"The Mobile Revolution: Driving the Next Wave of Productivity and Growth" with Randall L. Stephenson, CEO, AT&T

Wednesday, March 30, 2011

Speakers

Chrystia Freeland

Global Editor-at-Large, Reuters

Randall L. Stephenson

Chairman and Chief Executive Officer, AT&T

CHRYSTIA FREELAND: I'm Chrystia Freeland of Thomson Reuters, and I'm going to be your moderator this morning for part of our Bernard Schwartz lecture series on business and foreign policy. Thank you, Mr. Schwartz; he's here.

I was very, very excited about this breakfast when Richard asked me to moderate it. And then I got even more excited as Randall Stephenson, our speaker this morning, moved into the deal space with this huge T-Mobile deal. I was saying to Richard beforehand that I knew he was pretty good at the foreign policy stuff, but I had no idea he was such a terrific leading indicator on the M&A space.

So from now on, look at your Council on Foreign Relations invites with that little extra bit of interest.

The way we're going to do the session this morning is, Mr. Stephenson will make a few opening remarks from the podium, you will actually be able to see him, unlike me. And then after that brief introduction, he and I will sit down. I'll ask him questions for another 25 minutes. At 8:30, we'll throw the floor open to all of the highly informed and smart members who are here for breakfast. And promptly at 9, we will conclude so that everyone can go to work.

So please, Mr. Stephenson, we can't wait to hear what you have to say about what AT&T is doing and the broader issue of the mobile revolution in business and the world.

(Applause.)

RANDALL STEPHENSON: Good morning. And thank you, Chrystia. I was talking to Richard about his timing, as Chrystia pointed out, and the timing was too good. I suspect the SEC will be looking at your trading accounts. (Laughter.)

This is obviously all people want to talk to me about right now is this deal. And I thought what I would do just to tee up the conversation with Chrystia this morning is to try and put this in the context of what we're seeing happening in our industry, because what we're seeing happening in the industry, it's really unique.

In fact, it's probably like nothing I've seen since I've been in this industry. And so I'm going to give you a view real quickly of this from the perspective of an operator.

If you just step back, and you reflect over the last four years, I like to call the last four years the mobile broadband era. It's when this thing really began to talk root and get traction and grow.

And what drove this is, we started a number of operators building out these 3G networks, third-generation mobile broadband networks, and we really exponentially increased the bandwidth, the throughput on these networks. Put on top of that the Steve Jobs phenomenon with the iPhone and all the smartphones that came with that.

And you may not have thought about this, but it was only two years ago that the app store was first introduced. It's only been two years.

And then you put on top of that these tablets that are just now coming to market. They're very nascent. And the result -- the result of this, from an operator standpoint, is, you step back and you say, in four years, the amount of traffic on these networks is up 8,000 percent. And that's just a number that it rolls off the tongue, but it's kind of hard to grasp. Try to think of LaGuardia or the traffic in New York City if it grew 8,000 percent in a four-year time horizon, and it's very impressive in terms of the stress that it puts on an industry to stay up with that kind of capacity.

The question that I get asked most is, so where does this go? And where can this go? And anybody who said that they could point to a place on a graph and show you is fooling themselves, because nobody really knows.

We do know it goes from bottom-left to top-right on that graph. The slope, nobody's really certain of. We kind of operate from two basic premises as we operate these networks. And I start with one very important premise that has proven timeless over the last 30 years. And that is, in telecom, if you take any application and you make that application mobile, the utilization of that application will jump exponentially. And we've seen this play itself out time and time again.

In the '80s, what application did we make mobile? It was voice. And what's happened to the utilization of voice in that 30-year time horizon? People talked about it just displacing a wire line. That's not true. Voice traffic is still growing to this day. You mobilize it, it takes off.

In the '90s, we mobilized email with just the BlackBerry. What happened to the utilization of email? It jumps, and it jumps exponentially.

You can keep going. In the last decade -- actually, the last four years, we mobilized Internet access. And what happened to the utilization of Internet access? Boom! We see these incredible jumps.

So you mobilize it, utilization jumps exponentially, and it stays on those trajectories. So second is, as you mobilize these apps, that then fragments the content that underlies these apps. And as that content fragments, what happens to utilization? Again, it jumps.

Let me put this into perspective. About six or seven years ago, most of you were like me. You had a PC sitting on your desk, your assistant has a PC on her desk, you have a laptop you carry with you when you travel, you have a cellphone in your pocket and you have a BlackBerry on your hip. Right? That was our world not six, seven years ago.

I don't know about you, I remember the first time I was given a smartphone. It was nothing but a BlackBerry with a phone in it.

Steve, you remember this thing.

I thought this was rocket science. This was the greatest thing, because now I was consolidating my devices to like one single device.

But that's not the important thing that happened. What happened was the content for all these devices got synchronized. It became synchronized. So my contacts, my calendar, my email, across all those devices they were synchronized.

And once you had all that stuff in sync, what happened? Demand and utilization for all this jumped.

And then enter the next generation of smartphone: the iPhone. And now what we're talking about is trying to synchronize not just calendar and contacts and email, but synchronizing videos and applications and games and so forth. Right?

What's the byproduct of that? The byproduct of that is this 8,000 percent growth that we're dealing with as an industry right now. And what happens from here?

This is the fascinating part, to me. What happens from here is exactly what happened about six or seven years ago, in that this thing is fragmenting again. We finally got to a place where I have all this content synchronized on a single device, and now we're introducing tablets. And now we're making these apps and all this capability with Internet-connected TVs available on the TV screen.

We have gaming devices. We have cars with screens in them where this content is moving into the automobile itself. We have e-readers.

And so now the device world is fragmenting again. The content world is fragmenting again. And so the issue here is, so now what?

