ANDY SERWER: Welcome to "Influencers." I'm Andy Serwer. And welcome to our guest, John Stankey, who is the president and COO of AT&T and also the CEO of that company's Warner Media business. John, great to see you.
JOHN STANKEY: It's good to be here, Andy. Thanks for having me on.
ANDY SERWER: So full disclosure, I work for Yahoo, which is owned by Verizon, which I guess it's fair to--
JOHN STANKEY: I knew that.
ANDY SERWER: You knew that coming in-- so I guess it's fair to say an arch arrival of AT&T, at least when it comes to the telco business. So maybe we should start there, because I wanted to ask you, John, about the T-Mobile Sprint deal that a federal judge approved last week. What is your take on that particular transaction and how it will reshape the business?
JOHN STANKEY: Well, I mean, the judicial process was a bit surprising. And I think it just adds to the list of the number of surprising judicial activities we've seen over the last couple of years-- not only in our industry but elsewhere. And I think probably if I stepped back from that as a broader issue in business, I get a little concerned-- and it's getting harder and harder to predict what outcomes are. And if you read the judge's decision on that, he kind of looked at a bunch of longstanding antitrust law and said, I'm not sure I can make sense of a lot of this anymore and we need to think differently about how we look at these types of transactions.
And that kind of uncertainty is tough for business. It's tough for making long term investment decisions. And I step back from that and I worry about that at the macro level more than anything else relative to what it means within the industry. We're going to keep running our game and doing what we plan on doing. We sit in a really good position in the industry. Our spectrum position is in great shape. Certainly one of the motivations of T-Mobile doing the Sprint transaction was to improve theirs.
They will have an opportunity to do that. They now have a lot of execution around that to make that a reality. We've been executing on the spectrum that we have in place for many months and feel really good about our transition into 5G and our leadership there. And we're going to continue to push on that dynamic and feel like we're going to be in a really good position as we run our plays and execute moving forward in a combination of our network strategy and how we start bringing content and entertainment into the offering for consumers.
ANDY SERWER: I want to dig into that a little bit more, but first, one more question about T-Mobile Sprint. What about from the consumer perspective? There's concern there's not enough choice once you have the big three. What about that?
JOHN STANKEY: Well, certainly the finding from the court was it isn't the big three. The finding from the court was-- hinged on the dynamic that there will be a fourth new entrant, Charlie Ergen and however Charlie chooses to go to market and using the divested assets of those companies that are part of the transaction. I don't expect that I'm going to see any drop-off in competitive intensity in the wireless industry. I think it's an intensely competitive market today. I think it will continue to be that way.
I think we have multi-modal competition that's shaping up where we shouldn't just look at wireless as the wireless industry. We should understand that broadband use and connectivity is now starting to move between fixed networks and wireless networks-- really any network. And as a result of that, I don't expect we're going to see any drop-off.
ANDY SERWER: Right. Let's get back to the strategy that you were just touching on before. What is AT&T's North Star? And how do you expect to get there?
JOHN STANKEY: Well, it's a good question. So our North Star, I think, effectively, is we want to provide incredibly reliable and competitive connectivity to our customers. And I believe our viewpoint of what is occurring in the industry is that as connectivity is becoming more ubiquitous and as customers have a more difficult time about telling the difference between provider A or provider B, you need to differentiate on top of that.
And our approach to differentiation will be what we can do to provide a great customer experience so that connectivity is global and wherever they go, and two is that they can do things like entertain themselves on top of that. Now, we're not going to see that light switch turn overnight. That isn't a tomorrow kind of thing. But if you think about the trends that have been occurring in the industry over time-- how important coverage maps were or speed was maybe three years ago or five years ago-- I would tell you that that dynamic in customer choice is probably a little less significant than it was today. And three years from now, it'll be even less significant.
And so we need to make sure we have the right kind of opportunities for customers to do multiple things on our platforms to have an emotional attachment to the company. And that's why the push in entertainment is part of that-- so that customers think about us as more than just a connectivity provider. They can rely on us for that, but they also have other things that they can do that are important to them.
