Stephenson Returns AT&T to Big-Deal Era With $39 Billion Buy

AT&T Inc. CEO Randall Stephenson
Randall Stephenson, president and chief executive officer of AT&T Inc. Photographer: Brendan Hoffman/Bloomberg

Randall Stephenson, AT&T Inc.’s chief executive officer, was asked last year whether his predecessor, Ed Whitacre, got to have all the fun because he cut so many deals before stepping down in 2007.

“So you noticed!” Stephenson said with a laugh in an interview with Bloomberg News in November.

Now the 50-year-old CEO is having his own fun. AT&T’s $39 billion agreement for T-Mobile USA Inc. is the largest since he took over and about nine times the size of his second-largest purchase, according to Bloomberg data. Whitacre negotiated at least four deals for more than $10 billion, as he built the company’s revenue and reshaped the telecommunications industry.

The T-Mobile deal is a sign Stephenson sees acquisitions as central to the company’s future, said Rich Nespola, CEO of Overland Park, Kansas-based consultant Management Network Group Inc. AT&T’s revenue of $124.3 billion last year was little changed from 2008.

“This is a harbinger of more deals to come,” said Nespola, whose firm has advised AT&T, though not on T-Mobile. “Stephenson wasn’t the big deal guy, but he was the guy behind Whitacre and he had his taste of the stuff. He’s the boss now.”

AT&T may look for more wireless assets, such as regional carriers, and rivals could seek similar deals, he said. Such carriers include U.S. Cellular Corp. and Cincinnati Bell Corp.

Dan Hays, director of consulting firm PRTM in Washington said AT&T is more likely to build on its wireless business by making acquisitions in related services, such as mobile advertising and banking.

Not Much Sleep

The T-Mobile purchase will be good for AT&T and for U.S. wireless customers, because it will allow for a faster expansion of high-speed wireless services, said Stephenson. Landing the deal was exhausting, with intense negotiations over price and some long nights, he said.

“I haven’t gotten much sleep,” Stephenson said in an interview. “I haven’t really had the chance to even reflect on all this. I am trying to do something good for the company and I think this is great for AT&T.”

Whitacre, now 69, built SBC Communications Inc., the smallest of the Baby Bells after the breakup of Ma Bell, into the largest U.S. phone company. His $200 billion in acquisitions led to consolidation in the industry as rivals sought scale to compete.

Stephenson worked at Whitacre’s side as he negotiated some of his biggest deals. Stephenson was operating chief when Whitacre’s SBC bought AT&T Corp. in 2005, giving the company its current name, and when he brokered the purchase of BellSouth Corp. in 2006 for more than $80 billion.

Stephenson Takes Over

Stephenson took the helm of AT&T from Whitacre in June 2007, the same month the company became the only U.S. carrier to sell the Apple Inc. iPhone. While the iPhone won AT&T millions of new subscribers, the crush of data traffic from the devices caused a spike in dropped and failed calls in some areas and hurt customer satisfaction ratings.

AT&T has seen an 8,000 percent increase in data traffic in four years, Stephenson said yesterday on a conference call. The company added billions to its budget for network infrastructure to meet the new demand.

A global recession caused the first sales decline in six years in 2009. The same year, Verizon Wireless, the mobile carrier co-owned by Verizon Communications Inc. and Vodafone Group Plc, surpassed AT&T as the largest U.S. mobile carrier with the almost $30 billion purchase of Alltel Corp.

The T-Mobile acquisition, which still needs regulatory approval, would push AT&T back ahead of Verizon Wireless. It may also provide $3 billion a year in cost savings and revenue gains, AT&T said.

AT&T’s Challenges

“This puts AT&T in a superior position for growth in the future,” Howard Loewenberg, managing director of boutique telecommunications investment bank Signal Hill Capital, said in an interview.

The challenges with the T-Mobile agreement are both regulatory and operational, said William Power, an analyst with Robert W. Baird & Co. AT&T will likely have to agree to significant divestitures and still may not win government approval, he wrote in a research note yesterday.

“Though the two operate the same technology, integration risks are still significant,” said Power, who has a “neutral” rating on AT&T. “T-Mobile subscriber losses could accelerate.”

The largest deal on Stephenson’s watch prior to T-Mobile was the 2007 acquisition of Dobson Communications Corp. for about $4.5 billion, including the assumption of debt, according to Bloomberg data.

Oklahoma City

Stephenson was born in Oklahoma City and started his career at Southwestern Bell in 1982. He earned a master’s degree in accounting and relies more on research and analysis than the gut instinct favored by Whitacre, his deputies have said. Stephenson worked as chief financial officer and COO before Whitacre tapped him for the CEO role.

AT&T fell 16 cents to $28.10 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have declined 4.3 percent this year.

AT&T’s future deals are unlikely to be for U.S. cable operators or telecommunications companies in other countries, said PRTM’s Hays. Instead, the company will probably try to expand its wireless business, by adding features and new products, he said.

Mobile advertising, mobile banking and content that builds off of social networks, such as the online coupon distributors Groupon Inc. and, could help AT&T lead the next evolution of the industry, he said in an interview.

“AT&T is much more likely to piece together a portfolio that increases the value of mobile customers through acquiring very sticky applications and services,” Hays said.

“Ed Whitacre built a tremendous entity on the heels of telecom deregulation,” Hays said. “Stephenson is now facing a new era.”

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