HIGHLIGHTS: John Stankey - CEO of AT&T

0:00Hi everybody, tune in to this short version of the podcast which we do every Friday. for the long version, tune in on Wednesdays. Hi everybody and welcome to In Good Company. And today we are live from New York. Now, the first thing I did when I arrived was to change my SIM card in my phone to an AT &T SIM card. Thank you for that, Nick. And so therefore, it's kind of fun to be here with the CEO of the whole company, AT &T. It's good to be with you and thank you for changing your SIM card to an AT &T SIM card. Data traffic is exploding, right? We are using it more and more and more, yet the telecom sector is certainly lagging the Meg7 and the big tech stocks.

0:43Why is that? Well, that's clearly the value add on the high margin products when somebody can carve out a dominant market position. They tend to drive better margins and the Magnificent Seven have managed to do that in each of their segments. In our case, we're a pretty competitive industry. And as a result of that, we tend to grow at GDP or GDP a little bit plus. And our ability to kind of carve that same dominant position at large margins just hasn't arrived at this point. Having said that, the next exciting part about the industry is the fact that AI is going to drive another growth cycle in data and usage demand.

1:20And we think that's going to be a unique opportunity for growth in our business moving forward. And it's going to allow for that consistent, steady improvement of cash flows if you invest correctly during this change cycle that's occurring right now. So how should we look at the relationship between the explosive growth in data and the providers of the infrastructure? Well, I think what, you know, for many years people are saying, are you going to be able to profitably grow as consumption continues to grow? And that's really been going on for decades. And I would say that the data points over the last number of years have shown that despite the fact that consumers have an insatiable demand to use more and more data, by the virtue of technology operating our business more effectively, the ability for us to add value into products and price differently, we are driving solid returns in our business.

2:08And I do expect that's going to continue moving forward, especially as we see more convergence of customers buying services from one company across multiple networks and your ability to be even more efficient and more effective at monetizing that household. Now, if we go back some years to 2016, you bought WarnerMedia to put more content into. I did. No, you didn't, but the company did, right? I'm trying not to remember that. Yeah, no, sure, but I'm sorry for having to touch on these things. But, you know, at that stage, one thought, okay, we need to combine content and distribution. And then one realized that, you know, that wasn't a particularly good idea.

2:49But when you look back at that, what was the learnings from that, in a way? There's several. One is, I would tell you, when you think about changing a traditional business model and having to reposition it, you best be in a position to invest heavily to make that happen. And I think one of the learnings was media was going through its own repositioning and the reengineering that was necessary in the business model. And certainly, as we just discussed, telecommunications was seeing the same thing. And in today's competitive environment, if you're not investing aggressively to kind of win in a space, it's really hard to be successful.

3:29And on anybody's public balance sheet, trying to reposition in two industries at the same time probably requires more cash and more patience than what the public markets are willing to offer. So when you sit here, we are in New York and you look to Europe, what are your reflections when you look at the European telecom market? I think it's sad, candidly. I think you have a developed set of economies that are basically on third world communications infrastructure in many instances. Maybe not the case in Norway, but there are parts of Europe where services are clearly a step behind much of the rest of the developed world right now.

4:11My sense is in talking to policymakers in Europe, they get that. And that's why there is this move to maybe go to a three-player structure that incents more investment in infrastructure. And I believe if they move forward on that and they do it quickly, that you can, in fact, see a reinvestment cycle that will improve services in Europe pretty significantly. So when you say you think it's not so great, that's because of the technical offering? Or is it because of profitability of the players? or? Players aren't getting return on capital, therefore they don't want to reinvest in capital in their infrastructure networks.

4:47John, let's spend a bit more time on AI. How do you think that will increase data volumes? I think there's a couple of things that will drive it. The one that I'm probably most excited about is if you kind of look around your house or your car or your workplace, there's sensors everywhere today. And oftentimes those sensors are cameras. Certainly one of the things that drove volume on the network in the past was when we put phones, we put cameras on every phone. And it was all the content that people picked up on either video or taking pictures and wanting to ship it around that drove a lot of traffic on the network.