ANDY SERWER: So how will 5G change the content business? And how are you guys playing that?
JOHN STANKEY: Well, 5G I think initially, we'll probably do less about the content business. My personal view is early on, it will very much be an enterprise play. We're already seeing those kind of use cases pop up in the medical industry and manufacturing. And I think you're going to see dynamics that occur, for example, on autonomous vehicles and what starts to happen from an enabling perspective on that. LAN replacement is another dynamic that I think we'll see in the enterprise space where moving from what used to be fixed and wired LANs into wireless LANs and how that opens up opportunity for firms.
Then comes the consumer applications. And on the consumer side, look-- augmented reality and virtual reality will be enabled by 5G. And when you think about that mix with entertainment content and interactivity, that's a big change. So start thinking about somebody who's in a sporting arena enjoying a game and there's augmented reality and opportunities to involve themselves in the game, maybe, through wagering, maybe through augmented stats in an experience that the local venue operator provides for that particular sporting event.
When you start thinking about gaming and how content might move into gaming and bring in social dynamics around it, 5G and allowing it to be untethered as you're consuming that content anywhere I think brings in interesting possibilities. So I think what we're going to see is probably the entertainment dynamic follow maybe some of the enterprise stuff, which is a little bit of a shift from maybe the last 10 years where we saw consumers start to lead a lot of technical innovation and business follow. We're kind of back into that historic trend of maybe business leading in this case and consumer following.
ANDY SERWER: That's interesting. You have a broad portfolio here at AT&T, and you have a pretty broad purview as the COO and then also head of the media business. I'd like to ask you about a few of the companies. DirecTV-- you guys have lost millions of subscribers there. How is that business looking and how are you going to turn that around or point it forward?
JOHN STANKEY: Yeah, I don't know if you ever quote, "turn it around." I think DirecTV operates in a space that's a fairly mature product, which is the packaged pay TV business. And I would say as we expected when we acquired it and we talked about that that was kind of the peak of subscribership and we were going to see a decline over time. Our intent when we did that was to make sure that we could offer products and services that those customers would migrate into.
HBO Max and what we're going to do around streaming would be an example of how we take a very attractive customer base and move them into a product that has runway for the next 10 years. So I don't think our objective with DirecTV is to quote, "turn it around." I don't think we're ever going to see growth in the traditional pay TV package. The goal would be to get that customer base and move them into other products and services that are the forward-leaning products and services that still continue to have that entertainment-based, emotional relationship with customers for the reasons I talked about just a few seconds ago.
Now, in terms of how the business is performing right now, I'd like to see it perform better. I think the management team would like to see it perform better. I think we should be in a situation where that business, given its track record and history, performs consistent with the balance of the industry. And we clearly have seen some losses over the last year or two that have probably been higher than what has been occurring in the industry-- customer losses. And the kind of activities that were underway with right now is to make sure that that's more in line with what we see generally in the industry.
Last quarter, our team did a really nice job of starting to get the churn numbers back into context of what we would expect in the industry in general. We have a big launch coming up on our new software-driven product, which is a more modern user interface, better features. That dynamic will improve, I think, the customer experience and their relationship with the product moving forward, which will further help us not only manage churn but also drive new gross adds into the business that we wouldn't get otherwise for maybe a customer that said, you know, I'm not really enamored with a satellite-only product. So good things come in to do that, but let's face it-- that business is not going to be a growth business moving forward.
ANDY SERWER: You mentioned HBO Max. I want to ask about that a little bit more. In streaming, of course, which is, you know, something that you obviously are keenly focused on, is cable dead, John? Are you more worried about, say, Netflix now than you were traditional cable? And how does HBO Max fit into all that?
JOHN STANKEY: Well, cable certainly isn't dead. I mean, let's say connectivity isn't dead, right? It's becoming more and more relevant every day. Think about all the aspects of our life as we just talked about-- whether it's wireless connectivity or fixed connectivity, that your foundation of what you're doing at any given moment of the day is attached to having some ability to communicate or run a data session on a network. So I think it's actually becoming more important, and having good, high quality connectivity is more relevant.
