I attended this week’s 2012 Milken Institute Global Conference in Los Angeles. On Wednesday, AT&T CEO Randall Stephenson spoke about how AT&T shifted from voice to data, the origins of its Apple iPhone deal and why better spectrum policy is the key to everything.
Spectrum. Without it, AT&T can’t power its iPhone network, doesn’t shift revenue from voice to data while going from 2G to 4G networks in half a decade, and can’t spend billions of dollars on improvements each year while still increasing margins. “But we’re running out of the airwaves that this traffic rides on,” says CEO Randall Stephenson; even worse, we’re not allocating spectrum properly for data use and not moving new space to the market quickly enough.
Reforming spectrum policy was at the heart of Stephenson’s remarks Wednesday during a lively and frank Q-and-A before a roughly half-full audience. AT&T has shifted from nearly zero data-based revenue in 2007 to $20 billion annually today. Data use will only continue to increase at paces no one could anticipate, he said, pointing out that in just a few years, the person who doesn’t have a smartphone or tablet computer has become the exception (a show of hands indicated this was true of the audience). By 2013, there could be more data than spectrum availability in some markets.
The regulatory problem is twofold. Decades-old decisions by regulators have led to narrow slices of spectrum, which is the opposite of what you’d need for data. Also, “we’re not doing enough in the United States to get spectrum to market,” he said. The last big auction was several years ago, when broadcast networks went digital, freeing up spectrum. But all of that space has been allocated, Stephenson said, and the 50 megahertz coming to market is “inconsequential” and won’t be fully implemented for six to eight years.
Why isn’t this just a problem for the telecommunications industry, or the high-end iPhone user who wants to watch movies on his or her device? Because the economic effects will be national, or even international. For instance, the “lower-income strata” worldwide is gaining access to the Internet through affordable smartphones and plans. Without sufficient bandwidth, prices will increase even more than they have, undoing access for lower-income people and creating “a new digital divide.” Furthermore, for every $1 billion AT&T invests, it creates 7,000 jobs. Less spectrum means less investment, means fewer new U.S. jobs, Stephenson said.
Other key points from the discussion:
- When Steve Jobs pitched the smartphone to AT&T — at the time, it was largely a theoretical device — Stephenson said that he asked internally, what are we investing in? The answer was Jobs, answering the question of whether to invest.
- AT&T has to interview 11 applicants for every qualified worker, which leaves it extremely worried about the up-and-coming workforce’s education. Stephenson said the high dropout rates among black, Hispanic and American Indian populations are among the most striking problems.
- Veterans returning from Afghanistan and Iraq are a huge resource for AT&T, as their skill sets translate in any number of ways. Stephenson emphasized the need to find jobs for wounded or disabled veterans. It’s wonderful that battlefield and medical technology is saving many soldiers who would have died in previous wars, he said, but that leaves many with permanent injuries and often no clear path into the workforce. Using virtual, work-at-home call centers might provide one answer.
- The pace of technology is such that with 2G, 3G and 4G networks, multibillion-dollar investments are expected to become obsolete within five years.