AT&T Plans Major Changes After Buying Time Warner

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Credit: Bloomberg News

AT&T is planning major changes to follow its planned $85.4 billion acquisition of Time Warner, including a redefined role for CEO Randall Stephenson, as the telecommunications giant morphs into a media company.

Stephenson will oversee a pair of CEOs who will independently manage the company's telecommunications and media businesses, according to people familiar with the matter. Stephenson, 57, will still be the top executive of the company, focused on charting the company's new course as a media powerhouse, the people said.

Stephenson will remain chairman and CEO of AT&T, the company said in a statement, denying an earlier report by Bloomberg that he would relinquish the CEO title.

John Stankey, who now leads DirecTV and other entertainment businesses, will lead the media division, including Time Warner, said the people, who asked not to be identified discussing private information. DirecTV will become part of a unit that includes AT&T's traditional phone businesses, to be run by John Donovan, the people said.

Plan might ease approval
The reorganization, one of the largest at AT&T since "Ma Bell" was broken apart by the U.S. government into seven regional "Baby Bells" 33 years ago, mimics the structure of other successful mergers of disparate businesses, including Comcast Corp.'s acquisition of NBCUniversal. By naming two executives who can run their businesses at arm's length, AT&T could also address regulators' concerns that the company's TV and broadband networks would favor content produced by Time Warner's HBO or Warner Bros.

Stephenson and Time Warner CEO Jeff Bewkes are still working on plans for implementing the merger, said an AT&T spokesman. Decisions about organizational structure and leadership haven't yet been finalized, the spokesman said. Bewkes has said he will stay on in some capacity for at least a year after the merger is complete.

Barring any objections from antitrust regulators or intervention by President Donald Trump, who has publicly stated opposition to the deal and has an ongoing quarrel with Time Warner's CNN, AT&T says it expects the deal to close by year end.

The separation of AT&T's new divisions will be both geographical and cultural. The plan calls for AT&T to consolidate more of its service operations, like wireless, in its Dallas headquarters, where Donovan will be located. Glenn Lurie, who heads the wireless business, will be among the executives relocating to Dallas from Atlanta.

Different worlds
Donovan, who joined AT&T in the 2008 from internet-security firm VeriSign, gained stature at the phone company by converting its complex, hardware-based network architecture to a system that could be controlled using software and servers. This allowed cumbersome manual functions like increasing network capacity to be more automated and instantaneous, saving time as well as equipment and labor costs.

Stankey, who has led nearly every major unit at AT&T in his three-decade career, will run the media division from his California office. The business, comprised mostly of Time Warner, will stay intact with operations in New York and Los Angeles.

While Stankey is a loyal lifer at the phone company, AT&T sees the split structure as a way to protect Time Warner's Hollywood culture, where creativity is prized, from the more bureaucratic traditions of a Dallas office that teems with the jargon of Six Sigma process improvement tools and "best practices."

In its approach to Time Warner's integration, AT&T is trying to mimic Berkshire Hathaway's management style, said one person familiar with the plan. Warren Buffett, Berkshire's chairman and CEO, is known for giving acquired companies a great deal of autonomy rather than try to standardize them.

DirecTV's relocation
The transfer of DirecTV, the satellite-TV provider acquired in 2015, to the telecom business is one of the most significant changes in the restructuring.

By moving the division -- the largest pay-TV service in the U.S. -- out of Stankey's purview, AT&T aims to address questions about whether it can provide competitors fair access to Time Warner's exclusive shows, from CNN breaking news to basketball games on TNT to "Game of Thrones" on HBO.

By handing Stankey oversight of Time Warner, AT&T passed over a number of internal candidates, among them Lori Lee, a rising star who is running the merger integration process. Other contenders have included Chief Financial Officer John Stephens and Peter Chernin, the former Fox executive who co-owns video joint venture Otter Media with AT&T.

The merger will mark a turning point for Time Warner's executives, including HBO chief Richard Plepler, Turner Broadcasting head John Martin and Warner Brothers' Kevin Tsujihara. AT&T plans to retain key executives from Time Warner because it needs their expertise, one of the people said.

Content creators
While AT&T has created one of the world's leading wireless and TV services, ideal for delivering live shows to phones, movies to homes and even entertainment and news to connected cars, it's not clear how well executives steeped in the language of phone networks, bits and bytes will be able to resist having a role in creating content.

Comcast CEO Brian Roberts has been an example of how to make such combinations work, leaving NBCUniversal CEO Steve Burke to run TV networks, a movie studio and theme parks with little interference from the cable giant's network operations. As part of a settlement to win government clearance for its deal, Comcast pledged not to favor NBCUniversal's content on its cable services for several years, and AT&T has said it's open to a similar arrangement.

AT&T is making the foray into media in part because its wireless and pay TV businesses have stopped growing, leaving the company under pressure to find new revenue. In the first quarter, the wireless service lost a record 191,000 subscribers. And on the pay-TV front, customers continue to flee to alternatives like Netflix and Hulu, with a new streaming service, DirecTV Now, doing little to stem the tide.

While AT&T has pledged it won't interfere with the expertise of its new Hollywood colleagues, Stephenson hasn't been able to contain his enthusiasm for how shows could be chopped up for bite-sized delivery. During a presentation to investors in May, he shared some of his ideas about how the media properties could fit in the increasingly mobile video market, suggesting 20-minute versions of "Game of Thrones."

"Can you begin to curate the content -- let the content geniuses and creative geniuses think about this -- but curate the content uniquely for a mobile environment?" he mused.

-- Bloomberg News

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