Well, enter the cloud. This is -- you hear people in our industry talk about the cloud. Why is the cloud so important? It's so important for exactly this reason, because the cloud is where you take all this information now, and you put it up in the infrastructure layer above these networks, and then you become indifferent as to what device you're accessing that content from. Is it your smartphone? Is it your tablet? Is it your TV?

You've put the content in one place. You combine that with what we're now building, fourth-generation networks, and what happens to this traffic on these networks? Think about it. We're up 8,000 percent in four years. Our estimate, when you factor in the cloud, fourth-generation networks, from this 8,000 percent level, in the next five years, it compounds to eight to 10 times where we are today.

And so the question I ask is, so what? So what is the implication of all that?

The implication of all of that is, we as an industry, I don't know how we support that kind of growth in capacity if we don't stop and rethink how we're going at this. There is not enough spectrum, airwaves to accommodate this type of growth over the next five years if there isn't a restructuring of the spectrum in some fashion. We can't continue just to build cell sites at the pace we're building them. It's just an incredible amount of infrastructure.

And so let's just stop and rethink, which is where we got to a few months ago, led us to discussions with Deutsche Telekom to acquire T-Mobile USA.

And the implication of this is, it became very apparent, if you combine the assets of these two companies, you get very quickly, in a city like New York, just by combining the two assets, better utilization of the spectrum, you get a 30 percent lift in capacity. That's an impressive lift. Better utilization of the spectrum, more capacity just by combining the assets. That's improved call quality, it's improved data throughput and so forth.

The second thing you do is, you put these two cell site infrastructures together. It's as though you have accelerated immediately five years worth of cell site build. Now, in New York and San Francisco, that's two years to get a permit for a cell site. And to accelerate that cell site build by five years is dramatic for an operator like us. And so we find that very interesting as well.

And then last, it allows us as two companies to do together what neither one could do apart, and that is, deploy these fourth-generation mobile broadband networks across the U.S. We can cover 95 percent of the U.S. with these capabilities by putting these two together.

We think that's very exciting. It's a very important public policy objective for our administration. It's something we can now do when we put these two businesses together. And so that's kind of the thinking behind that. That's what led us to this point and the premise behind where we are.

And so with that, Chrystia, I'd be glad to visit with you and take questions.

(Applause.)

FREELAND: Could everyone please -- this is an interesting moment for me to say please do turn your cellphones off.

STEPHENSON: It's not necessary. (Laughter.) I am the one guy that will not take offense at that.

FREELAND: Yeah. This is the one guy -- actually, turn them on and make many phone calls.

STEPHENSON: Turn them up.

FREELAND: Only if it's AT&T and T-Mobile phones, right?

STEPHENSON: We're in this for the industry. Turn them on. It's OK. (Laughter.)

FREELAND: Isn't that great? And I do have to warn you, this is all on the record.

STEPHENSON: OK.

FREELAND: So that was an excellent argument in favor of what you're doing. Regulators are crawling all over this. The New York AG has just said they're going to look into it, too. The beginning of many fun visits with state AGs, no doubt.

A concern we all probably have is, what's it going to do for -- you've talked about what it's going to do for us. I guess, as users of these great devices, we're worried, what's it going to do to us? Living in a duopoly as consumers, maybe not so great. Are you going to offer any assurances?

STEPHENSON: Well, you used the word "duopoly." This is anything but a duopoly. You can take this market here right now. If you're a consumer and you want to go out and buy mobile service, you have a choice of five or, I think, maybe even six here in New York City. And there are six providers that have network assets, that are selling service, and they're selling national footprint of these assets.

So I would tell you, if you look around the globe at the mobile industry, this is the most hyper-competitive mobile industry you're going to find around the globe. Maybe India rivals this, but this is an intensely competitive industry. It's intense before we do this transactions. It will be intense after we do this transaction.

You have this five or six option. In fact, you look at the 20 top markets across the U.S.; in 18 of those, you have a choice of at least five network service providers, and that's before you begin to introduce companies like LightSquared and Clearwire, who are also developing wholesale models. So this business is going to be intensely competitive for a long time.

FREELAND: Are you going to offer any consumer price guarantees, things like price caps to keep those regulators happy?

STEPHENSON: (Chuckles.) I'm not sure of the relevance of it. If you look past over the last 10 years, there has been incredible industry restructuring and consolidation. And over a 10-year period of time, through consolidation, prices have dropped 50 percent. And this is an industry where prices just continue to move down.

If you look -- we talked about the last four years. Over the last four years, in 2007, if you bought data from AT&T, you paid somewhere around a $1.90 per megabyte. Today you buy data from AT&T, you're paying about 16 cents per megabyte.

Prices in this industry just traditionally, I mean, consistently move down. There was a study by the government where they looked at the consolidation of the industry. It was the GAO. And their conclusion was, by virtue of the consolidating moves that happened in this industry, it allowed a significant amount of costs to come out of the industry, and those costs have found their way into consumer prices. That's this 50 percent drop in pricing over a 10-year time horizon.

FREELAND: So we don't have anything to worry about.

STEPHENSON: This is a competitive -- I mean, think of any other competitive industry where you have to worry about pricing. It's a competitive industry.

FREELAND: You referred just a minute ago to India. Talk to us a little bit about the comparison of what's happening with this mobile revolution in India versus China.

STEPHENSON: Well, it's very -- they're very different structures. In China, you have just a couple of competitors that are obviously partially owned by the government as well. And so they've structured that industry where, in my view, it's very conducive to developing these mobile broadband networks, and you see them investing aggressively.

You see two or three different mobile technology platforms, they're chasing this mobile broadband revolution aggressively. They've made the spectrum available to these players, and these players are doing a lot to really leverage that and push the technology.

India's gone at it a very different approach. They have licensed out the spectrum in very thin blocks. They've got the maximum number of competitors, so it's a hyper-competitive voice market, but the data market has not yet begun to evolve. It has not yet grown.

And the reason why? You heard me talk about it. If you want to compete in the data world, you can't have thin slices of the spectrum. You have to have big, thick slices of the spectrum if you want big, mobile broadband-type capabilities.