And that's fundamentally underpinning why AT&T views investment in that space, whether it be 5G or fiber, is still critical to our future. Has the bundled pay TV package run its course? Yeah, it's run its course in terms of peak, and it will have a decline, like many mature products that have been around for decades experience and go through. And so I expect that will be the case. And customers, in terms of their consumption of general entertainment content, have found a better way to do that, which is I want to watch what I want to watch when I want to watch it-- also known as streaming.
And it's important that we position ourselves to be in that space. That doesn't mean that we won't still have news, sports, maybe unscripted content that has social characteristics to it-- things that are time and place-specific like people want to sit down on a Tuesday night and watch "The Bachelor" because it has some social relevance and some momentary unveiling that make it relevant. I think the traditional pay TV product still has a space for that and will continue to be viable for a long period of time as a result of that's the most efficient way for people to see that kind of content and programming. We want to be in both spaces, and we want a product that ultimately merges together. And I think we're incredibly well-positioned to do that.
ANDY SERWER: Some people have questioned the HBO Max strategy and that it conflicts with other strategies internally. I think there was an article in the "Hollywood Reporter" about too many cooks in the kitchen kind of thing. Can you respond to that?
JOHN STANKEY: I thought that article in the "Hollywood Reporter" was, frankly, a really bad piece. And I don't think it was based in any reality. I don't think anybody who runs around this business thinks we have too many cooks in the kitchen. I think what we're focused on is ensuring that we're migrating our business to have the right platforms and the right way to engage with customers moving forward. And if somebody isn't stepping back and asking, gosh, you know, is theatrical distribution changing? Is general entertainment content distribution changing and asking what we should be doing to adjust our models and shift our behaviors and shift how businesses are focusing? Then they're asleep at the switch.
And the fact that our business is doing that and responding to these changes I think is a positive thing, not a difficult thing. And I believe if you were to talk to employees inside Warner Media and say do they feel like it's necessary for us to look for other distribution options than the pay TV package and that maybe we shouldn't entirely index all of our theatrical development on releases into theaters, they'd probably say, based on how consumers are choosing to do things, that'd be a wise thing if you were running the business.
And I feel very comfortable with how we're addressing those things. And frankly, I am proud of the management team and what they've been able to do to adjust their approaches to things and make as many changes as they have over the last year to start thinking about these evolving distribution models.
ANDY SERWER: I want to ask you about the integration of AT&T and Warner and how that's going. It's been a while now-- and then also ask you-- do you think, John, that President Trump through the Justice Department tried to block the deal?
JOHN STANKEY: I really don't know what went on behind the scenes. I have no firsthand information or anything like that. As I said at the opening of our discussion here, the fact that it was challenged was a bit of a surprise to me based on historic judicial review precedent and how people looked at that. I wouldn't have guessed that that would have been the case the day we announced the transaction given what we've seen over decades of antitrust law.
So certainly, it was a data point, as I mentioned earlier, around are standards evolving or are things changing and how do we predict what is going to be challenged and what isn't going to be challenged, what will be improved and what's the process around it? Two years for a Sprint T-Mo transaction, review, and approval-- or ultimate challenge-- is a long, long time. That's tough for business. So I was a bit surprised by it, but I have no idea what the foundation of it was.
And fortunately, we have great institutions in this country. And I think in this case, the facts and the data were put out there. And I'm comfortable, having watched the entire judicial process, that justice was done and the facts were put on the table. And further, I would say if you look at what's happened in the years since the approval-- a little over a year and a half now-- the markets have developed exactly the way that AT&T and Time Warner represented they would in the trial. And many of the things that were being challenged by the government at that time, in fact, are irrelevant and are dropping in significance. So I really don't know the foundation of it.
