Stephenson also offered an endorsement of key lieutenant John Stankey and said the sweeping tax cuts enacted at the end of 2017 have spurred wage gains for low-income workers and “crazy-low” unemployment rates.
“We’re going to evaluate it and see what makes sense for our shareholders,” Stephenson said of a barbed letter issued a week ago by Elliott Management, an activist hedge fund. After attaining a $3.2 billion stake in AT&T, Elliott issued a blistering critique of AT&T, saying its shares have underperformed peers and the S&P 500 over the past decade due to management missteps. Chief among the errors, per Elliott, has been buying DirecTV and Time Warner, two megadeals that together cost nearly $150 billion, not including debt.
Stephenson was asked about the company’s M&A appetites, which have taken it well outside of its traditional telecom comfort zone. “If you had asked me that question five years ago, I’d be hard-pressed to say it makes sense, in the old world,” the CEO said. “In the new world, it makes all the sense in the world.” In particular, owning content — the main driver of the Time Warner transaction — remains a priority for the company. “I am an evangelical believer” in the saying that “content is king,” Stephenson said.
The Elliott letter demanded the exits of Stephenson — who is said to be looking to wind down his 38-year career soon — as well as Stankey, who has led WarnerMedia and is moving up to COO of the company. “It’s not easy” to reshape a company like Time Warner, Stephenson said. “He’s done a really nice job of breaking down the silos.” As to Stankey now running the company’s other divisions, giving him oversight of pay-TV and wireless operations, Stephenson said, “He’s got experiences that are long, wide and deep.”
The 40-minute session did not dwell too much on the declining fortunes of the company’s pay-TV operations. AT&T lost more than 1 million subscribers in the previous quarter and expects significant losses in the upcoming period. Stephenson pinned blame on programmers, noting recent carriage fights with CBS and local station owner Nexstar. “Everyone bemoans cord-cutting,” Stephenson said, but it’s a “phenomenon that’s going rampant and it’s not going to change. … The industry is its own culprit.” After a “painful few weeks” over the summer, the pay-TV operations “landed in a place that’s rational and reasonable.”
Asked to assess the macroeconomic picture, Stephenson said trade issues (notably the U.S.-China trade war) are the No. 1 drag on the U.S. economy. Without mentioning President Trump by name, the CEO offered a full-throated celebration of Trump’s tax reform act, which passed in December 2017 and boosted the balance sheets of corporations. “It’s hard for somebody to argue that Tax Reform Act – as it relates to corporate, not personal, because that’s a whole other matter – has been anything but positive,” Stephenson said.
Because of the tax cuts, he continued, “Unemployment is at crazy-low levels,” he said, particularly among African-American and Latino workers. “We ought to be doing high-fives,” Stephenson said. “Wage gains at the low end of the scale are greater than wage gains at the high end of the scale.”
Heading into the 2020 election cycle, he emphasized, “These are good things in America.”