Former Chairman & Chief Executive Officer, AT&T
AT&T Chairman and CEO on the January jobs report, Huawei and more
AT&T Chairman and CEO Randall Stephenson joins "Squawk Box" from Pebble Beach to discuss the January jobs report, Huawei and more.
Economists forecast a slight pickup in job growth in January over December, but warmer weather could have been a positive factor that could have encouraged more hiring than expected in construction and some other industries.
Economists expect 158,000 nonfarm payrolls were added in January, up from 145,000 in December, according to Dow Jones. Unemployment is expected to hold steady at 3.5%, while average hourly wages were expected to grow by 0.3%.
About 500,000 j...
About Randall Stephenson
Randall Stephenson, former chairman and CEO of AT&T, has spoken publicly about the company's strategy regarding its proposed merger with Time Warner, 5G technology, and broader economic policy. In 2016 testimony before a Senate subcommittee, Stephenson argued that the merger would benefit consumers by providing more choices and lower-priced options, and he stated that AT&T would not withhold Time Warner content to disadvantage competitors. He also said that AT&T had been the largest investor in the United States for five consecutive years and that he expected that to continue. At the 2019 FinTech Ideas Festival, Stephenson discussed the potential of 5G networks, stating that the technology would enable precise location tracking of devices within centimeters, which he said could change how authentication and identity are handled in digital transactions. Stephenson has also addressed social and political issues. In a 2018 interview, he discussed a 2016 speech he gave to AT&T employees about Black Lives Matter, saying he was glad it went viral because it initiated conversations about race within the company and among other CEOs. On economic policy, he stated in 2016 that a 2% growth rate was "unacceptable" and called for tax reform and the approval of the Trans-Pacific Partnership to stimulate growth. He also noted that regulatory and tax policies had influenced AT&T's investment decisions, including its expansion into Mexico.
Transcript (41 segments)
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Interviewer0:00
Just joining us, we're here for reaction to the jobs report and much, much more. AT&T Chairman and CEO Randall Stephenson, it's great to see you. We haven't seen you in a while.
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Randall Stephenson0:08
Good to be back.
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Interviewer0:11
Let's talk. I mean, that three-month average is like supposedly impossible to have done. It's like back to 210 or 215 or something. And a year ago, I was told about Sandy and other people supposedly know something that that's impossible.
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Randall Stephenson0:26
It feels good. I mean, it really does feel good. We went through a period, we were seeing it, we were experiencing it, where investment from our big customers, the ones that are playing here, had started to taper down. We attributed that to the China and Mexico trade situations. But I'm hopeful with that kind of behind us in the rearview mirror, investment picks back up. The job number is very encouraging. We're actually very bullish on 2020 in terms of economic outlook.
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Interviewer0:51
That start just from the slowdown from your investment about a year ago?
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Randall Stephenson0:57
Yeah, the AT&T... you had, you know, you transformed the company into a huge media player and some people say, oh, you should have stayed, you know, the way Verizon does it and just focus on your P's and Q's and you're taking on too much debt. And I mean, a year has gone by. Can you update us on the progress in terms of paying down the debt and the results that you're getting? The stock's done well as well.
We came into the year 2019, last year, and we told everybody number one priority was get the debt paid down. And so we took on $40 billion of debt to do this deal and we exited last year having paid off $30 billion of the debt. We said we wanted to exit the year two and a half times debt to EBITDA, that was our threshold. We said was a healthy place to be. So check that box, you know, we're at two and a half times debt to EBITDA. We said we really wouldn't start aggressively buying back the shares we issued to do Time Warner until 2020, but the cash flow is so strong. Last year we told the market to expect $26 billion in cash flow, we did $29. We bought back 56 million shares last year. So we're well on our way to retiring a lot of the shares that were issued to do Time Warner. We'll buy back about 100 million shares in the first quarter. That's well on the way. That process is going. You'll see us continue to buy back stock aggressively. The cash flows of the business are really strong. The businesses, the wireless business particularly, is executing really well. Had a really good quarter on wireless. And the media business, I mean, the media business is really doing well. John Stankey and his team are standing up a new streaming product and I think it's going to be one of the most exciting streaming products in the market, HBO Max. And it gets launched in May and the outlook for that is really, really well. So we're feeling good about it.
