Newswise — HAASS: Well, good afternoon. Welcome to the Council on Foreign Relations. I’m Richard Haass, president of the Council, and today we have one of our meetings in the series on CEO speakers. It is on the record. Anything you say can and will be used against you.
STEPHENSON: I didn’t know that. I want to dismiss myself. (Laughter.)
HAASS: Do you want to leave now?
We are pleased to welcome Randall Stephenson of AT&T to the Council for a conversation. He has been chairman and CEO for more than a decade now, twelve years give or take.
STEPHENSON: Sounds like fifteen minutes underwater. (Laughter.)
HAASS: Well, hopefully this won’t.
He’s, obviously, been involved directly and personally in any number of consequential decisions, most recently with the acquisition of Time Warner. I should also say that AT&T’s been generous, committing over a billion dollars over his years to a variety of education, retraining, and diversity initiatives, some within the company, some beyond the company. Full disclosure—important to give that—they’re a corporate member here at the Council on Foreign Relations, as was Time Warner in its—when it was an independent company.
What we are going to do is Mr. Stephenson and I are going to have a conversation for a few minutes. Then we’ll open it up to you, our members, to ask the tough questions that I didn’t have the wit to ask.
Let me just—thirty-second plug for the Council on Foreign Relations. Just this morning we issued our most recent task force report, Innovation and National Security: Keeping Our Edge. And I commend it to anyone in this room and beyond because it’s a real emphasis on what we need to do here at home, and that one can’t ask everything of our diplomats or our military. There are certain things we have to do as a society in order to put ourselves in a position where we can do what we need to to look after all aspects of our national security. So again, I really recommend it to you.
Thanks for coming today.
STEPHENSON: Good to be here. Thanks for having me. Happy to.
HAASS: So let’s begin with China. I’ve been in this business a while, and I can’t think of another major relationship with the United States that has changed, and to give a sense of directionality, deteriorated as quickly and as dramatically as the U.S.-China relationship has in the last couple of years. And everyone decries the lack of bipartisanship in Washington; this is actually fairly bipartisan. If you listened to the Democratic debate the other night, the anti-China rhetoric was pretty—was pretty robust. What has been your experience with China?
I mean, for example, a couple of questions come to mind. One, do you—are you aware that they’ve taken your technology? Have you—have you had a problem with that with China? I know you’re doing business with Huawei in places like Mexico. What has—what has been your experience with them? Have they been essentially a good partner or something less?
STEPHENSON: (Laughs.) One of the companies over in China that’s a large-scale creator of—builder of telecommunication equipment, one of the first products they ever put out, and did quite well with, was a very close replica of a PBX back in the old days, in the 1960s, that was made by AT&T. (Laughs.)
HAASS: What a coincidence.
STEPHENSON: It was, probably coincidental. (Laughter.) So in terms of firsthand experience, you know, we’ve had our share of, you know, challenges and concerns in that regard.
In terms of, you know, implications to AT&T specifically, we’ve had few issues because by and large we’re not allowed to do business there. We are prohibited from doing business. Now, we do have some points of presence and so forth. We’re allowed to do some things, carry traffic for customers. But we’ve had very little, little experience doing business within China.
Now that has changed, obviously, with the acquisition of Time Warner. You know, Aquaman did $600 million before it got to the shores of the United States, and so that’s changing a little bit with this acquisition.
But you know, my main thoughts as it relates to China is just what’s happening just domestically economically here in the United States as a result of what’s recently transpired, because I was one of the zealots, biggest supporters in terms of some of the economic policies of this administration. But all of these positives that have been generated over the last couple of years—predominantly business investment, which had been growing 6, 7 percent year over year just consecutively like clockwork since the tax reform went in on corporations—we’re now in a manufacturing recession. And it’s—if you had to point your finger at, you know, something, it would be one of two things. It would be the Chinese situation and the Mexico situation.
HAASS: Because it’s probably not that interest rates are not low enough.
STEPHENSON: I don’t think anybody’s having trouble accessing capital right now, yeah.
STEPHENSON: Accessing capital is not an issue.
HAASS: If we end up in a world where we have, if not divorce, separation from China, and fairly separate supply lines and markets, and a lack of technology sharing, how much more difficult does that make business for you, or not? I mean, like if we end up in a slightly bifurcated world, what does it mean for a large company like yours?
STEPHENSON: Yeah, I—
HAASS: Does it make a difference?
STEPHENSON: Yeah, it makes a heck of a difference. I think it makes a heck of a difference just on the United States, and a company like ours is dependent upon the health and vibrancy of the United States economy. And if you end up in a place where it’s—I don’t believe it’s China and the rest of the world; I think it’s China and others and the rest of the world, one could argue maybe some—to some extent it’s East versus West. And when you think about where is the growth in the global economy, you know, Asia is where the growth is.
HAASS: Where the people are.
STEPHENSON: And so if you’re a U.S. economy—and we just had this conversation; 5 percent of the population, 20, 25 percent of the world’s economy—you’re kind of dependent upon trade if you want to keep growing your 25 percent share. And so a world where you are cut off from a significant amount of global growth, from our standpoint that’s a problem. And so where do you have to look, you know, Africa? Well, China’s doing a lot in Africa. I don’t know how this bifurcation happens. Perhaps Latin America we could do well with. But yeah, it’s disconcerting for a company that’s dependent upon U.S. growth.
HAASS: One last thing that’s related to China. If there’s a trade deal with China, I think it’s possible to include things like market access and the Chinese will make certain commitments, again, on technology and the rest. The one area I can’t see a trade deal really accomplishing is a—is anything that would have a major reduction in Chinese subsidies from the state to their state-owned enterprises. And one of the areas that would, obviously, have consequences for would be things like 5G. Would you be happy with a trade deal that didn’t tackle the state subsidy issue, or do you just assume it won’t?
