(Bloomberg Opinion) -- AT&T Inc. is a very different company today from the wireless-service provider it was five years ago. CEO Randall Stephenson, who transformed AT&T by acquiring pay-TV and media assets such as HBO, is now eyeing retirement. It raises the question of whether the man who appears to be the next in line – John Stankey, another three-decade veteran of the phone business – is the right person for the job.
Stephenson, who has been at the helm since June 2007, is interested in stepping down as soon as next year, the Wall Street Journal reported Friday, citing unnamed sources. For much of his 37 years at the telephone giant, Stephenson has worked alongside Stankey, who he’s been priming to take over as the next CEO. While speaking at an investor conference Tuesday morning, he praised Stankey’s leadership, saying that he would have to be on “the very short list of people” who could run AT&T’s diverse set of businesses. But Stankey has also emerged as a controversial figure within AT&T, so much so that his recent promotion to the role of chief operating officer is largely what motivated Elliott Management Corp. to press ahead with an activist investor campaign, according to people familiar with the shareholder’s thinking. (Last week, Elliott sent a public letter to AT&T’s board calling for it to review ways to improve earnings and the stock price.)
AT&T may benefit from running a broader search for Stephenson’s replacement, and outside pressure led by Elliott may give the board one more reason to do so. The $273 billion company could use someone with more expertise in growing media properties and who’s willing to part with weaker assets that are serving as distractions. While wireless data plans and business connectivity services still drive the bulk of AT&T’s profits, the company generates half its revenue elsewhere, such as pay-TV subscriptions, cable networks and the box office.
Under Stephenson, 59, AT&T morphed into a communications and media conglomerate through the 2015 acquisition of DirecTV for $67 billion, followed by last year’s $102 billion takeover of Time Warner, a business unit now called WarnerMedia. Stankey, 56, is in charge of WarnerMedia, in addition to his new duties as COO of AT&T. During Stephenson’s tenure, Stankey has been his go-to for overseeing special projects, such as buying spectrum and helping the Time Warner merger clear the courts.
Stephenson has been criticized for his bold dealmaking, and yet I don’t think his plan to reinvent AT&T was inherently bad. He has a vision for the company to be a leader in entertainment, which people are increasingly consuming on mobile devices, and 5G wireless networks like AT&T’s will facilitate more of that. But Stephenson did overpay for DirecTV, and he may have underestimated the challenge of integrating both that business and WarnerMedia, the latest tasks assigned to Stankey. As two executives who have worked in the telephone industry since their early 20s, they perhaps not surprisingly may have difficulty operating media assets, especially at a time when Netflix Inc. has changed what it means to watch TV.
AT&T’s lagging stock price looks to be the consequence of an incoherent strategy and an attempt to juggle too many things at once: building 5G, devising a plan for WarnerMedia, paying down debt and managing the decline of the DirecTV satellite business. There have also reportedly been tensions between Stankey and his new Hollywood employees. It’s said that his approach and at times irascible personality have clashed with that of WarnerMedia’s veterans. Richard Plepler, the former HBO boss, is among those who have departed. One can see why Stankey’s attempt to break down silos in WarnerMedia was a necessary step and one that wouldn’t sit well with legacy top brass. And to his credit, he brought in Bob Greenblatt, who formerly ran Comcast Corp.’s NBCUniversal and before that Showtime, to manage WarnerMedia’s entertainment properties and streaming platforms. It also seems likely that Stankey will name a new chief to oversee all of WarnerMedia. Still, it’s concerning that more of HBO’s top people are said to be leaving in the next few weeks, in part due to frustrations with Stankey, as NBC News reported Tuesday morning.
The capstone project of Stankey’s WarnerMedia integration is HBO Max, a Netflix-like streaming-TV service that’s expected to launch next spring. Plans for that service seem to be ever-changing, and Stankey’s handling of the roll-out stands in contrast to Walt Disney Co.’s meticulous approach to the Disney+ app, which launches Nov. 12. WarnerMedia also recently struck a production deal with director J.J. Abrams for an exorbitant amount of money that a company like Disney probably wouldn’t have offered, as I wrote last week. A key date for Stankey and WarnerMedia is Oct. 29, which is when investors will get a first look at HBO Max.
The topic of succession is a valid concern. Any conglomerate could benefit from having a CEO for whom there are no sacred cows. At best, Stankey may promise more of the same, which investors haven’t been that pleased with lately. At worst, he could be at risk of botching AT&T’s transformation. His compensation looks high when viewed through that lens. After the Time Warner deal closed in June of last year, Stankey’s base salary more than doubled to $2.9 million, which AT&T said was “to reflect the increased scope and complexity of his new role as CEO of WarnerMedia.” He also received a $2 million “merger completion bonus.” Including stock grants and performance-linked awards, Stankey’s total realized compensation was $12.74 million. That was 89% higher than what John Donovan, the outgoing CEO of AT&T Communications – a division larger than WarnerMedia – earned in 2018. (1)
The Wall Street Journal reported that the board supports Stankey, citing a person familiar with its thinking who said there aren’t many outside the company “who would be obvious candidates to run a complicated media and communications business.” But isn’t it at least worth looking around? And if the answer is that no one is capable of doing it, then perhaps all these businesses don’t belong together.
(1) Stephenson earned $18.84 million. AT&T hasn’t said yet how Stankey’s pay will be adjusted to reflect his COO promotion.
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Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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