In terms of how the integration is going, really pleased about it. We've already indicated that, you know, we're well on track to achieve the expense synergies that we laid out for the business. And you know, now this year is about seeing some of the advertising synergies that we expected to show up. But more importantly about using the combined capabilities of AT&T and Warner Media to be able to offer new products and services. And the innovation and the customer choice that will come with HBO Max and the foundation of that as a platform to allow us to not only have a subscription service but an advertising service I think will be great for the industry. It's going to be great for the consumer. And so this transaction really is about that new choice-- and looking forward to that occurring in the market.
ANDY SERWER: You guys have stopped allowing Netflix to distribute some of your content, right? And some have suggested, well, that's what the government was concerned about. Is that an issue?
JOHN STANKEY: The government wasn't concerned about that. The government was concerned about whether or not there would be a restriction of offerings in the pay TV bundle to other distributors, which couldn't be further from the choice-- further from the fact. We continue to be very aggressive at maintaining our distribution relationships. And in fact, I would tell you it's probably been the opposite where we've gone out and oftentimes and offered distributors very competitive packages and attractive options to do that, and maybe they've made a choice not to distribute because the markets are changing and evolving.
And maybe they don't need to have the traditional content that we've offered within the pay TV bundle, because customer choice is shifting. And that's exactly what we said would occur. And those are distributors making choices to do that, not us restricting them from doing that. I, in no way, shape, or form, think that there's any way that you could say that if somebody chooses not to license a particular content to a competing service but it's widely available for folks to go and get somewhere else, that that's a bad thing for a consumer.
In fact, you know, we see customer choice with Disney+ and Apple+ and HBO Max and Netflix-- that's a good thing. Customers are getting choice. They're out there making decisions as to what fits for them. I think that's exactly what we want markets to do. And we continue to license some of our content. As we said, we're not an all or nothing proposition around here. The studio continues to provide content to third parties. We continue to do development for third parties. We think that's a healthy media business when we're serving the entire ecosystem. And we'll continue to do that.
ANDY SERWER: So, John, you're an old telco-- I shouldn't say old--
JOHN STANKEY: I'm old.
ANDY SERWER: You grew up in the telco business-- you grew up in the telco business.
JOHN STANKEY: So stipulated. I'll say old.
ANDY SERWER: OK. How do you how did you get to speed with all this content and all these different brands? It's a totally different world from the way you sort of learned the business, isn't it?
JOHN STANKEY: Well, it's invigorating, right? I mean, I'm in a very, I think, enviable and unique position to be at this point in my career and be stimulated by having something that's very different from how I grew up and what I worked on. I find it incredibly interesting. And it's not hard to have the energy to get involved and try to understand and work through these things. I will tell you I think if we go back to what we just talked about in terms of how the industry is changing-- not just media and telecommunications, but virtually every industry-- you know, if you don't have direct customers, you've got a challenging business moving forward.
I think that's what we know about this hyper-connected, platform-centric internet era. And when you think about the expertise that I bring in from my, maybe, first 34 years of working in the industry, I understand how to manage customer life cycles. I understand technology and platforms. I know how to manage a customer acquisition funnel and deal with things like churn dynamics. What I probably have really no foundation in is how to work the creative side of content development.
But when you think about what's necessary moving forward, you really need distribution. You need technology. And you need the content together. And so you know, my job is to get all the people who have expertise in those areas working together to move forward. And I think I'm reasonably well-equipped to do that in this changing environment. Either you've got to come from a content background and learn technology and distribution or you've got to know technology and distribution and figure out how you bring content folks in. And that's the reality that I many in this industry are coming to grips with.
ANDY SERWER: So many different brands, and CNN-- I think we've got it right there, is one of them-- has been in the president's crosshairs. And that's a positive and a negative in the sense that there is a tremendous amount of viewership that has accrued to CNN. How is CNN doing right now?
JOHN STANKEY: CNN is doing great. Jeff and the team are doing a wonderful job. I wouldn't say that CNN per se is exclusively in the president's crosshairs.
ANDY SERWER: True.