STEPHENSON: I’m skeptical that a trade deal could be reached that would address—you’ve termed state subsidy. Let me just term—use the terminology just subsidy in general, because I don’t know how you enforce it.
So, for example, the way some of the subsidies seem to work in China—everybody’s familiar with our industry and Huawei and what they do in China. And to put this into perspective, if Huawei could achieve in China a 90 percent share of Chinese communications, market share, they by definition have 30 to 40 percent global share. That’s a big deal. Now, if they could get another 10, 20 percent outside of China and start to get 40, 50 percent global share, this is a problem. This is a problem for the West. This is a problem for Western supply chain. How could they get that other 10 to 20 percent share around the globe?
You talk about subsidies. I mean, it’s real easy to conceive of a situation where a Chinese communications company puts out a bid, Huawei bids at a premium to what everybody else bids, and Huawei wins it. They have 90 percent share in China. Now they go bid in Europe, what do you think happens? The flip. They bid at 20, 30 percent discounts to everybody else, and so as a result they start taking significant share outside of China. You go to Latin America, these shares are really high. Go to Africa; Huawei shares are really high. Europe, I mean, for heaven’s sake, there are many countries in Europe where they have 40 and 50 percent share. And so this company is gaining significant share in mobile technology around the world.
And this is—if you don’t mind me just kind of bridging real briefly, they’ve gained this share in a world of 4G, fourth-generation technology. You go, well, OK, fine, but what about 5G? They’ve been very smart. They do not allow interoperability of their 4G equipment to their 5G equipment. So if you get 40 to 50 percent global share of 4G technology, guess what you’ve ensured yourself for 5G? Forty to 50 percent 5G market share. This is something that we in the West need to be conscious of and aware of. And while I don’t always endorse the approaches of our administration, I think the mindset, the thought process, the concern is probably on target.
HAASS: Let me return to that in a few minutes, but let me—I want to touch on a couple of other subjects before we open it up.
I want to talk about corporate America for a second. I assume many people in the room saw the Business Roundtable statement. I think you were one of the signatories. Essentially, the message was shareholder return can’t be our only preoccupation; we’ve got to have a wider sense of constituencies and stakeholders. But how do you navigate—it’s one thing to say that, but then you’ve got your quarterly reports. You’ve got something called Mr. Market that’s looking at you on a regular basis. How do you navigate a world where on one hand people are saying you’ve got to be sensitive to multiple constituencies, but—it’s a big “but”—we still care about your bottom line as shareholders? Is this an impossible dual mandate?
STEPHENSON: No, I don’t—I don’t think it is at all. I mean, a lot of the media—the Wall Street Journal hyperventilated over it, and—that how can this be the case. I would represent that this is not anything new. If you really want to have a sustainable business model, sustainable what I’ll call free markets, you better be mindful and you better be cautious about things like supply chains, diversity, communities, and so forth. I just believe that if you’re not you have fracturing in a society, if corporations just run oblivious to that. You have to be mindful about your employees. I mean, how can you possibly expect to have a sustainable, profitable business over time if you’re ignoring all of these other variables? And so to me it’s the most logical thing in the world to think that the purpose of a corporation is to serve all those constituencies if you want to have a true sustainable model.
HAASS: Keep moving around. AI, robotics, autonomous vehicles, this is the world we’re living in. You’ve established yourself—you being AT&T—as one of the leaders in the corporate world with reskilling, with training, education. If I’ve got it right, you basically go to your workforce in some cases and say you’re in a job, you’re doing great; the problem is this job is not going to exist in a year. What have—what have you learned from this? What’s working and what’s not working in terms of transitioning your workforce from today to tomorrow? What’s been your—what’s been your experience?
STEPHENSON: What works is, first of all, making sure your employees understand how the world is changing. I mean, there has to be an awareness among your employees in terms of what is happening. Where are the jobs going? What jobs are going to be relevant three, five years from now, and what jobs are disappearing?
And the one thing that—I wish I could take credit for this—our HR folks did was that starting point is out in our HR systems, when you go look at a particular job opening, it shows you what direction are those jobs going. Are they going up or are they going down? And if it’s a job where the number—the demands for the job are actually increasing, that’s heightening. That’s an awareness. That’s a really important thing. And so that’s a really important variable. And it seems basic, but a lot of people miss this. And so the employee understands this is where this thing is going. And you could think of the kind of areas; if I’m a telephone repairman, you know, and I go and click on for an opening, they’re going to see that that thing is doing this. You probably ought to be aware that’s not a kind of job that you want to be moving into.
HAASS: Where does the CEO fit on that? (Laughter.) Sorry, cheap shot. (Laughter.)
STEPHENSON: Yeah, I don’t know that most people want it, to be honest with you. (Laughter.)
But the other thing is, do you make it really, really easy for the employees to know what is required for the jobs they want to seek? And that sounds easy too, but you know, here are the certifications that are required, and if you want these certifications here’s where you go to get those certifications. Click this, this, this, take these classes, do this training, and now you are qualified for this job. And you can begin to truly move people—it doesn’t happen overnight, but you can truly begin to move people into the new world and into the new jobs, and it takes a period of time. I would say—we started this seven years ago and we said this is probably one of the most difficult logistical things we’ve ever tackled. And we build big networks and, you know, we do big logistical challenges, and this was one of the more difficult ones we took on. And I reflect back over seven years, and I have to say this is one of the areas that I take most satisfaction in over the last seven years, is how this has moved and transformed a workforce.
HAASS: Let’s talk about healthcare for a second. You know, this country spends roughly—close to a fifth of its GDP in the area of healthcare. I don’t know the details of your program.
STEPHENSON: Five-and-a-half billion dollars.
