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AT&T CEO Randall Stephenson: “Wireless Is the Priority of This Business”

Randall Stephenson

Randall Stephenson is just two years into his tenure as CEO of AT&T (T) but he faces challenges that have been decades in the making. Among them: remaking AT&T amid the steady decline of its landline business, future-proofing its business as our appetites for bandwidth grow, competing with the likes of Comcast (CMCSA) in the cable TV market and fending off the proponents of Net neutrality, who don’t care much for the idea of a two-tiered Internet.

Beyond this there is the issue of continuing to build out AT&T’s wireless business, which–if not iPhone-dependent–is certainly nursing a hell of a habit. In its fourth-quarter AT&T added 2.1 million wireless subscribers. 1.9 million of them were iPhone accounts. Astonishing. But AT&T’s exclusive deal to peddle the Apple iPhone in the U.S. expires next year. The company is obviously eager for an extension. But what is it willing to do to get it?

Incidentally, we had a fairly big announcement from AT&T this morning. The company said it is upgrading to High Speed Packet Access 7.2 technology. That means considerably faster mobile broadband speeds. The upgrade is slated to begin later this year, with completion expected in 2011.

Session Highlights

Live Blog

  • After some brief introductory remarks from Wall Street Journal Managing Editor Robert Thomson, who jokes about implementing an 18-second delay for expletive-fond Yahoo CEO Carol Bartz, and a welcome song from Jill Sobule, Walt welcomes Randall Stephenson to the stage and the second day of D7 begins.
  • For a first question, Walt, referring to poll data, asks Stephenson why some folks might not be interested in buying an Apple iPhone because of AT&T. Stephenson notes that AT&T is improving network quality and reducing churn.
  • Walt says he gets frequent reader mail complaining about AT&T service coverage. Stephenson says the company is way down the road in terms of the level of data traffic on the networks. Behavior changes radically. He says AT&T is a year ahead of other carriers in terms of network management, managing the volume and behavioral changes from adoption of new devices.
  • Walt: Let’s talk for a moment about the iPhone. It’s a data-intensive device. You weren’t ready when you first launched the iPhone 3G. What happened? Stephenson says the company wasn’t quite ready. “But we’re improving.”
  • Walt asks the audience how many people use AT&T. Many hands raised. How many had it before the iPhone? A fair bit. How many are satisfied with the service? Also a fair bit. Clearly, AT&T’s service must be getting better.
  • The level of data volumes we are seeing on our networks is changing customer behavior dramatically, says Stephenson. This is challenging, but the company is addressing it.

Randall Stephenson of AT&T

  • Walt: If we project out farther past the iPhone, are the mobile networks we have going to be able to handle these new data-intensive devices? Stephenson: The answer is clearly no. That’s why we’re buying more spectrum and moving toward LTE. What’s so good about LTE? Speed levels of 20 megs plus, for one, says Stephenson, who admits that real-world performance will be somewhat less than that.
  • Stephenson says AT&T is more than doubling the theoretical speed of the network. Does this mean the speed of our handsets will also double, asks Walt. Not on current handsets. But on future ones, which will all be backward-compatible.
  • When you upgrade the network to 7.2 will it have any negative impact on the network as data demands grow, asks Walt. Stephenson says no. “It’s all network management….We’ll have a whole new capacity.”
  • Walt: In a world where both you and Verizon (VZ) go to LTE, will I be able to take my handset and switch to Verizon’s network? Stephenson says the LTE standard is consistent and should permit that.
  • The conversation shifts to Wi-Fi. Walt asks about AT&T’s Wayport efforts. “When we look at the world today and the world of the future, the fixed-line bandwidth requirements are not slowing. Then you move to the wireless broadband world, where bandwidth requirements are not slowing either. You need a bridge between the two.” That bridge is WiFi, adds Stephenson, noting that the company sees extraordinary WiFi usage among it smartphone users.
  • Stephenson talks for a moment about automatic authentication and says AT&T is working to implement it. “The current system is kludgey. People want it seamless.”
  • Walt asks about the company’s broadband business. Stephenson says it’s doing well. Notes that it is doing nearly as well as Verizon’s FIOS business.