And so I think, until they really get this spectrum into the hands of operators in good, thick slices, it's going to be hard for that data environment to take off. It's hyper-competitive on voice, but the broadband facet of it has not taken off yet.

FREELAND: So you think that China's state capitalism, a few big players, is going to work better in this space?

STEPHENSON: It depends on what you're looking for. There's obviously a balance, right? I mean, there's kind of a spectrum here.

On one -- no pun intended. On one end of this spectrum, you have the India model, which maximum number of competitors, maximum level of competition, allocating the spectrum very thinly.

Over here, you have closer to a China model with just a couple of big-scale competitors. This is the most efficient utilization of, you know, the rare-asset spectrum; this is the most hyper-competitive. I don't think either extreme is what's optimum for an industry like this.

There has to be someplace in the middle where you get maximum optimization of the spectrum, you get the innovation, you get the technological development, and you get good, healthy competition. It's between those two extremes, in my view.

FREELAND: How worried are you, if at all, about what we're seeing in the emerging markets, maybe especially India and Africa, with price coming just way, way, way down on admittedly, you know, very basic mobile services?

STEPHENSON: How alarmed am I? That doesn't --

FREELAND: Couldn't those guys come in here and offer something super, super cheap?

STEPHENSON: I mean, it's kind of an open market, right? And a lot of folks come into this market. In fact, what's -- I think what you're seeing play itself out right now with Deutsche Telekom is very telling.

You know, I've been around the globe over the last four years, looking for opportunities for us to invest in other markets. And you listen to me articulate what's happened in this market over the last four years. That same thing is happening in Europe.

And so we at AT&T have come to the premise that, look, this thing is so capital-intensive here in the U.S., it's going to consume most of our capital requirements for the next few years to feed the mobile broadband requirements.

Deutsche has the same issue in Europe. Europe is really consuming a lot of their capital. And so they're turning, getting focused on Europe. Their capital allocation is truly focused on building this mobile broadband capability out in Europe; ours is focused in the U.S. They're selling us their U.S. assets, but they're keeping an exposure to the U.S.

They have a really firm belief in this by virtue of they're going to be AT&T's largest shareholder when this is all said and done. They'll own 8 percent of AT&T.

But they're taking the cash to redeploy into Europe. They've been very open about that. I think that's what you're going to see happen around the globe as this mobile broadband revolution takes off. It consumes a lot of capital and most --

FREELAND: So de-globalization, everybody sort of hunkering down in their home markets?

STEPHENSON: My expectation for the foreseeable future, that's exactly what's going to happen. You cannot compete aggressively in this space without intense capital allocation to your local market.

FREELAND: We're in New York, so I can't resist talking to you a little bit about the iPhone. Did -- was it predictable how quickly it would grow; and therefore, you know, a great deal for you? But we did -- those of us who had your iPhones here had a few problems with them.

STEPHENSON: Was it predictable? The volumes are up 8,000 percent. New York is actually in excess of that. And I tell people, our models assumed it would only grow about 5,000 percent, OK? So 8,000 percent versus 5,000 percent.

But actually, what I'd tell you, though, is, it's created quite an awakening in the U.S. in terms of the possibilities for all of this. We've poured an extensive amount of capital into New York. The metrics have gotten considerably better. And in fact, we're getting pretty close to where we'd like to be. We're not there yet.

This transaction is very instrumental in this, because think about in New York City, virtually the day you close it, getting a 30 percent lift in capacity in New York City. That's a significant improvement in call quality and data throughput in a very short period of time.

So we think this is very important for that reason.

FREELAND: So this deal was inspired by the fact that people with AT&T iPhones just, like, couldn't make them work?

STEPHENSON: No. (Laughter.) No, it was inspired by the reality of where this is going. Again, up 8,000 percent in four years. The expectation is, it goes eight to 10 times higher in the next five.

How do you deal with the next five? This deal was inspired by the next five.

FREELAND: You talked a little bit about TV. And U-verse is something you guys have been working a lot on.

Look into your crystal ball for us a little bit and talk about where that is going.

STEPHENSON: We have a premise that in this kind of data world, that the primary objective is to get all of your platforms on an IP platform, Internet protocol platform. And that's very important, because if you get all of your capabilities, whether it's your TV product, your broadband product, your high-end business products and your mobile products, on Internet protocol, then the ability to develop products that go across these various platforms becomes very quick, very efficient, and you really get some new innovation that way.

Our TV product, we picked this U-verse platform because it is an IP-based product. We deliver TV into the home using Internet protocol. It's the largest-scale version of this in the United States, and it's had tremendous success.

In fact, we have well over 3 million subscribers now, and it's scaling very nicely.

But the beauty of it is, if you have an iPhone or you have an Android device or a Microsoft device, you can get your U-verse platform and programming very easily in your mobile handset now. And we think that's very important. You can begin to integrate calling features into the TV as well as into the handset. You can begin to move the application environment onto the TV as well, because you've got everything in an IP format. That's what U-verse was all about.

And so we're actually kind of excited about this. You put this infrastructure with T-Mobile together, you get that kind of capacity and leverage it against your TV service, we think there's a lot of opportunity here.

FREELAND: You've been talking a lot about innovation and the speed of innovation in your industry. But there is a broader debate in America right now with some people arguing, you know, especially Tyler Cowen in his great e-book "The Great Stagnation," that actually we're living in a time with very low innovation, and that's part of the reason that you're seeing low jobs growth, et cetera, in the U.S. economy.

From your perspective, what is it? Is this a high-innovation period or a low-innovation period?

STEPHENSON: This is an incredibly high-innovation period. The technological cycles in this industry are happening so fast that it's amazing to me.