HAASS: OK. So, again talking about the recent Democratic debates, a large number of the Democratic candidates are talking about some version of a large public option, in some cases taking away a private option. As someone who is spending this, you have hundreds of thousands of employees, what is your sense of where you want the government to go with healthcare?
STEPHENSON: You know, look, if I were just saying purely financially motivated, government just takes over healthcare? Wow. I mean, five-and-a-half billion dollars a year we spend on it, right? That seems like an unlikely scenario, and I don’t think that it’s a scenario that is in the best interests of our employees. I do think we have to have a really vibrant, good, healthy safety net and access for people who are in areas of the economy where they can’t get healthcare. I’m all in and I’m all-in supportive of that. But the idea that the government is going to take over providing health care for—we insure I think somewhere around a million-and-a-half lives between retirees and actives. And taking that and dumping into a government system—that’s just one company—feels like a really, really big deal. And you know I don’t know.
Some would say it’s too paternalistic, but I worry about the healthcare for our employees. We do a lot not just to control costs; we do a lot to ensure that our employees live healthy lifestyles—productivity, just their own longevity, et cetera. And once you start kind of abdicating that responsibility from companies, where does that lead you in terms of the general health of your employee body? I think it’s important that we as CEOs and companies have a vested interest in the health of our people. I think it’s a good thing. I think it’s a productive thing for society.
HAASS: We actually practice that here, so we feel good about it.
One of the—another area of emerging bipartisanship is hostility or questioning—I’ll make—I’ll dial it down a bit—towards big technology companies. Motivations may be different between the left and the right, but we see—whether it’s antitrust-based or regulation-based, we see the environment in which technology companies are operating in, clearly the temperature’s changing on that.
STEPHENSON: Oh, boy.
HAASS: What’s your reading of that, whether this would be welcome, or in some areas it might, in some areas it wouldn’t? To what extent are you concerned or potentially relieved that the government may be moving in this direction?
STEPHENSON: I’m never one to wave a flag say go regulate or take on antitrust efforts on other companies. It’s just kind of against my nature.
But it’s—it is interesting, and probably even ironic, that for twenty years the government seemed to have—didn’t seem to have; the government, the United States government, even state governments had a deliberate policy of light-touch oversight and regulation of the internet companies, and it was for good reason. They wanted to see these technologies flourish. It was good for America, get technological leadership. And so there has been a very, very light touch and hands-off approach to a lot of these companies, and mission accomplished. These companies have thrived, and we now have a lot of these companies who have a very significant share in the—in the domains where they operate.
And you know, you think about AT&T, you know, back in the day we were regulated heavily as a monopoly until our market share fell below about 50 percent. We now have these companies that are now operating in domains where they’re having 60, 70 percent share of the particular areas where they operate. It probably should not be a surprise that people—attention is being heightened in terms of antitrust concerns. And are they legitimate, are they, you know, appropriate? I’ll let the authorities worry about that. But nobody should be surprised when you start getting 50, 60 percent market shares in these areas that the government starts looking closely at the behaviors.
HAASS: And your sector is also an example where antitrust was applied, and after some degree of disruption quite a lot of companies did just fine.
STEPHENSON: A lot of—AT&T, I would suggest.
HAASS: Just to mention one, yes. (Laughs.)
STEPHENSON: Company has done quite well in a—in a deregulated environment, and it is hypercompetitive. It’s a fun industry, but yeah, it took a little government intervention to get us to that place as well.
HAASS: OK. Net Neutrality, let’s raise that—put that on the—I expect you got some opinions on—
HAASS: —on that, about what ought to be government policy in that area and how we ought to price it.
STEPHENSON: I always start a conversation with Net Neutrality out with what does it mean, because if I were to just ask various tables to give me a definition of Net Neutrality, I—
HAASS: You can’t ask this table, by the way. (Laughter.) I don’t care what they think. (Laughs.)
STEPHENSON: I would—I would get multiple definitions of what it actually means. And if what we’re talking about is that there should be unfettered access to the content on the internet, and that, you know, companies like ours should not be able to block anybody from getting to certain content, or throttle you in terms of your use of content—we can’t treat AT&T’s HBO Max streaming better than Netflix’s streaming—and somebody ought to be able to develop a device that would connect to the internet and it ought to work as well as anybody else’s device, if you say that’s Net Neutrality, then by all means I think that’s important. I think it’s important to the growth, the development—the continued development of the internet. I think, in fact, that it is so important people in Congress ought to step up and do something about it, and actually ought to legislate what I just said.
Instead, what we do is we have—we write the worst legislation in the world anymore. We write just kind of frameworks as legislation. We hand it off to a bunch of bureaucrats to regulate it. And depending on who is president one interprets it this way over here, and so companies orient themselves, they set up their business models over here. And then there’s an election, new president comes in, and we’re swinging all the way back over here, and you’re oriented over here, and your business practices are changing, and you don’t know how to invest in ten-, fifteen-year-horizon networks and so forth based on this kind of phenomenon.
And so this is one of these areas that people need to step up and do their job and pass some legislation on this. This is a—this is chaotic for businesses who are trying to keep the U.S. in the leadership position on the internet.
HAASS: So your view is almost whatever you decide just decide it and stick with it?
STEPHENSON: Yeah, and I think there are some really broad frameworks that people can agree on. And it’s not too dissimilar from what I just articulated. I mean, there will be some—look, we’re all rent-seekers. You start this process and everybody’s going to be in there trying to get this thing and that thing. We just got to keep focused.
And I will give credit on some of the recent legislation passed by Congress on tax reform on the corporate side—not the individual, but the corporate side. There were some big, broad principles that said get those competitive U.S. tax rate. There are some big, broad principles on Net Neutrality we should be able to legislate and get done.