JOHN STANKEY: I would actually say that media that doesn't subscribe to the president's narrative is in the president's crosshairs. And you know, look, I think our point of view is CNN and any other media should be in the role of telling the truth and reporting the facts. And I think we do a darn good job of that each and every day. And it's a tough environment. It's a tough environment ascertaining what, in fact, are the facts. And I would say it's far more complicated than it ever has been 10 years ago.
And I'm proud of the way the CNN team works through that on a daily basis. The complicated environment we're in makes it more difficult to be accurate each and every day. There are new ways that you have to validate that, in fact, you're bringing the right facts out to those that are consuming it. And do we make mistakes? Sure. When we make the mistakes, I think we acknowledge that we make mistakes. But by and large, I think we do a better job than anybody else out there ensuring the facts are reported and reported in the right way.
And I think that's necessary for a functioning democracy. I think it's a key element of what keeps our systems that I talked about earlier working properly. And I'm really proud of the role that CNN and the team plays in doing that
ANDY SERWER: Kind of adjacent to that, John, Facebook, Google, social media, Twitter-- are you concerned that those platforms have too much power?
JOHN STANKEY: I'm really concerned about the concentration of economic power that's occurring in some of the new tech companies-- and of course, then, what occurs in terms of their practices around how they think about those platforms' influence in society. And I heard some comments the other day that Mark Zuckerberg made that said he thinks he's somewhere between a distribution company like a telephone company and a media company and therefore they should be handled differently.
And I kind of said, you know, why did editorial integrity show up in media companies? You know, what came first? Well, editorial integrity and editors arrived because people needed to make sure that their source of information was, in fact, doing that ethical and fair reporting that we just talked about. And so I don't think you can sit here and say, well, just because I'm not a media company, I shouldn't need editors.
Because if that's where people are consuming facts and information and if you're aggregating and producing that to move out, then you probably need to think about what the editorial integrity of your platform is. I think we're going to be into some interesting times in the coming months and years around how that evolves. And I do think it's an area that we need to have a broader social and civic discussion on around what we want as a society and what's productive for us.
ANDY SERWER: Maybe more regulation?
JOHN STANKEY: I think it's inevitable that there's going to be some more regulation on some of the tech platforms based on what we're learning and what we're seeing in terms of how they're operating their businesses.
ANDY SERWER: Another interesting company in the news right now is Huawei. And I'm curious to hear what you think about Huawei technology and equipment being used in the United States and in Europe.
JOHN STANKEY: Well, look, I think-- you know, I've been in the network business for a large portion of my career. And I've kind of gone through this evolution of a hyper-connected environment. And I think we're always going to have security threats. And they change. The reality is it's a little bit like playing whack-a-mole. Something is identified, you learn how to deal with it, you beat it down, and then, you know, very creative people come up with something else.
And I think Huawei and the dynamics of where equipment is sourced from is, you know, today's story of probably what will be another chapter in a book three years from now with something else that we're all dealing with. And it may not be Huawei, it may be some other dynamic that we're dealing with. Do I believe a healthy environment for those of us who deploy infrastructure for communications is that there are multiple suppliers and innovation occurring in multiple places and that we are able to ascertain that the integrity of the supply chain is in place? Yes, I do.
And do I think we're in a situation right now where if you look at the concentration that's occurring in a particular type of communications equipment-- in this case, mobile-- is getting too focused on a particular company, and one where the supply chain is a little bit opaque? I think there is some risk of that right now. Do we need to take steps to adjust to that risk just like we do to any other security threat that we've identified over the last decade and tried to respond to? I think we do. Am I confident that through a variety of good management techniques and policy that that can be done and we can ensure that there is multiple providers of equipment that can sustain itself on a global basis and bring good services to consumers that we can rely on? I think we can do that. But there are some tweaks that need to occur right now to ensure that that's the case as we move down the road for the next five years.
ANDY SERWER: You had an activist investor, Elliott Management, rattling your cage a bit. Where does that stand right now? And have you made peace with those guys?