It used to be, in this industry, you'd make an investment, and you'd deploy that investment and you'd ride that technology for 20 years. We're now on fourth-generation mobile broadband. We're deploying it very aggressively throughout the United States. Third generation went in roughly in 1996, '97. In four or five-year time horizons, multi-billion-dollar investments are obsoleting and phasing out, and you're bringing in fourth-generation technology.

The productivity benefits that come from this, I think, are stunning. And I continue to say that broadband, and specifically mobile broadband, will only come in third behind electricity and the combustible engine in terms of what it drives in the form of productivity. And we're seeing this productivity, I mean, step up at an incredible pace.

I like to say that we're in the business of doing one thing: we speed up commerce. And everything we do accelerates commercial velocity. And if you can make commerce go faster, if you can make dollars turn faster, that's just faster economic activity, that's economic growth, which drives more investment, which drives more commercial velocity. And that's what this stuff is doing now. It is driving that kind of commercial velocity.

And we have not even begun to broach mobile payments, mobile commerce at really the scale that I think will be manifesting itself soon.

The idea that you can take this device at the CVS or wherever and literally tap a screen and pay for your transaction, think about what that does to the pace of commerce. I think it's going to be very exciting.

FREELAND: What -- another sort of area of really heated debate is the impact of this mobile revolution on politics in the world. Some people arguing that, you know, this is the great democratizer. Other people -- Evgeny Morozov has just written a book "The Net Delusion" that actually, you know, we're wrong, and this is going to help authoritarian regimes.

What's your view?

STEPHENSON: Oh, it's a democratizer. It's a democratizer to the nth degree. Broadband itself was a great democratizer, but broadband, traditional landline broadband, you were limited. Because to have access to broadband, you needed a couple of things. You needed a big broadband pipe into your home, your library, your business or whatever, and you had to have a computer. That's a $100 computer for a consumer now.

In fact, some countries, you have $50 -- we're selling iPhones for $50 now. You now have access to a computer --

FREELAND: Will you sell me an iPhone for $50?

STEPHENSON: Yes, ma'am.

FREELAND: Yeah?

STEPHENSON: See me right after. (Laughter.) How many?

FREELAND: One for everyone -- how many people here, Richard?

STEPHENSON: (Laughs.) There's a guy right here that will take your order.

Steve, be ready, OK?

But not only that, but it's a $50 very, very powerful computer with Internet access -- here, $15 a month. You can have Internet access with this device.

Now think about the world of broadband, the world of information-sharing, the ability to get information out in these totalitarian-type environments and governments. What does that do to democracy?

I believe this is fueling that as much as anything else. The price of broadband, the entry level for broadband has come dramatically down. And as a result, you've seen these explosions around the world.

FREELAND: OK. I have one more question for Mr. Stephenson, but then please prepare yours. You have a whole half hour to go at him, so I hope we'll have lots of excellent and difficult questions.

You are, no doubt, going to be spending a lot of time, not only with the state attorneys general, but a lot of time in Washington, where I understand your excellent team is good at giving people cupcakes, among other things.

STEPHENSON: (Chuckles.)

FREELAND: What's your view on this president, President Obama, and his attitude towards business?

STEPHENSON: I think we've seen a lot of really, from a businessman's standpoint, a lot of really good signs over the last few months.

I think his appointment to the chief of staff, somebody who comes out of the business environment, is very important. And Bill knows capital formation, he knows who capital allocation works. I view that as a very important sign. A lot of the things that he has said recently, I think, are very important.

His signing the tax extender back in December, where the bonus depreciation benefits were left in place, where dividend taxation was left low, capital gains taxation was left low, I think that was significant, because we talk a lot in this country and our political debate is a lot about jobs. We need to be focused on jobs.

And I -- that's the output, that's the product we want; it should not be the focus. Jobs do not come without investment. And what we need is more investment in the United States and policies that are pro-investment, pro-capital formation are the right policies.

Lower dividend taxes, lower capital gains taxes, bonus depreciation, those are policies that promote investment.

I don't know about many of you businessmen in here, I don't hire where I don't invest. If I'm not investing, I'm not hiring. And that's the policy that I see coming in play. So I'm very encouraged by that.

I'm also very encouraged the president, in his State of the Union address, established a public policy objective that we have nationwide mobile broadband capability. And so a transaction like this that facilitates a 95 percent build of mobile broadband, that's 47 million people in rural America that will have access to this now, I think is a very good sign as well.

So I'm actually optimistic that a pro-business environment we're seeing manifest itself in D.C. will be very conducive to this. And the mobile broadband goals are consistent with what we're trying to do here as well.

FREELAND: OK. I hope your team have taken that line down. It could be useful for you on your next trip to Washington.

Please.

QUESTIONER: Bill Drozdiak, American Council on Germany. Randall, I'd like to take you back to your remarks about national markets. Besides the intensification of capital, aren't there some other factors at work here?

I mean, when you travel around the world, do you see a backlash against globalization? Do you see governments worried about national security considerations and data privacy, so that in the future, aren't you -- isn't AT&T's investments going to be inhibited more to the domestic market because of these anti-globalization factors?

STEPHENSON: It's a good question. I -- I mean, you obviously see that play itself out. You've seen the issue with Rim, BlackBerry and the issues in the Middle East where they need to open up their servers for governments and so forth.

But we're not experiencing that, all right. We're not being excluded from market. China may be an exception where we're not allowed to own extensive infrastructure in China. But India, the market has been liberalized. You know, the foreign ownership restrictions have been dropped. And you're seeing that play itself out in South America, too.

The concentration of capital, I don't think, is a byproduct of that. The concentration of the capital is a byproduct of just the capital intensity of the investments required in those companies. And that's what's going to, I believe, going to cause most of us to pull our horns in and really focus our capital in our domestic markets.

Germany is a classic case. Deutsche Telekom needs to invest in fiber capabilities in Germany. And Rene Obermann, the CEO, has been very open about that. That's a heavy, capital-intensive initiative, and so he needed the cash.