HAASS: I want to return just for one minute to 5G. And you know, given the way you’ve now—you know, where your company is with the acquisitions, you’ve got content, you’ve got distribution. The question is, given what we’ve said about China, given some of the European companies—
HAASS: —given Verizon, whether you think AT&T can be competitive in the 5G space.
STEPHENSON: Oh yeah, I think we’ll be very—I think we’ll be leaders in the 5G space. We already are. When you think about, you know, what kind of determines how 5G rolls out, the first step is, how do you set standards so that you can get everybody manufacturing gear and equipment that guys like us go out and deploy? The standards are everything. And so AT&T was the leader in the standards-setting process.
Now, something you should be aware of, for the first time in my career the Chinese got very aggressive in this, and they were all over the standards-setting process. But we got everything in the standards we wanted, that we thought the U.S. needed to have a shot at maintaining a leadership position. So standards are set right.
We, AT&T, in anticipation of this, have been buying up, spending billions of dollars on acquiring wireless licenses, because when you think about 5G, you got to have a lot of airwaves to pump all of these volumes through. We’ve spent over $40 billion over the last ten years on acquiring the licenses so that you can have the bandwidth to pump all this through. I will tell you AT&T is as in good a shape as anybody in the world. I think we’re in the best position in the United States and as good as anybody in the world. So mission accomplished there.
We have a balance sheet that we’re committing to this and we’re investing in it. So I feel really good about that.
We have great technology. We’ve done a good job on getting the technology ready.
Here’s where we have a problem. If you’re thinking about your competition, you said Europe. I don’t think anybody in Europe has even issued an RFP for 5G yet, truly. So I set Europe aside. They have gone from first to worst in the—in the world of mobility for—you can debate why. But Europe is not in play right now. It’s China. If we want a leadership position, it’s vis-à-vis China.
You want to deploy 5G, what are the big barriers? I’ve talked about some of the barriers, which we’ve now broken through. We’re past those, spectrum and standards and the equipment and so forth. Now you got to go out and put this stuff up. You got to go out and deploy thousands upon thousands of cell sites. Now, I don’t think in China—they’re spending three years trying to get San Francisco to approve a cell site. I suspect in China, when they want a cell site they go put up a cell site where they want it, and they’re putting up millions upon millions of cell sites while we’re over here kind of debating and thrashing through local/municipal regulations, state regulations, federal regulations trying just to get the infrastructure permits to put this stuff in place. And so if there’s a place where we’re going to fall behind, China is going to be able to go much faster in that regard than the U.S. will. And I’m not saying their approach is better. I get the environmental concerns, aesthetics, appearance. But we have people wearing aluminum-foil suits because they’re afraid of 5G, right, and fighting deployment of 5G. I don’t think they’re dealing with that in China.
HAASS: What about the regulatory side or the—so much of the spectrum is reserved for the military. Do you basically feel that the government has to change policies so you can do what you want to do with 5G?
STEPHENSON: No, if there’s one area I have to tip my hat to the government, both the Obama administration and this administration, it is getting spectrum out into the marketplace. And there have been numerous auctions conducted. I told you we spent forty billion (dollars). The lion’s share of that have been in government auctions, acquiring airwaves. There have been already a handful of auctions on these really-high-frequency airwaves, which will make this stuff really hum. We’ve participated in a couple of those. There’s another one coming up this year. So I think our government is doing a really good job of getting the airwaves out into the hands of the market and the people who will deploy these networks. And that—we’re not lagging behind the Chinese in that regard.
HAASS: You know, this is the Council on Foreign Relations. For a second I’m going to make it the Council on Financial Relations. One of my many joys in recent days was reading a twenty-plus page letter from Mr. Singer and company, from Elliott, sent you all advising you. So the criticisms or reactions about the idea that you’ve put together through acquisition rather than organic growth where you are, content and distribution, that essentially this is an old-fashioned conglomerate and that’s not a good idea anymore, how do you—how do you take that, other than not well?
STEPHENSON: Look, I—the letter was—you know, I didn’t take the letter poorly. It was interesting to me the letter laid out some recommendations, and the recommendations seemed to be supportive of the strategy, the importance of Time Warner, the acquisition, and the importance of 5G which we have been talking about here, and the—and the power of the assets. You know, they actually talk about it in those terms. So, look, I read the letter, and candidly there were some areas that I just read and I thought, you know what, they make some good points. And we’ll engage with them on those points.
It was a mixed bag, though. There were some that I read and I go, I’m not sure that’s so clear to me. And so those are areas we’ll also want to get some more detail. I mean, say what you will about Paul Singer’s organization, they’re smart people. They’ve got some really smart people. And so if they have some good ideas, I’m dying to sit down and we’ll grind through them and see what makes sense for all of our shareholders—not just one, but all of our shareholders.
HAASS: One last question, then I’m going to open it up. When you went through the hoops of the merger, there were all sorts of questions about whether you would advantage your own content in your own distribution systems and disadvantage those of others. Where does that stand now? Because you now have all this content coming out of HBO and other places, and you’ve got your pipes so to speak. To what extent do others who want to get into your distribution system, other streaming services, how do they compete? How is—how is all this going to play out?
STEPHENSON: It’s playing out exactly as we said it would play out in the courts. And I—it’s—there is not a whit difference between what we established as our position in the courts, and that is as a media company—I see Wolf and the team down here, CNN—I can’t even begin to fathom the motivation that would say we want to limit CNN’s distribution just to AT&T’s platforms. That is a mindless proposition. You develop and you spend a lot of money on developing great premium content, and how do you make money on it? Wide and broad distribution. You want to distribute it everywhere. And it’s the same with HBO. We want HBO distributed as broadly and as widely as we possibly can. That’s the way you create value out of franchises like HBO.