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Interviewer2:42
Most importantly, you have all six Friends. I read that too.
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Randall Stephenson2:46
Yeah, we didn't announce that, but yeah, there was some news yesterday that there may be an episode created, but that was not our announcement.
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Interviewer2:55
That was not your... no?
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Randall Stephenson2:57
No, but we did pull in, as you know, all of the rights for Friends. So we own all of the rights for Friends and Big Bang Theory. We pulled those in in the fourth quarter, so those will be obviously stalwarts on our streaming platform in May.
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Interviewer3:09
Do you like the wacky media business? You're from Oklahoma. I know you, I've known you for years and it's not a natural... I don't know if I'm going to see you out there at those parties with Ari's house. You know, is that going to be something that... hello, Joe, you've not invited me, but even if you did, you know, your overall persona, will you go in, you know, with some of those new sunglasses you saw me wearing? We go in like... I don't see that happening.
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Randall Stephenson3:34
That's why we have John Stankey.
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Interviewer3:35
So Elliot, when I saw that, and I'm, you know, I'm not following it as close as you are, on what has happened, but for me it was like, what, they got bored messing around with AT&T and they've moved on? Or what happened? That whole thing, yeah, with the SoftBank. But how did that, how was the relationship with, was it confrontational? Did you lose any sleep over what was happening?
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Randall Stephenson4:05
It was a, you know, intense period when they sent the letter. But you know, when you, if you can read that letter, and this is what I told the guys at Elliot, is I think you've identified a good investment. We happen to agree with the areas that they thought the opportunities for AT&T were: capital allocation, margin expansion, and some things on the portfolio. And we were way down the path of executing a lot of this, but they had some other good ideas. So we spent a lot of time together talking about some of these ideas and I actually became, I thought, to have a mutual mind. And the plan that we put in place is a plan that our board had largely agreed to. They really gave me some good insights on some communication. I probably candidly wouldn't have communicated in the detail of our capital allocation plan that we communicated, but their points were valid that it's maybe time to put some detail out there in terms of what our capital allocation plan was, share buybacks particularly. And so bottom line, I think they have identified a good investment and they were right. Last year the total shareholder return, we were up 45 percent.
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Interviewer5:12
So you heard Stankey and John and you, that it's going to stay the way it is? Nothing, they're not pushing for anything to change at this point?
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Randall Stephenson5:18
I made a commitment last year that I would stay at least through 2020. So I will stay as CEO through 2022, but possibly even longer. I didn't give any indication beyond that. The board and I have to have that conversation, obviously.
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Interviewer5:34
You already said John is doing a great job in your view. And I think there are a few people that have the breadth of the business we've created, is able to like just oversee the entire landscape. He's a tall guy.
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Randall Stephenson5:47
Yeah, I mean, that helps to be, but yeah, you guys saw a sign on a box. He had an event, we had an event last night where he was interviewing Reese Witherspoon and Andrew Wilson and Jeff Zucker, talk about where is media going. And you saw a guy who has a breadth and understanding of the media world, he has a breadth and understanding of the communications industry. So yeah, he's doing a terrific job.
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Interviewer6:11
How many subscribers do you think you need for HBO Max in order for it to be, okay, this is success, this is what we're shooting for? Didn't he just come out and said, I think they have 26.5 million subscribers for Disney Plus?
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Randall Stephenson6:25
So HBO Max, if I could correct you, Becky. Thank you. But we, so think of it this way: we have HBO in the marketplace at about $15 right now and we have about 30 million subscribers on HBO right now. And of those 30, 10 million are on AT&T-owned platforms and those will convert immediately to HBO Max subscribers day one. The number we have put out is that we feel pretty good that by 2025 our numbers should be about 50 million U.S. subscribers to HBO Max. And if we hit those kind of numbers, which we think is eminently achievable, it's a real revenue lift and profit lift for the business. And it's putting all this content that we now own and the content production machine that we have over at Warner Brothers, it's just putting that content to work on our own platforms. And feel very optimistic.