And so I do think you'll see this play itself out this way around the globe. But I don't think it's because of foreign ownership restrictions and issues with access to information by governments. I think it's more just a capital-intensity requirement.

FREELAND: Paula, please.

QUESTIONER: Paul DiPerna, the NTR Foundation. I'd be remiss if I didn't bring to your attention the high degree of concern about roaming charges in T-Mobile. So if you can do anything about that, I'm sure everybody in this room will be very happy.

STEPHENSON: (Chuckles.) Domestic roaming or international roaming?

QUESTIONER: International roaming across border. I have about eight SIM cards to avoid using my T-Mobile phone. I've one in every country.

But my question has to do with security. We're coming onto the 10th anniversary of September 11th. In this city, no cell phones, virtually -- there were almost no -- many cell phones did not function that day. And there's no redundancy that I can see as you move away from landlines and things like that. So can you speak to the redundancy vision with regard to security blackouts, things like that?

STEPHENSON: Yeah. So DHS has the initiative, the ball, on this, and they've been working with the industry, collectively, for quite a period of time.

And the whole issue is, what does become the redundancy mechanism, the interoperability capabilities for public service and so forth?

And I'll be honest with you, I have not been in the middle of this for a year or two. I put somebody else on it, so I'm not in the details. And a lot of this is obviously protected information.

But there is an extensive effort going. Satellite will obviously be a significant element to any redundancy efforts in this type of situation. That technology is evolving and it's coming along very well.

And then again, just the whole interoperability, there are a lot of standards and requirements that are being put together to ensure that we have good interoperability among all the carriers. Those are the primary means you accomplish redundancy is just through interoperability.

The roaming issue, this is one -- this is a very interesting point. I think most of us in here who roam internationally, you know, you get to a country and you get surprised by the data roaming charges or the voice roaming charges. And the situation with Deutsche Telekom, one of the key elements of this is, we're going to be working very aggressively with Deutsche Telekom. They have a very nice European footprint. We would like our customers to be able to roam in Europe more in an on-net type pricing situation.

I'm not sure we can get completely there, but something more in line with what you would be accustomed to if it were an on-net roaming environment. They have a number of customers in Europe that come to the U.S. We're going to try to work together to get those roaming charges down to a predictable level, particularly if you're a CIO of a major corporation. That's very frustrating. You know, there's no predictability of what your people's costs are when they roam.

So that's one of the areas of this deal that we've committed to working aggressively on, to see if we can get those roaming charges more in line.

We have a significant partner in Latin America where we have done this with. And we've been able to move the needle. We're not where we want to be. But over the next couple of years, see, if you're somebody who does a lot of international roaming, if that becomes less of an issue for you when you travel around and see if we can keep those costs predictable for you.

STEPHENSON: Well, lower --

FREELAND: How about lower?

STEPHENSON: -- goes with predictable. Right? Yeah, yeah. That's the objective.

FREELAND: Please, a question in the back.

QUESTIONER: Edward Bleier. I'd like to take you back to video for a moment.

STEPHENSON: Video?

QUESTIONER: Video. IP protocols are terrific for mobile. But what are you plans apropos U-verse in the home where there's seven-plus hours a day of video watching?

STEPHENSON: Our plans with video in the home, where there's what?

QUESTIONER: Seven-plus hours a day of just watching video. Do you have enough spectrum to deliver it?

STEPHENSON: Oh. There isn't enough spectrum in the marketplace.

QUESTIONER: Or the classic debate in the telcos, are you going to build fiber to the home having abandoned your deal with Direct on satellite?

STEPHENSON: No. We still have a deal with Direct TV. We still distribute satellite where we don't have a U-verse product built.

But what you're going to see, and you're seeing this play itself out now, nothing will ever have the capacity and the bandwidth of fiber. And so you're always going to be motivated to put fiber into high-volume locations, like your home. The video-distribution mechanism will always be fiber.

You're going to have certain elements of content that people are going to want on a mobile basis, cut the cost is not ever going to allow you just to distribute, you know, 300 channels over the air, high-definition, to mobile devices or into the home.

So running fiber into these premises is always going to be important.

Now, what you see happening is very interesting. Here in New York, you're seeing this kind of data consumption. You know, what have we seen happen in New York as these devices have taken off? You see data consumption and voice consumption on these, on the 30th, 40th floor in a big tower, right? You used to never see that. People would pick up a telephone, and that's how they made connection, or they'd get on their computer, on their fiber connection.

But now they're doing this up in these towers. You have to think differently how you engineer these networks. So what do you do? You have fiber run into these big towers. You're putting antenna systems inside the tower. You're getting it off the wide-area network and the spectrum that you're paying the government for, you're putting it on more like I'd call private wireless networks in these large towers. We're doing it in apartment complexes. And in fact, we're doing it in your home.

I have a wireless antenna connected to my broadband connection in my home today. What does that do? It takes the call or the data off the air, puts it on my broadband pipe immediately, freeing up spectrum. Those are the types of configurations you're going to see happen over the next few years.

And in fact, that's one of our biggest priorities right now is getting that put in place.

I'll tell you an interesting story about this. We saw something happen at the Super Bowl that we've never seen in our industry before. It's at Jerry Jones' new stadium in Dallas, the Super Bowl is being played, and we put this kind of configuration in Cowboys stadium, extensive wireless networks that are capturing the wireless signals and putting them on fiber in that stadium and hauling them out of fiber.

What we saw for the first time in Cowboys stadium during the Super Bowl was that the amount of data that was being sent out on wireless devices exceeded the amount of data coming into wireless devices. Think about that.

What happened? I mean, you're sitting in Cowboys stadium, everybody is taking a picture or a video and doing what? They're sending it out. Now you're having to think, again, think differently about spectrum, think differently about engineering. The upstream requirements are as significant as the downstream requirements.

And so it's a very interesting dynamic. So we're using fiber to get into homes, using cell site antennas inside the home to capture the data, but put it on fiber as quickly as possible. That's always the priority in wireless, get it on fiber as fast as you can.