And you know, we recently had a drop from Charlie Ergen on DISH Networks. He dropped HBO. You know, we didn’t stand up at home and start doing high-fives that DISH is not carrying HBO. You know, that’s a lot of distribution to lose. That’s how you make money.
I see Sam Feist back there. Do you want more or less distribution for CNN, Sam?
Q: I’ll take more.
STEPHENSON: You’ll take more. (Laughter.)
HAASS: Good answer.
STEPHENSON: And so I always felt like the government’s lawsuit felt a bit nonsensical. And I think what we’re seeing play out in the marketplace since the deal closed is affirming that, and I’m having a hard time conceiving of a—of a time where we have said, hold that content back from Comcast or hold it back from Charter. No, we’re saying how do we get it deployed and distributed on Comcast and Charter.
HAASS: OK. I’ve already asked more than I know, so let me open it up to our members. Again, it’s on the record. Wait for a microphone. We’ll recognize you. Let us know who you are and keep it succinct. No speeches, just a question. Only Mr. Stephenson gets to give speeches today.
STEPHENSON: I’ll try to be succinct.
Q: Ray Tanter of the American Committee on Human Rights and the Iran Policy Committee.
STEPHENSON: Hi, Ray.
Q: Sir, do you think that Huawei is playing chess while we are playing checkers?
Q: (Off mic)—the other day.
STEPHENSON: Oh, Huawei?
HAASS: They actually played go, not chess. But anyhow. (Laughter.) Just a technical fix here.
STEPHENSON: Well, I think they’re really smart, and I’ve—as you heard me articulate, I think they’ve made some very smart strategic plays. And this issue of disallowing interoperability between 4G and 5(G)—I don’t want to get technical, but that’s a big deal. And you know, if you’ve got the 4G layer and you can’t interoperate to 5G, then you are beholden to Huawei for 5G. So—
HAASS: Isn’t that kind of what Apple does when they basically tell you that your charger that worked with one generation doesn’t work with the next generation? (Laughter.)
STEPHENSON: Yeah, but changing out a thousand-dollar smartphone is different than—if you—if you don’t want to use Huawei for 5G, then you have to go rip and replace your fourth-generation network and put in another player. So, look, this is a really big deal.
We, AT&T, have led the effort on something—I’ll try to make this as simple as possible, but virtualization of networks, putting as much of the electronics out on the edge as possible, but more importantly I refer to open source—open-source software. So we’ve developed—worked with the industry to develop a software layer that is the operating system for 5G. This is the software layer. It makes all the stuff talk to each other, if you will. We developed a software platform here and we contributed it into the open-source community. It’s out there. And guess what this thing is? It facilitates interoperability. And a significant amount of the players around the world have said that is the software layer we want in our 5G deployment. It’s a really big deal. It will take a while to get this scaled to both—to all levels of the network, but as you get open source out there it enhances security—because you got everybody out there auditing this software and identifying bugs and so forth and you fix it—but it creates the opportunity for interoperability, and what it does is says nobody sells a box with software just embedded in it. No, you have the software up here in a layer and any box can run that software.
Why is that important? Because suddenly you have had a technological solution for this locking in people to a certain technology, if you know what I’m saying. So if you’re wanting to buy Huawei equipment, it’s a box with software in it. We don’t need that. We’ve got our software; we just need boxes. We need more what I’ll commodity-type boxes. This is a technological revolution that I think can be our fix in the long run for how we ensure that the Western supply chains are not dismantled by virtue of a Huawei strategy here.
So it’s—we’re going to have to be smart. I take my hat off to the administration on some of the things they’re doing, the entity list and so forth. But I think these kind of solutions are technological solutions that ensure we have a level playing field for everybody who wants to use something other than Huawei.
HAASS: Shane Green.
STEPHENSON: Hi, Dick.
Q: Hi. I’m with a personal data platform called—
STAFF: (Off mic.)
Q: Shane Green. Sorry, I wasn’t sure if that was redundant. (Laughs.)
Another area that China has a big advantage given their approach to technology is around data and privacy. Some people are calling it surveillance state and they’re actively exporting it. I think Freedom House has listed about thirty-five countries that are actively deploying their approach to surveilling their own people—creating a citizenship score, there’s all these sorts of things. Europe’s taking a pretty big or different approach with GDPR, and there were, you know, serious sensitivities around privacy. I’m curious how you see that, especially given that you’re both in the role of, you know, infrastructure and telecom, but also in the content business where, you know, collecting data and using it in advertising and the like is really important. So I’m curious about your thoughts on that.
STEPHENSON: Yeah, this is—this is a big issue, and I’m going to back up a little before I just get to the core of your question. But, look, the beginning of your question is very relevant, and the paper that McRaven and the folks wrote here at CFR, I browsed it this morning, but it talks about the technologies that China has established as areas they want to advance and be in the leadership in: AI, quantum, and 5G. Those are not independent; those are interdependent. And if you think about all of these—and they have established them as the premise for economic as well as military leadership. And when you think about AI, what is the—what is the fuel that makes AI relevant? It’s data—data, data, data, data, data. That’s what AI is all about.
As I said, the Chinese aren’t spending a lot of cycles and a lot of time, you know, permitting cell sites. They’re not spending a lot of cycles and time on privacy policies, and what data can we use, and what data can we collect. 5G is going to allow sensors all over the—all over the place. 4G networks, in a square mile you can connect thousands of devices. 5G, millions of devices per square mile, much lower power, much lower compute requirements. So data is going to be thrown off of this stuff. They have no issues with collecting data and using data, which will power AI, which will make their AI much more advanced and much more powerful.
To make that AI relevant, you’re going to have to have different compute algorithms, quantum. Quantum is critical for all of this. And if you’re going to have great data, AI, great quantum, what are you going to need? You need to move this data around in real time. That’s why 5G is so critical. These all fit together, OK?