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Interviewer7:14
50 million as well within range. Andrew's going to ask a question. You okay if I bring in Andrew?
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Andrew7:23
A somewhat difficult question, which is, you're just talking about Big Bang and Friends being brought to the HBO Max program or to the offering. But you know, when we had this conversation in 2016 about the deal between AT&T and Time Warner and some of the antitrust implications, and you went in front of a Senate hearing on this very issue about whether you would ultimately hold back programming, you said it would be economically irrational. And yet in this last quarter you disclosed that the decision to hold back Friends and the whole decision to hold back Big Bang actually cost the company $1.2 billion. So how do you explain that both to shareholders but also to policymakers in Washington?
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Randall Stephenson8:06
Well, the policymakers, the question that we were addressing, that I addressed in front of the Senate, had nothing to do with specific shows. It had to do with channels. And would you, for example, hold back HBO just for your platforms? Would you hold back TNT just for your DirecTV platforms? That's what I was referencing when I said it'd be foolish to do something like that because at the end of the day, distribution is what matters. Now, taking specific programs and saying we're going to use specific programs for our platforms, absolutely you should expect us to do that. Not all of it. Warner Brothers has an amazing portfolio of content. They have a production machine that is unbelievable. They're going to continue to sell content to other distributors. We will continue to sell content to everybody from Netflix to other streaming products. But there is going to be some content that we think will be very important to our own platforms. But again, not channels. We won't be withholding TNT from Comcast or Charter or anything like that.
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Interviewer9:11
Hey Randall, can I ask you about comments from U.S. Attorney General Bill Barr yesterday? He said that there may be a point where the American government or American companies and allies of American companies, those private companies, there should be taking a stake in Nokia or Ericsson. That that would make sense to try and build up something to compete against Huawei. What do you think of that suggestion? Government's taking positions in private companies to develop private solutions?
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Randall Stephenson9:39
I just don't think it's a good idea. I don't think the track record of that's very good. I think the development is going rather well. I do think some things have come out of the White House recently about are there other solutions though the industry should be looking at to ensure that we're not tied to single providers' software solutions. And as you probably know, AT&T has been the leader in developing software-defined architecture. And the point of that being, in simplistic terms, is rather than having a vendor who brings you boxes that have software integrated into it, says there's your 5G solution, extract the software layer out and then you can use anybody's boxes. We have people that are providing hardware into our network today that would have been considered unconventional five years ago because we have done this. We've extracted the software layer out and then you can use anybody's boxes. To the extent we do that, we innovate our way out of this competitive quagmire where everybody's talking about Huawei. Use innovation, use software to win rather than just government mandates.
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Interviewer10:47
Net neutrality, we're still talking about it, which is, it won't go away, right? Maybe it finally will, given this latest act. But for me, I always thought, you know, if you or somebody builds out this multi-gazillion dollar network and you need to recoup your capital expenses, you don't need like price control, what you're allowed to charge. It never made sense to me. But the world was supposed to end in Silicon Valley with net neutrality and it didn't yet. And now, were they hoping that this was going to succeed? Is it going to end now? Now that it's not, I mean, we can put it to bed now, can't we?
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Randall Stephenson11:21
Your point's really good. Because when the FCC ruled that they were pulling down those Tom Wheeler rules on net neutrality, what there was, hyperventilation. People were really loud and boisterous. And now, what is it, a couple years later, and the circuit court has said we support the FCC's decision, they wouldn't overturn it. And you know, nothing has really happened in that two years. None of the stuff people thought was going to happen would happen. In fact, what people have seen are the only places where you're seeing blocking of content and so forth are in the big tech providers, right? And so now the focus has moved to big tech guys in terms of, you know, what their practices are and it's not the internet players. But there's a really important point here that I think people need to just reflect on. President Obama is the president and the policies move one way at the FCC. Donald Trump, President Trump becomes president, the policies move the other way. And this is all a function of having bad legislation. And Congress needs to do their job. People need to step up and legislate rules rather than leaving it to bureaucrats. Because when bureaucrats are writing the rules, depending on who's president, you're having these crazy swings. And so I just really think Congress needs to step up, write rules that aren't left to interpretation of bureaucrats, and let's get this thing on stable ground.