FREELAND: Please.

QUESTIONER: Hello. At a recent Council on Foreign Relations event, USAID administrator, Rajiv Shah, said that the distribution of mobile phones is the most significant thing that's happened in the development space in the last 10 years. And I'd be interested to hear your thoughts on how the deployment of mobile devices is going to change how people interact in the developing world, and whether you think that we're still going to see significant changes in how people interact in the developed world. Or is it more, you know, we're just getting higher-definition video on our phones? Is there still some significant change in just how we all connect to each other through mobile devices? Thank you.

STEPHENSON: Yeah, I think it does drive a significant behavioral change in the developed and developing world. And I think the precursor to this is just the whole Facebook phenomenon, the social networking phenomenon.

You know, it's kids, even my wife, email is not the medium of choice anymore. It's the social network medium, whatever that medium is that you're using. And they pull up a computer, that is what they do to interact.

Think about that world where it becomes a very efficient mechanism in a hand-held device, that your social interaction, your social media, is this hand-held device.

We talk about the velocity of commerce. Think about the velocity of communication. And this velocity of communication gets back to the point that you brought up earlier in terms of this democratization. Communication is getting out so quickly now. It is so pervasive, it is so rapid, that events are happening around the world, I believe, driven by this, and we're not fully leveraging the technology yet.

I mean, I just try to think of a social media platform on a device that where my kid opens up their laptop now, it's Facebook, that's all they do. That same type of environment will exist on a hand-held device, and that social interaction is just going to get faster, it's going to get faster, the implications of that will move quicker. And I think this democratization effect will happen quicker.

I think it's affect on commerce -- you know, you want to buy something, a cellphone, I don't know what it is. The number one place people like to evaluate options is with their friends, their social network. I think this is what will begin to drive commerce as well, your choices, your selection; moving from intent to action will happen almost immediately with this type of capability.

And so this is going to do nothing but get faster and faster, I believe. And democracy, commerce, just social interaction, how people interface with each other, how business is done, it's just going to be pervasive in all of that.

FREELAND: I just have a quick follow-up question around that. So does that democratizing potential of what you sell carry with it for you a corporate responsibility to support these potential uprisings and maybe defend them against their governments if their governments want to use you to track them down?

STEPHENSON: It's interesting. We don't operate in Egypt. But I know for, you know, basically what I read that many of the carriers were required to pull those networks down. You go into a country, and you go in recognizing the laws that are in place in that country. And so if you go into a country, you have to be prepared to abide by those laws. And that's what those carriers were doing.

FREELAND: Was that the right thing to do, though?

STEPHENSON: I guess there may be a point where there's a line drawn, and one has to ask that question. I think there were some carriers who saw that line and did not go over that line. And I think you always have to ask, what's the right thing to do. And some of them have got to that point in some of these countries very recently where they had to draw that line.

FREELAND: OK. I'm going to take just a couple more questions from the back.

Please.

QUESTIONER: (Off mike) -- that favorable -- Michael Alderman, Einstein Medical School. You alluded to the fact that the friendly environment in regard to tax structure, for example, for corporations was favorable for capital accumulation, and you obviously need that for the kind of growth and development you anticipate.

I wonder what that's done to hiring by AT&T. Has the labor force increased a lot? What do you expect the impact of the coming merger might have on employment?

STEPHENSON: Yeah, so I'll go back to what I said. Where we invest, we hire. So it's probably not a surprise, if you look at our business, we have a lot of different components to it. We have a business that is kind of traditional landline business that is in decline. Portions of that, we're deploying fiber. And where we're deploying fiber and putting in TV service, we're investing. And guess what? We're hiring. We're hiring people at a pretty good rate there.

In the traditional landline business, it's in decline, it's shrinking. Traditional print businesses, it's in declining, hiring is shrinking.

Go to mobility. Not just mobility, but particularly mobile broadband. We're investing billions of dollars in mobility. Employment in mobility continues to grow. In fact, we hire every week a number of people in mobility.

So it's no different than anywhere else. Where you would invest, that's where you hire. Where your businesses are mature and declining, obviously, you take the hiring down in those areas. And so there's a bit redeployment. And you're moving people around.

Doing a merger like this one here, there are obviously going to be, any merger like this, there are going to be redundant operations, overhead and so forth, where there will be downsizing of force. But the objective here, if you think about going to 95 percent of the U.S., building these mobile broadband networks out to 95 percent of the U.S., you will have to put people on payrolls to make that happen.

So the areas where you're investing, where you're expanding, there will be hiring. Areas where you're redundant operations, you'll go down. So you know, it's going to depend on where you look.

FREELAND: And specifically --

QUESTIONER: (Off mike.)

STEPHENSON: Over the past years? AT&T, we're at about 270,000 employees. Mobile is up.

Steve, you'll have to help me out here with the number.

Mobile is up over this four-year time horizon I'm talking about 15 percent. Landline is down. The net is down because landline is down further than the mobile is up. But mobile is up.

FREELAND: And what would the net jobs effect of the merger be?

STEPHENSON: We don't know. I don't know what the exact number would be yet.

FREELAND: Up or down, though?

STEPHENSON: I don't know. I think traditionally what you've seen is early on there's a bit of a reduction, but then as you put the investment in place, then the hiring should go. This is a wireless-centric deal. And in a wireless-centric deal, there are not a bunch of elements where a big piece of declining, another piece is growing. This will all be part of a growth platform and an investment platform.

So as you get past integration, this ought to be a net-job grower.

FREELAND: Please.

QUESTIONER: Hi. Shayndi Raice with The Wall Street Journal.

STEPHENSON: Hi, Shayndi.

QUESTIONER: Hi, Randall. I want to go back to something that you said earlier on in terms of how you believe the government should be looking at the marketplace in terms of competition. And you said that in 18 of the 20 markets, consumers have a choice of more than five different companies.