Randall Stephenson

  • Walt asks how the economy is affecting AT&T’s various businesses and the advance of the company’s capital spending plans. Stephenson says the board business has obviously been affected. Business is slowing especially in enterprise and the consumer phone business. Interestingly enough, people are more apt to disconnect the home phones than they are broadband. So AT&T continues to aggressively invest in mobile apps and in wireless infrastructure. He notes that the company is really pushing hard to build out its U-verse network. “I’ve been through a few of these recessions in my 20 years in this business, and it will turn. So you must continue to invest and prepare for the day when it does.”
  • What about competitors? What are they doing? In wireless, says Stephenson, competitors also investing. A lot of capital is coming into the wireless business. In broadband, cable guys have not slowed down. Telecom structurally in a good place. Regulatory structure continues to bring in capital.
  • Back to the issue of the iPhone. Was it worth it to sign the deal with Apple (AAPL)? How has it worked out? “It’s worked out terrific. We have no complaints.” He notes that the company incurred dilution, but has benefited by getting the premier customer in the space–one with high data usage and low churn. “I’m very pleased with the deal.”
  • Walt asks if the company has suffered from the iPhone’s fixed data charges. It’s not a variable charge. How does that offset the dilution that AT&T has to pay? We made a bet, says Stephenson, that the industry was heading toward smartphones, and that was a good bet. Now we’re seeing dramatic uptakes in usage, so the pricing model must change. And it will change. The market will dictate that change more than anything else. But right now the economics of the iPhone are very good for us.
  • Walt: Have you ever called Steve Jobs and just asked him to put a keyboard on the iPhone? Stephenson chuckles. No. “If Steve wants to put a keyboard on the iPhone, I’m sure he will.”
  • Walt: Are all these new operating systems arriving at market problematic for AT&T? The iPhone, Palm’s (PALM) WebOS, Android? Would it be easier if there were fewer platforms? Stephenson: Do I want to see fewer platforms? Yes, it’s better for my business. Will I see fewer platforms? I don’t think so. So we need to take advantage of it and use it as an opportunity.

Randall Stephenson and Walt Mossberg on-stage at D7

  • What about the Palm Pre? “Would I like to see the Pre on our network some day? Of course I would,” says Stephenson. “We obviously talk to all the handset manufacturers. We want a broad selection of devices in the lineup. That’s important. Devices right now are what’s driving the customer adoption as much as anything.”
  • Stephenson says he’s seeing dramatic uptakes in data usage. Pricing models will change over time, he says. How it changes will depend who you are. He notes that costs are variable in wireless–every new bit has a direct cost tied to it, unlike wireline business. AT&T margins are 40 percent-plus in Q1 on wireless business.
  • Walt: Can you foresee a day when you’re not running retail stores? Why do you want to run stores when you’re really a network company? Stephenson says distribution is changing. But a retail presence is always going to very important, and I always want to have a part of that.
  • Moving on to the Q&A: How do you transform wireline customers into wireless and broadband customers? Integration is very important, says Stephenson. If you already have AT&T Wireless, it’s a natural step to add broadband and even wireline if it’s offered as a bundle.
  • Why can’t we have data roaming on LTE from the beginning and avoid the mistakes of the 3G networks? Stephenson says the LTE network will have similar roaming agreements as those on the current networks. “It’s in all our best interests.” The industry always evolves to a point where broader coverage is needed and these agreements become necessary. You’ll see that with LTE as well.
  • Question about SlingBox on 3G network being rejected: Who decided that? Stephenson says that terms of service agreement for the customer do not allow customers to move live stream video over the wireless platform. Not like the fixed line side. If you start congesting network with data, voice quality goes down. We have to maintain some quality, so it’s not allowed under terms of service.
  • Responding to a question on warrantlessly providing data about customers to the government, Stephenson says AT&T will act within the law in all regards to customer information and privacy. “We will comply with the law, absolutely,” he says.

A note about our coverage: This liveblog is not an official transcript of the conversation that occurred onstage. Rather, it is a compilation of quotes, paraphrased statements and ad-lib observations written and posted to the Web as quickly as we were able. It was not intended as a transcript and should not be interpreted as one.

Randall Stephenson Session Photos

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Walt Mossberg and Randall Stephenson of AT&T, onstage at D7.