5:21When you start to think about all the sensors that are capturing video right now, and you think about how capable AI is in processing video and taking insights from it, I think that's one of the huge opportunities. So when we talk about the importance of upstream bandwidth, this is one of the reasons I believe we should be investing in that upstream bandwidth is because if all those sensors are out there picking up the video, it's got to get someplace to be processed and analyzed. And that upstream capability to get it back up into the network, get it back up into the hyperscaler LLM to be processed is, I think, one of the places we're going to see large upticks in traffic.

6:01And then ultimately, once it's a conclusion or an inference is driven from it, that has to be delivered back to the point of consumption quickly for somebody to make a decision or do something with it. Do you think data centers will be a good long-term investment for the people who do them? I think there's going to be winners in the AI space. I think there probably are going to be fewer winners than the number that are investing in it right now. There's going to be some carnage. Is there a bubble in there now? Yeah, I think there's a little bit of irrational exuberance in some places. Certainly when you look, there's the announcements and then there's the reality.

6:40The announcements are pretty staggering. So you don't think those will come through? I think there's going to be a limiting factor, at least in the US, around how much power is available to turn it all up. And I think that's going to become a natural gating factor. And it's going to be very hard to achieve all the announcements that have been made unless we get on a different growth curve for the power infrastructure in this country. With the speed of technology development, you need to depreciate these assets over a relatively short timeframe, right? I would think. And that's my view of when you look at the capital intensity of building those data centers and you look at the capital intensity of my business, I'm perfectly happy staying in one domain.

7:22How would people characterize your leadership style? I think what they would probably say is I'm pretty direct. I'm pretty clinical.

7:34I've had one boss who said you're a bit like a fine wine. You want to buy it, hold it, and then open it and appreciate it for its complexity and what it's able to do. But it takes a little bit of time to get there. I think people see over time that I can be a pretty reliable partner. I can be a trustworthy partner. I can be somebody who is incredibly not only committed to the company, but committed to the individuals who want to see themselves step up and raise the bar on their contributions and performance to the business. And if that... Do you think you are respected more than loved? I don't know that people use the term loved to describe me.

8:14I think, generally speaking, my goal is to be respected. I think any CEO today, because of some of the things we're talking about, the rate and pace of change, the challenges that are in front of especially established business models, there's a lot of hard decisions to be made. Absolutely. Life is not a popularity contest. And those hard decisions usually have some collateral damage in places. And over time, hopefully investors, customers, employees on par look at those things and say, I respect what was done and it was necessary. But you don't always know that at the moment when those decisions are being made.

8:49That's sometimes perspective that takes a few years to develop. Have you become a better leader with age? In ways, I've become a better leader with age. Certainly, seasoning is important. I would tell you, I think anybody who doesn't understand that these jobs have a physical demand that's necessary, that physical demand, you can do a lot more when you're 50 than you can when you're 60, even if you are serious about keeping yourself in good shape and you pay attention. Well, you're in good shape. How old are you? I'm 62. Yeah. Well, you come across as very young and, you know. I was even better when I was 50, Nikolai.

9:28I think it's kind of funny because a lot of the people we interview, they say they're better leaders with age. So you have to start to think or wonder how many bad leaders there are when there are all these young people. Everybody claims they get better. It's situational. And I think there's a balance because I also believe when you come into a job like this, the day you enter it, you begin distancing yourself from the reality of the business because of the demands of it. the time you have to spend outside the company, what you have to do with other stakeholders. So you're never going to be as good as the day you walked into it in terms of your intimacy with the company.

10:03I'm not really a big believer in the imperial CEO model for that reason, because I think getting somebody who's more closely aligned to what's going on in the business has its merits. And I also think companies are living, breathing organisms. If there's one person at the top for a long period of time, people develop their big muscles to respond to that one person and they let all the smaller muscles around them kind of atrophy. And sometimes that change is what drives you to balance out the development of all your muscles and all your skills and that's a healthy thing for a large organization.