STEPHENSON: Five or more.

QUESTIONER: Five or more. And from what I understand, the FCC and DOJ don't traditionally look at the simple number of operators, but rather the amount of market share that each operator has. And so my question to you would be, if you have a situation where this combined entity could have 80 percent of the market share and everyone else, you know, has only 20 percent of the market share, can you still consider that to be competitive?

So I've obviously heard you make this argument, and your team has made this argument. But I'd be curious in terms of what your response would be to the market share argument and how you would plan to handle that with the regulators.

STEPHENSON: Sure. The way the DOJ looks at the wireless business is, how does the customer make the buying decision? And the customer makes the buying decision on a local basis. If you're in Des Moines, Iowa, you go look for wireless providers in Des Moines, Iowa.

And so the approval process has always focused on that approach. And I get back to, when you look at that and you look at 18 of the 20 top markets in the United States, that consumer has at least five options for mobile service, it looks to be a very actively and hyper-competitive market.

And that is how we expect that they will review this transaction as well. It's going to be market by market. That's the way the purchasing decision is made, that's the way the product is delivered, and so we think that's where the discussions will transpire, is at the local market level.

QUESTIONER: But what about the market share issue at a local market --

STEPHENSON: Yeah, I mean, they factor in a lot of different variables. I mean, market share comes into play at the local market level. The number of competitors at the local market level. The synergies are very important when you're evaluating a transaction like this, because the Justice Department has always seen that the synergies play a critical role, because if you get a lot of costs out of these businesses and these operations, going back to the OED study, those costs get passed on in a competitive marketplace to the consumer.

So the synergies play an important role. So it's not just look at one variable. There are a lot of variables that come into play in evaluating these transactions to decide whether does competition exist in the marketplace, and that's the question.

FREELAND: But just a final follow up on that one. Given, sort of, you your argument that you are in an extremely capital-intensive business where only the big players can really operate properly, isn't market share sort of a key issue?

STEPHENSON: I didn't say where only big players can operate properly. There are a lot of areas where the smaller-tier players are the aggressive competitor in the marketplace. In fact, you can look -- Miami, San Francisco, Detroit, I could go down a long list where T-Mobile is not even the number four competitor, they're number five. And you have smaller players that have emerged into these markets, taking on different business models, they're network-based providers, different business models, different distribution models, and they are taking significant share in those markets.

And so saying you have to be big to compete is not accurate. You have to have a decent spectrum position, and you have to have distribution, and you have to have a right business model. And you look at that, and you go around market by market, it is a hyper-competitive marketplace.

FREELAND: OK, please.

QUESTIONER: (Name and affiliation inaudible.)

STEPHENSON: Good morning.

QUESTIONER: Good morning. We are -- Ethan Allan is a manufacturer retailer -- (inaudible) -- technology, tremendous, major, major things have happened. Over the last 10 years, with the help of technology and other things, we today are doing about the same business with 50 percent less people.

We're talking of jobs. I would just like to get your perspectives on this great technology. How is it going to overall affect the job markets in the next five years?

STEPHENSON: Productivity, I'm a zealot on productivity. Productivity is critical if you want to have prosperity. And if you don't have significant escalations in productivity, you're not going to have significant escalations in prosperity.

And so while technology allows companies like yours to do more with less, I don't think that's inherently -- I don't think that necessarily means that there is less employment opportunities available. It's just a redeployment of those employment opportunities. And those employees you have, my expectation was, with your productivity, their standard of living has actually gotten better. And that's the model you see around the U.S.

And so when I talk about commercial velocity, commercial velocity is nothing more than a fancy term for productivity. And to the extent that you can enhance productivity with technology, you enhance prosperity.

And I think you're hard-pressed to find a country or an economy that has experienced a broad escalation in prosperity without broad improvements in productivity. And so over the long haul, I think technology is critical for driving prosperity.

FREELAND: OK, an optimistic thought.

Please.

STEPHENSON: It happens to be a factual and accurate thought, though, right? (Laughter.)

FREELAND: No, but does it right now? I mean, looking at the U.S. jobs market right now, maybe -- maybe 10 years from now, 15, 20, but it's actually not accurate given high U.S. unemployment today.

STEPHENSON: I don't think I would attribute high U.S. unemployment today to technology. I mean, there are a number of factors that are driving unemployment, and I've mentioned one of them. It's lack of investment.

And when you evaluate the U.S. today, if you look at capital investment as a percentage of GDP, we are among the lowest in the world in that regard in the United States.

And this is why I'm so encouraged by what President Obama did in December. Because when you start talking about, you know, taking away depreciation benefits for capital-intensive industries, raising dividend taxes, capital gains taxes, those are taxes on investment. You can call them whatever you want, but they are taxes on investment.

And so I think our jobs situation, until we begin to invest at a significant level again in this country, the jobs situation is what we're going to fight.

And so that's one of the beauties I like about this particular transaction. This will drive further investment. And I think this is the kind of areas we need to be looking at as a country. Drive investment, investment drives productivity, productivity drives prosperity.

FREELAND: Please.

QUESTIONER: Thank you. J. Worenklein, Bingham McCutchen. As we think about big economic issues, I wonder if you can think with us about the issue of the effect of these massive improvements in communications productivity that you just described, on the question of transportation and energy usage in the United States.

What I'm wondering is whether we might expect, as the mobile capability improves in the way you described and as usage dramatically jumps in the way you have pointed out, what might we expect about the tendency of both Americans and people around the world, number one, to travel as much as they have traveled, or perhaps more, in different parts of the world, and therefore, accompanying that, the use of energy? If people are in fact able to do so much where they are, or in limited movements around their houses, homes, offices, et cetera, do you expect -- have you seen and do you expect any material decrease in the need for additional transportation infrastructure and additional energy? How does it affect that?