JOHN STANKEY: I think we clearly are of like mind in what we're doing to manage the business moving forward. And if that's using your term, making peace, then, yes, we've made peace. I think most important for this management team is we have to deliver on what our commitments are. We have-- part of that activity with Elliott was to be clear and communicate out to our investor base what our intentions were. And it wasn't that we had differences of direction. I think Elliott was right in maybe pushing us to be a little clearer in what some of our direction was and how we intended to approach capital allocation and the strategy of the business moving forward.
And we were articulate in doing that. And now our job is to make sure that the management team actually delivers on what we have communicated in terms of what our three-year plan is and how we're going to allocate capital and offer competitive returns to our shareholders. And in that regard, I think we're all good. And our job is, of course, to make sure we deliver on that and bring the bacon home so that not only Elliott, but more importantly, our broader base of shareholders, feels like their trust in AT&T was well-rewarded.
ANDY SERWER: Reducing debt part of that?
JOHN STANKEY: We've done a great job on that. And I would tell you I think we're in a very comfortable position right now. We've talked about that extensively over this past year. We made a commitment that we would be at 2.5 times debt to EBITDA by the time we exited 2019. We hit that on the mark. We've given some guidance that we'll continue to do some debt reduction as we move forward over the next three years.
But more importantly, you know, we issued a lot of shares to acquire Time Warner as well-- not just debt. And retiring those incremental shares that we issued is another key, important aspect of how we're going to work on capital allocation over the next couple of years. And when we have the debt structured in the way we do and it's laddered out in the fashion that it is-- and we've done a really nice job of stretching it out-- when you're looking at the kind of infrastructure that's in place and when you look at the difference between interest expense and our dividend yields, you know, it's a prudent thing to maybe be a little bit more focused on managing equity issues right now-- not turning away from debt, but balancing that out.
ANDY SERWER: How do you and Randall Stephenson, the CEO, work together?
JOHN STANKEY: The same way we have for probably the last 15 years. We work really well together. I think we've had a productive and what I would call agile relationship. I think that's probably one of the things that makes it work well is I know him well enough and I have an idea of how he thinks about things and I think he knows me well enough that he has an idea of how I think about things. And that shorthand helps in a business that's moving quickly and where you need agility.
And we check in on the right things that we need to check in and keep each other informed of. At the same time, I think there is a degree of trust that I can infer what direction he'd like to go. And I think he trusts me to make those decisions by and large on most things day to day that aren't significant, that require us to check in from a governance perspective. So it's a very fluid and productive relationship and one that I think is built on a foundation of mutual trust and knowledge of how the other behaves and how they think.
ANDY SERWER: And, John, finally, this program's called "Influencers." And so I'm curious as to how you see you using your influence on the world.
JOHN STANKEY: That's a good question, Andy. I have to be honest with you that if I were to maybe critique one of my weaknesses as an individual is I tend to come in every day thinking about what I need to do within our company and around the people I work with every day to run the business better.
ANDY SERWER: You've got a big job.
JOHN STANKEY: A big job-- there's a lot going on at any given day. And that's what I get a lot of energy out of and that's what I get a lot of satisfaction out of. I sometimes maybe underestimate what that means in terms of the influence and cycle outside of AT&T or outside of the areas that I'm directly responsible for. As I think today about where I would really like to make a mark on things we're working on internally, I spend a lot of I'm talking about diversity and inclusion-- not only within our workforce, but in the content that we're creating that moves out into our customer base.
I think there's a lot of work to be done there. And I think we're leading in many respects, but we still have a long road to go to get ourselves into a structure and an approach that makes sense for society and the markets that we serve. And so I think there's some influence that that will ultimately drive over time. Look, I think the fact that we run a very connected business and we connect society and the dynamics around what our technology can do to manage things like global warming and the environment and how we can enable changes and work models that make transportation more effective-- I think that's really important stuff right now with what's in front of us. And I don't underestimate just doing our job every day well to provide this ubiquitous connectivity that allows commerce and innovation to spawn as being a really significant thing that I do every day and that the team around me does.
ANDY SERWER: John Stankey, COO of AT&T, CEO of Warner Media. Thanks so much for your time.
JOHN STANKEY: Thanks for spending time with me. I appreciate it.
ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.