Now, in the United States we are headed down a path, unless—here I go again—Congress acts. We’re headed down a path where California now has a data privacy rule, you have I believe Washington—I’m looking at my guys over here. Maine has a different privacy rule. There are multiple states working on their own privacy rules. They will all be different. If you’re a consumer, you’re not going to know what the rules are for how one company handles your data versus another. If you’re a company, it’s going to be hard to kind of manage this across fifty different states, while the Chinese are over there doing this. (Snaps fingers.)
We need privacy legislation at the federal level. It needs to be robust. It needs to be a really good privacy bill where everybody is treated the same. But we need to have a privacy bill—this is going to be another one of those areas where we’re handicapped in the U.S. because we just don’t have rules and a framework that allows us companies—(snaps fingers)—to innovate and to move and to—and to really lead in these areas.
So your question is a very important question. And it’s one that if we don’t get right it’s another area where we fall behind.
HAASS: Well, I’ll just take one minute. Just I want to make sure everybody gets it about why 5G is so significant. What will—the speed, the capacity, and the rest, but just take a second to say why 5G is not just a linear increase, it’s something qualitatively different.
STEPHENSON: Yeah. So when you talk 5G everybody goes, oh, it’s faster, right? And it is. It’s faster. It’s lower latency as well. I mean, you’re talking about really low latency, meaning from the time you issue a command from a machine or you push a smartphone or whatnot—(snaps fingers)—instantaneous reaction to the command. So it’s real-time networking. That’s important, but that’s not the gig. It’s what does that facilitate.
And you heard me already say in a world of 4G you can connect thousands of devices on a cell site within a square mile. (Holds up smartphone.) This. I can have my watch. You can have your car that’s connected to it, and you can have devices, thousands of them per square mile. 5G, that becomes millions—millions of devices per square mile. This becomes the most connected society we have ever conceived of. This is really game changing.
Now, combine this with in a world of 4G you can locate this device—(holds up phone)—or this device—(points to watch)—or whatever device, a sensor, to within meters. But it’s GPS kind of stuff and it’s not very precise. In a world of 5G, you can locate devices within a couple of centimeters. It becomes very, very precise in terms of your ability to locate something that is connected to this network.
Now, think of what—about what that means in the world of security. That wigs some people out. Me? Oh, this is new security level. This is great security. The idea that I can locate where is this relative to a transaction that’s taking place; am I within centimeters of a terminal, or can I set up geofence locations to say that only people within a very specific location can access data? I mean, this allows us to take security to a whole different place. That’s really important.
Then the last—and these all fit together—but it allows what I call hyper-miniaturization. We have these big devices. You know, it’s got a big screen. But there’s a lot going on inside here. There’s a lot of compute power in here. There’s a lot of storage capacity in here. There’s a lot of power requirements to make all of that work. And so you have some form factors that are—that could be rather large. When the networks are this fast, this instantaneous, that compute, that storage, and even the power requirements could be pushed out of here back into the network. This fundamentally changes form factors over time. Google had the glasses we all talked about. This can conceivably become the form factor. You don’t need all of the horsepower in these devices. This could become your screen to the world. It truly can. You can now think of sensors that rather this size they become miniaturized, and they can have power that will last ten years because it doesn’t require that much power to keep them going. Now you can begin to have all of your infrastructure—traffic management, utilities, pipelines—you can begin to conceive of how much of a society’s infrastructure is underpinned by this kind of technology.
Now, as I think about that, that is when I say it makes a lot of sense to ask what companies should be underlying the development of the equipment underlying this infrastructure? And if you’re ever going to be at a place where you’re worried about the relationship of a particular company or country, then you ought to be mindful as to who’s manufacturing this stuff. And so this is how it fits together in my mind and why I think we’re all wise to be thoughtful and prudent about how we pursue this.
HAASS: What everybody also wants to know is whether they’re going to be able to find the television remote and—(laughter)—
STEPHENSON: There will be no remote because you’ll say “turn on CNN” and it’ll just come on, OK?
HAASS: That’s good. That’s good. Yes, sir.
STEPHENSON: Hi, Dick.
HAASS: Just wait for a microphone. We all want to hear you.
Q: Richard Adkerson from Freeport-McMoRan, a copper mining company.
STEPHENSON: So you could tell us a thing or two about China here.
Q: He said I couldn’t give a speech. (Laughter.) I’ve got one to give. But—
Q: Another time.
Q: Another time.
Randall, I want to talk to you about the role you’ve played representing your own company and business in general through The Business Roundtable and other initiatives you’ve had. It seems to me we’ve had two administrations now where we’ve had real challenges in communicating business interests to government. We had some success, as you said, with taxes, but we—
STEPHENSON: You’re telling me I’ve been an abject failure. Is that what you’re trying to say? Yeah. (Laughter.)
Q: No, no, no, no, no. It’s a challenge for all of us and a challenge for our country—company because our of our impact on international relations. But I’d be interested in your comment on it just broadly. How do you think it’s—we know the challenges, but do you think—are you frustrated by it, encouraged by it? Do you—do you have observations of how we might do it better?
STEPHENSON: Look, we’re dealing with elected officials, and that’s always a different environment to be in, right? I mean, these are people who are trying to address the interests of very specific constituencies. And so we always, I think, as business have to figure out how we make the case—and it happens to be the right case—that what we do has virtue, what we do has nobility; and what we do does create investment, it does create jobs, it does create the opportunity to provide healthcare. We educate our workforces. I’m talking people that—with us in the BRT. We educate our workforces like nobody else. And so I just—I’ve never been able to figure out, Richard, this formula for why is it so hard to convey that, you know, with the appropriate regulatory oversight and freedom of the press monitoring all of us and making sure we’re doing the right thing, but why is it so important or so difficult to convey that what is in the broader best interest of American business is in the best interest of the American consumer, the American worker? With the right constraints around, you know, how we treat people and so forth.
