EIt is possible for iconic brands to suffer a severe identity crisis. AT&T has long been one of the most respected names in corporate America. The telecom company is trusted by many Fortune 100 businesses for their vital communications infrastructure. It also provides a wide range of mobile phone services, including 5G. It’s a fast emerging player in broadband with a high-quality fiber offering. Company sources claim that it has been one of the largest capital investors in America for the past five year, spending more than $135 million in networks and spectrum.
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. It is back in its core business, connecting people and businesses. The consensus view on Wall Street is that AT&T has spent the last two years undoing what it did in the previous six. DirectTV has been spun-off and Warner Media was created to help refocus efforts on strengthening the infrastructure of the modern connected economy.
John Stankey has been the CEO of the company since 2020. He is a veteran executive who worked there for 37 years. For Stankey, 60, 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 with TIME from his Dallas office. He was using a Microsoft videoconference camera to test it out. The camera slowly turned to concentrate on who was talking. “I refer to us as Microsoft’s biggest beta tester.”
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The following interview was edited and condensed for clarity.
What was your last experience with a landline phone?
I’m probably a bit of an outlier. My mother-in law calls it first. It is used by my wife and mother-in law. It can be difficult to find it.
What percentage of customers have landlines left?
It’s a very small number, less than 20% of our peak.
My bill on my landline costs $10 to $12 per month. Do you make a loss on your landline business?
Ten dollars won’t cover the cost for a landline. Costs of landlines are going up because scale has gone down and the fixed cost structure largely hasn’t changed. It is important to get rid of all those cost structures that were associated with exceptional products over many years that have ended their useful life. The business is currently being rebuilt from scratch. We hope to be free from that over the next four-five years.
Executive companies have found it difficult to purchase entertainment companies.
There are unique aspects to every industry. Incentives structures are very different from those of many public-traded businesses. Instead of an inherent value the corporation has or creates, the incentive structure is built around individual contributions.
Is this referring to stars and directors getting a large cut of hit movies or shows?
It’s not just stars and directors. It’s people who write and showrunners; it’s executive producers who bring packages and talent together. Everyone has their own unique selling dynamics, which is different from many businesses. 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.
After the agreement was made, you visited 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. Are the entertainment and telco industries more snake-filled than the entertainment sector?
They are just motivated in different ways, I believe. 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. For people with different motivations and incentives, it was an entirely new creative process.
You did a lot with the information you gave to HBO that day, which got a lot of backlash. Things like increased volume and better production have all paid off. HBO gained 3,000,000 customers over the quarter.
If there was one thing I could be criticised for that day it would have been that I said 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.
There is now advertising on HBO. Netflix has recently announced that they are working to add an advertising-supported option to their 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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What is your macro-based view of consumer health right now? Do you still believe that consumers are somewhat 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. It is likely that you will see normalization in the employment and jobs markets.
How do you see inflation moving forward?
For the rest of 2018, we may see six percent inflation. We could be in a situation next year when the Fed has succeeded in halving current rates of inflation
AT&T buys a lot of stuff. Which countries have been hardest hit by supply chain problems and shortages in the last year?
Chips in anything.
And what else?
Backup generator cell site are used to ensure that cell sites can continue functioning even if the power is cut. A small part of silicon was outsourced by the manufacturer with which we worked. It was less than a dollar. 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.
Do you have a way to adjust wages when there is a tight labor market?
Our annual pay increases this year are at a level that I haven’t seen in the better part of a decade. To deal with market dynamics, some of our tech discipline members made significant, double-digit basis adjustments.
Are you concerned about the impact of the restrictive current immigration policy on the labor market?
Are you positive that the United States would benefit from a better immigration policy? Yes. 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. I was perfectly timed. The job required me to be prepared for a severe pandemic as well as high levels of social unrest. This was not on your job description. 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 now, we have war.
Where is your business with fiber and cable?
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. How fast can we build in order to serve a market that’s extremely receptive?
This time is known as the Golden Age of Connectivity. You are making significant investments in your network. Over the next five year, you project that your network will see a fivefold increase in data. What’s going to drive that?
That’s a very conservative view of what’s likely to happen. Take this example for instance: You use 40% more data the day after your 5G phone arrives than the same day last year. This is why? Because it’s faster, you wait less, you surf more. It wasn’t some killer application that drove it. If Mark Zuckerberg succeeds in building the metaverse, what happens? Is there a window for autonomous vehicles that opens? Do we have to collect data to make these vehicles self-driving and shared-useable vehicles? These kinds of events could have a significant impact on the forecast. Is remote medical imaging going to take off? All of these are in place 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. Europe has made privacy an even higher priority. There will likely be structural changes to how products and services are priced. You may need to pay as little as 30 cents per month for email accounts in markets that have a higher privacy standard.
For your company, what is the single most challenging technical problem you’re trying to solve in the near term?
As a company, we need to be able to write software that helps our network do better for us.
Recently, you wore a fresh look and a different hairstyle. Please tell us more.
An earlier bet I had with the company was that if the financial plan they produced for the year came out, I would chop off my hair. The company had an excellent financial year. I was chrome dome for a time and shaved my hair in January. Dallas is back at 90+ degrees. I’m thinking of taking it off again this weekend.
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