Meet AT&T's New Boss

Randall Stephenson is taking over for long-standing chief executive Ed Whitacre. Can he handle the job?

by Roger O. Crockett

On the surface, Randall Stephenson and Ed Whitacre don't look much alike. Stephenson, who on Apr. 27 was named to succeed Whitacre as chief executive of telecom giant AT&T (T), has jet-black hair that he wears slicked back—à la NBA basketball coach Pat Riley. Whitacre's coif is gray and thin. And though they're both over 6 feet, Stephenson looks substantially smaller because of a lanky, athletic build he keeps in part by zipping down the slopes on his regular ski trips.

But that's on the outside. As the 65-year-old Whitacre prepares to step down as CEO and hand the reins to the 47-year-old Stephenson on June 3, the key is that the two executives think very much alike. For the past several years, Stephenson, first as chief financial officer and then as chief operating officer since 2004, has worked closely with Whitacre while "Big Ed" transformed the former Southwestern Bell telephone company from the smallest of the Baby Bells into the biggest, richest communications carrier in the land. "As COO, he's been involved in everything, and implementing and advising on most everything in the firm," Scott Cleland, president of broadband consultancy Precursor, says of Stephenson. "He's been an active, very close No. 2."

"Scope and Scale"

So, it's no surprise that Stephenson is the man that the AT&T board has chosen to succeed Whitacre. But the reality is, Whitacre's are gargantuan shoes to fill. It was Whitacre's vision to create a company with the "scope and scale," as he often liked to say, that would dominate telecom.

To that end, he engineered several fabled acquisitions. In 1996, with the ink barely dry on telecom reform legislation that permitted such deals, Whitacre engineered the acquisition of Pacific Telesis, leading the way in what has become sweeping industrywide consolidation. He later cut a deal to combine AT&T Wireless with Cingular, the joint venture he created with BellSouth, to form the largest wireless carrier in the U.S. He followed that up by acquiring AT&T in 2005 and adopting the Ma Bell name, along with the industry's most enviable big-business customer list. Then last year, he capped his career as consolidator by acquiring BellSouth, giving him full control of the fast-growing Cingular.

It's all been bold stuff—and it has paid off. AT&T will generate more than $118 billion in revenue this year and nearly $17 billion in net income, according to UBS (UBS). The acquisitions have reaped billions in cost savings, allowing AT&T to maintain one of the best balance sheets in the business and earn a place as one of the favorites on Wall Street. AT&T shares climbed 46% in 2006, making it one of the top performing blue chips for the year. Since the beginning of the year, the stock has risen another 11%, to $39.

Transition Time

Still, AT&T's future depends on Stephenson's ability to perform a difficult balancing act. AT&T needs to boost revenues from new services, such as wireless and broadband Internet, faster than its old businesses fade away. And he probably will have to do it without major acquisitions—since there are no major telecom companies in the U.S. left to buy. "Stephenson takes the reins of an organization that will have to rely on organic subscriber growth and focus on the tough challenge of building out new kinds of capacity, market by market," says Cliff Raskind of Strategy Analytics.

So far, the decline in AT&T's traditional voice service has been countered by steady growth in wireless and broadband. But the slide in voice is expected to accelerate in the years ahead, and wireless growth is slowing down. Researcher Sanford C. Bernstein (AB) expects annual growth to drop from an average of 15% in years past to 6% or less in the years ahead.