And that’s why the issue you asked me about a moment ago—you know, the purpose of a corporation—that’s why this is so important. There has to be a virtuous cycle here. We have to see that a corporation has got the best interests of their employees and their communities and all of this in mind, because without that you can’t have the virtuous circle of profitability and reinvestment back into companies that invest in America.
And so that’s a hard case to make. You know, I’ve sat up here twice today, tried to make it, and have not been very effective, obviously. But it doesn’t seem like it’s such a difficult concept to grasp if business—if business operates the way we’re talking about here.
Now, all organizations have people who don’t, you know, exactly play by the same rulebook, and those companies need to be dealt with, and you need to have enforcement and regulation for those reasons. But by and large, large business in America does a pretty darn good job of taking care of the interests of the American worker.
HAASS: I want to put one other question about Time Warner. When you—when you all acquired DirecTV, that was sort of a(n) engineering/hardware company taking over another engineering/hardware. But Time Warner is a creative company. How is that going in terms of merging cultures? Very, very different. And what have you learned? How is it—essentially, what’s been tougher than you thought, what’s going better than you thought? Where does that stand?
STEPHENSON: So it’s—this is going to be an interesting case study one day because when we bought Time Warner and we tried to think about how do we—how do we manage this business, how do we preserve the creative culture that’s so critical to their success, you’re buying a business that every single night every asset drives home. And so how do you preserve the necessary culture of a creative company like that, but recognize that that industry is changing not on the margin, it’s changing radically? And I had this conversation yesterday, that as you think about how you run a company like that, you know, you would run Time Warner the way it was structured when we bought it one way with one type of person and leadership and so forth. But if you’re trying to take what I will call a legacy media company and transform it for the new era, would you think about organizing and managing it a little differently? Because this company, we got to get it pivoted.
We got to take all this great, fabulous content and all this great talent and figure out how to get that content delivered digitally. Because while the amount of—amount of content people are consuming every day is actually growing, it’s not shrinking—you know, we hear about cord-cutting and oh my God, you know, people are not watching. No, people are watching more content, but all of the growth is happening on digital. So the pivot we have to run—and you know, we’ve done this not in creative cultures before, but we’ve done this a thousand times going from a legacy business to a new business, transitioning business models from wired line to wireless, you know, from old basic dialup to high-speed internet and fiber. You know, you run these transitions. Well, the media industry is having to run one of these transitions. And so how do you do that without breaking the culture that’s so important underlying all of this?
And this is where we think we have a really unique advantage here if we can execute this play, because there are a lot of companies in media trying to run this transition and they’re pivoting to a digital model, but they don’t have distribution. Their distribution has been cable companies, satellite companies, and movie theaters. But what happens when that isn’t your primary distribution in the future? You better have some kind of direct relationship with the customer. And if there’s a media company that has a massive relationship with a massive number of customers, they would seem to have an advantage to me.
Well, guess what? AT&T has 170 million customer relationships. That’s a pretty darn good starting point for if you can pivot a company to digital distribution. Now, we can take that and drive it through 170 million customer relationships. And I tell people we have a couple of early datapoints. They’re really early; we’re a year into this now. But HBO, in the course of one year, AT&T has been by order of magnitude the largest distributor of HBO in a very short period of time. In fact, if you look at the number-two distributor, we’re 67 percent larger than the number-two distributor. Think about it. It’s going through mobile now. It’s going through our broadband product. It’s going through our pay TV product. And it’s having an incredible impact in driving HBO volumes.
And I told you DISH dropped HBO in the second quarter, just dropped them cold. (Snaps fingers.) A huge distributor of HBO. HBO grew 3 percent in the second quarter. How? New distribution, right?
And content is king. Distribution matters. You put the two together, we think there’s an opportunity to transform this media company to digital without having to compromise distribution in the interim.
HAASS: Time for a few more questions. Yes, ma’am. Yeah.
Q: Great, thank you. Molly Elgin-Cossart with Markle Foundation.
Q: I wanted to come back to the education and training point. You talked about what AT&T has done, laudably, and I’m thinking there’s an entire ecosystem. There are other employers. There’s our K-12, which a speaker this morning said is actually our biggest national security threat, and other postsecondary education and training. And I’m thinking, what do you take away from that experience to inform the broader conversation about what policymakers should be thinking for education and training and for our talent pipeline, other employers? Sort of a slightly broader picture. I’d love to hear those insights.
STEPHENSON: Yeah, this is an interesting question. And if you think about—you called it an ecosystem. That’s the right term. We built an ecosystem around employee development and reskilling our employee base. It seems to me so logical that this would work in a municipality. I mean, why can’t a city—pick it; Dallas, where we’re headquartered—why can’t Dallas inventory all the jobs in that community and, you know, they should be categorized. I mean, the world of AI, this stuff isn’t that hard anymore. It’s not that expensive to do anymore. But categorize all these jobs, directionally where are these types of jobs going—welders, HVAC. I mean, we’re relocating HVAC people into Dallas. Think about that, just people to work on air conditioners and heating systems. And these pay a lot of money, all right? There’s a demand for people who have HVAC skills. Why can we not have an inventory of these? Why can we not have very—for the broad base of jobs, what credentials are required for those jobs, and giving people access to the credentialing criteria to get those jobs?
This seems like it would work in a—in a city, in a state, one could even argue in a federal environment. It’s not rocket science, really. It takes a lot of hard work and a lot of effort. But I think there are implications. Tom Friedman has come to me and challenged me, why don’t you just stand this up for Dallas, you know? And you know, you think about it, maybe there’s a business model here. But it just feels like something that could really move the needle in terms of getting people ready for the jobs that are growing, the jobs that are coming, rather than the jobs that have been. How do you reskill a community?