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Interviewer12:39
The Supreme Court is not going to hear this. It seems like a long shot.
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Randall Stephenson12:46
We don't know. I'm sure if somebody will test it, but it seems like a long shot to us that the Supreme Court would hear this.
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Interviewer12:51
What, you're not saying it's dead and buried yet?
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Randall Stephenson12:52
No, but it's highly improbable that this... to me, it's dead and buried in terms of what the FCC has just ruled. Now, if there's an election in 2020 and somebody else is president, we could be right back.
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Interviewer13:05
They've gone to law school now, giving you... but absolutely, I do... five years, all court cases, you've been to law school the last five years. What are you talking about? Did you, haven't lost, have you?
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Randall Stephenson13:18
No, we've actually had a good record over the last four or five years when we go back to... wait for a minute. It is, it a security threat, is it a competitive threat? What do you think is, somebody who understands the innards of all this, anything that involves communication, you have a security threat. I personally don't think the security threat is the big threat to the United States. The big threat to the United States is Huawei is doing an amazing job of gaining market share around the world on 5G. And if the United States is the only country that is not using Huawei in our network, then we have a situation where the supply chain we're dependent upon becomes subscale. And so this is why we think we have to innovate our way out of this. This can be a security issue if you think about what's going to happen with 5G. And it's hard for people to get their head around this, but everything from autonomous cars to healthcare systems to utilities to pipelines are going to be managed on the back of these 5G networks. I think our government is rational in asking who do we think ought to be underlying the technology here. Chinese companies, should we question and understand exactly who these companies are and what the threats are, what's going to be used for this kind of infrastructure.
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Interviewer14:35
How far behind are we? How long do you think it would be before we could catch up? If you are talking about what the White House is doing with Microsoft and a lot of other companies they brought into the United States, is it behind right now? I keep reading how the United States is behind right now. Do we need to do something from the White House directing it?
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Randall Stephenson14:51
It gets to this point I was talking about. If the rest of the world is dependent upon Huawei and Huawei has scale, we've not had a situation like this where a country has 1.4 billion people and a company supplying the technology that they can have global scale just on their own country. 1.4 billion people. If Huawei gets 90 percent share in China, they have 30 percent share globally. Now if they get share in Europe and they get share, so we're sitting here in a situation where the United States is at a competitive disadvantage. And so this is why we have to find solutions to ensure that we're not at a very competitive disadvantageous position around the globe.
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Interviewer15:30
Okay, I just was just, Eden talking about, I can't help, I know it's John's role now, but I mean, do you sit around talking about whether we're going to be a third season of Big Little Lies? I mean, is that your life now? Is that part of it? And is there going to be a third season of Big Little Lies?
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Randall Stephenson15:50
Well, you heard the question last night, right? I got a non-answer last night. I don't know about you. That's what I always tell John what to do. It's my wife's favorite show. You think John would probably step up? You think Stankey would step up? I'm glad that guy died in the first season. That guy really, he was a bad guy, wasn't he? He was really bad. That actor, that's a great show when we're all sitting here talking about how bad a guy that guy was, right? And it's all happening around here. I was going to ask Reese, does she drive right up the canyon bridge? She goes right down, you know that, right? Maybe not in real life, I don't know.
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Interviewer16:28
See, I think, you know, we have Hans. Hans has got a boring life. He's, you know, it's a great company. He's the one, it's like phone calls. I think it's cooler to, you know, have... I like the business proposition. I don't know if it's cooler or not. It'll do cool very well. But I love... but thank you for being with us.
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Randall Stephenson16:50
Thank you.
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Interviewer16:51
Good having you guys. Great, baby.