, despite a robust economy.
What’s worse, the declines are
accelerating unexpectedly. Wall
Street has been lowering its con-
sensus forecast of AT&T’s 2019
Ebitda, a measure of operating
cash flow that subtracts debt-
service and other expenses, for
years. The latest forecast, includ-
ing a full year of WarnerMedia
results, is less than the consensus
forecast from mid-2016, before
a possible Time Warner deal had
ever been mentioned.
Even while shrinking, the com-
AT&T MEDIA AND TELECOMMUNICATIONS FORTUNE 5 00
JOHN DONOVAN : CEO, AT&T Communications
IT ONLY TAKES ONE
IMPAC TFUL VIDEO VIEWING
PER MONTH FOR SOMEONE
TO SAY, ‘I AM NEVER GIVING UP
AT&T ON THIS PHONE.’ ”
THE Y S AY
“DRESS FOR
THE JOB
YOU WANT.”
WE SAY
“READ THIS.”
CEO DAILY
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