HAASS: A little bit of a home-team advertisement: that was the subject of our previous task force report.
STEPHENSON: Is that right? OK.
HAASS: Yeah. No, it’s a—I think it’s big issue because if we don’t get it right this country’s not going to have—no pun—you know, the bandwidth to cope with a lot of things around the world unless we get this issue right.
Q: Hi. Eben Kaplan from CrowdStrike.
You spoke about the tremendous opportunity that the 5G infrastructure will create. It also creates tremendous opportunity for abuse and destructive power of attacks if someone were to manipulate that infrastructure. I wonder where you see the role of the private sector versus the public sector in securing that. What’s the—what’s the right mix there in order to ensure that we reap those benefits without incurring some of the—some of the risks?
STEPHENSON: They key word you used is “mix.” It’s a mix.
And I think—I think we’re really good at network security. We invest a lot of money at it. We spend a lot of time at it. But you know, our government has a lot of information in terms of things that are going on, and they have insights into traffic and so forth that’s going over these networks. And putting the entities together in a way that protects, first of all, our consumers’ and our businesses’ information and data, but that—a lot of that, as you might well guess, does happen and does go on.
I think as this gets more and more sophisticated, and more and more complex, and more and more aggressive—David Sanger is somewhere here in the room. If you haven’t read his book, go read it; it’ll scare the hell out of you in this regard. But we’re going to have to get better and better at partnering with government. And I would challenge that it’s got to be a two-way flow. Our government tends to like one-way flows, and for these things to work it will have to be two-way flows that are more fluid and so forth. But it’s going to be critical to partner on this.
And David Sanger’s book makes the point that it’s hard to get people energized and to take action on this if they don’t recognize how significant the threat is. And the threat is significant. I mean, think about the implications of somebody taking down a significant portion of the internet. You could cripple financial communities. You could—you could stop a lot of things. And I try not to be too sensational in these things but, you know, some very targeted things could have significant implications on electric transmission, all right? And these are things that ought to be alarming. And we ought to have a bright light focused on this and making sure that government and business are working together.
HAASS: Yes, sir.
Q: Thank you. I’m Bob Perry with the Stevenson Group of International Consultants.
You’ve given a very detailed and broad view of the 5G world, primarily in the U.S. and maybe other developed markets. My question goes to the developing world, specifically Africa. Go back to the year 2000, telephone penetration in Africa was maybe 1, 2 percent. Then came the cellphone. And now you have mobile use in villages of a hundred people, two hundred people. The question is, the opportunity and financial governance challenges if 5G move into that space.
HAASS: Actually, when you answer that, also talk about low-density areas in this country. I had the same question, about rural areas.
STEPHENSON: You know, something’s happened here in the United States that doesn’t get a lot of attention, but this is another one of those I believe there’s a model here for the world. And I’ve talked to the president of Mexico about this, in terms of how you achieve rural coverage in Mexico and connect everybody not to wireless telephony, but to connectivity, the internet. This is an internet device now, right? And so after 9/11, none of the emergency responders could interact and communicate. I mean, communications were a disaster after 9/11. Everybody was on different protocols. And firemen from Pennsylvania came to New York, and they could communicate with New York firemen, and the police couldn’t communicate with the fire, and the EMS couldn’t communicate. And it was just really, really bad. And so Congress passed legislation that instructed that a nationwide network—wireless network—be built for the first responder community. It was a big deal. It was called FirstNet.
And so the government finally came out and did a big bid in 2016—put out a big bid. We went in hard on this. And this bid said: Whoever wins this thing must build out all of America this network for first responders. And whoever wins it gets this big block of spectrum, airwaves, to build it in. But you got to build out the whole country. So very detailed requirements, and specifications, and so forth on this. We, AT&T, went in hard, and we won this thing. And we’re building out this nationwide network. We’re 60-some-odd percent complete now. This is really an amazing thing, because you’re getting this first responder network that is truly—it’s a high-performance network. Really, really impressive. When the first responders aren’t using it, we’re allowed to commercialize it for anybody else.
But what’s happening? We’re building our rural America for the first responders, but the network’s available for rural America. We and the United States government are funding this. And you know how it’s funded? It’s funded—I told you, we spent $40 billion over the last ten years on wireless airwaves at auctions. In one of those auctions, the government carved off a few billion dollars of the proceeds and said: This is going to be used to help build this network out into rural America. And that’s what’s happening here. And I tell you, I watch this and I just—I expected this to be big and significant. It’s exceeding all of my expectations. And I do—when I talk to government officials around the world, I tell them: You need to watch this. This is really important.
In Africa, in these communities, somebody has to buy the wireless airwaves. They’re either releasing those airwaves or they’re paying a check to get those airwaves. I think governments should be thinking about, how do I set some of that money aside now to take and put back into connectivity for our communities that would not otherwise have connectivity. So this is a model that I think has a lot of legs could be used elsewhere.
HAASS: Randall, we’ve only got about a minute left. One of the very few principles we try to keep here is that we begin and end meetings on time. So many of us are enthralled with the HBO show Succession. And after having read the letter from Elliot, what we really want to know is to what extent does that tell us what we need to know about succession at AT&T? (Laughter.)
STEPHENSON: Well, first of all, I have no sons that I can name as my successor. I don’t think that would be allowed at all, anyway. But I do love that show. I hope everybody’s watching that show. So please, tune in this Sunday night to Succession. (Laughter.) OK.
HAASS: Thank you very much.
STEPHENSON: Thank you, Richard. (Applause.) Thanks a lot.