STEPHENSON: It's significant. The effect that it's already had is significant. And I'll give you a personal viewpoint of this.

Some of the video conferencing capability that's out now, TelePresence being the brand, I guess, everybody is most familiar with, but high-definition, high-fidelity sound, TelePresence that is -- I mean, it's a really high-quality experience.

And I'm a huge advocate of this for largely the reasons you articulated, and that is just it's a productivity effort, right? So every Monday morning, we used to bring all of our guys in from around the country and the world for Monday morning meetings. We don't do that anymore.

TelePresence -- we've deployed TelePresence around the globe. And our Monday morning meetings are conducted that way. I interview people for positions and for jobs via TelePresence. If they're in Chicago, I don't make them come to Dallas. They get on TelePresence in Chicago, it is a very comfortable, natural experience.

We have TelePresence facilities in India, in Mumbai, multiple presences, because it takes a long time to just drive across Mumbai. People are TelePresence-ing within Mumbai, all right, because of this.

And so it drives dramatic reductions in travel. My own air travel since I implemented this policy, my own air travel is down 30 to 40 percent depending on the year you look at it. I see no reason --

FREELAND: What year to year? When did you see that fall?

STEPHENSON: The first year I deployed this was -- what are we, in 2010 now? It was 2007.

FREELAND: We're in 2011.

STEPHENSON: 2007 -- actually, from 2007 to 2008, it went down 40 percent. And so it stayed --

FREELAND: And it hasn't climbed back up?

STEPHENSON: It stayed at those levels, which I find very positive, obviously. (Laughter.) Just the wear and the tear on the body.

But there's another facet to this. You'll get tired of hearing me talking about this, but this commercial velocity thing. It used to be, if I wanted to get the guy that runs my mobility business out of Atlanta, together and have a discussion on moving pricing or whatever, getting him, his chief marketing officer, my CFO, everybody in the same room at the same time for an intense conversation could take a week to get that scheduled and get everybody in town.

I do that in a couple of hours now. And it just -- what it does to the velocity of your business when you have people, I don't care where they are, whatever location, beginning to get together face-to-face in a very comfortable, conversant experience is a huge affect, not just on energy, but just on the pace of commerce and productivity. I think that's a really important variable.

So we have -- the more we have deployed this technology, the more it's forcing us to deploy it more and more. I don't know how many locations we have around the globe now. I used to keep track of it. And when we passed 75, I stopped counting. But we have them all over the place.

I have them now, you know, it's getting so cheap, so inexpensive that you deploy them in your home, in your home office, all right, and I have them at work.

FREELAND: You have TelePresence in your house?

STEPHENSON: It's a smaller version of it, right? It's not a big screen, it's just on my computer screen. But yeah, absolutely, and it's a very important tool for me.

It's just -- I don't care what you say. The face-to-face interaction, seeing facial expressions, seeing body language, is too important in business and commerce to just, you know, forgo it and do it just by telephone. This is changing the way we do business. It changes the way we govern our business, and it changes the pace of your business.

FREELAND: OK. John Chambers definitely owes you flowers and cupcakes for that great ad for him. (Laughter.)

STEPHENSON: At least.

FREELAND: At least, OK. I am not at all sick of you talking about the velocity of commerce. Do you guys have any internal measures of that? Is there a way that you've quantified it?

STEPHENSON: Our own internal productivity measurements we do. In terms of a global productivity or commercial velocity, it is --

FREELAND: Or with your partners? I mean, is there any way that you can --

STEPHENSON: There probably is. It's a great question. In fact, I'll probably take it and go back and ask this question in terms of measuring the commercial velocity. But you know --

FREELAND: If you get them to write a paper, come back in six months and present it.

STEPHENSON: It's a great idea. Where's Jim?

Jim? Jim? Let's talk about that. (Chuckles.)

FREELAND: A lot of people talk about it, but I haven't come across anyone yet who has really nailed down, is it just something we talk about, you act on in your company, but can you show what the impact is?

STEPHENSON: Yeah. I just -- intuitively, you believe that if you fit more commercial transactions into a minute, that inherently means greater commercial velocity, right? So there's probably a way of measuring that. What I would tell you is --

FREELAND: You could make more dumb decisions.

STEPHENSON: Perhaps. Perhaps. But as a consumer you mean?

FREELAND: Or even a CEO.

STEPHENSON: Oh, I would suggest to you, as a consumer, that does nothing but drive consumer benefits. Right? As you get -- if I can buy a pack of gum at the CVS without having to dish for change or what not, by tapping my cellphone on a screen, my propensity to do business and the cost savings for the vendor, for the supplier go down, that ultimately should accrue to the consumer.

So I think these are all, again, productivity, prosperity, productivity, prosperity. I see those two perfectly interrelated.

FREELAND: OK. We have time for one more question.

Please.

QUESTIONER: Bill Rudin. You talked about your capital investment. What -- can you give us a dollar amount what you're talking about to give people a sense of the scale and scope of your commitment to build out this network?

STEPHENSON: Yeah, you bet. Today -- in fact, over the last three or four years -- we've invested more in the United States than any other publicly traded companies. There are some private companies, we don't have access to their data. But we'll invest this year about $19 billion of capital investment in the United States.

To do the integration of T-Mobile and to build out this fourth-generation network to 95 percent of the U.S., the upfront investment is going to be in the eight-plus-billion-dollar range just to get that investment deployed.

And so that's just, you know, doing the integration of the networks, getting the 4G network deployed and so forth.

So there's going to be a significant amount of investment over a multiple-year period to make this happen. And these are the kind of activities I think we as a country want -- invest in this infrastructure. I mean, we as a country -- I believe this becomes a huge competitive advantage to us as a country if we get pervasively these fourth-generation mobile broadband networks built out.

Whether I can quantify it for you here this morning or not, I think we all intuitively understand that that will drive commercial velocity, greater economic activity and just greater investment. And so these are the kind of initiatives I think we as a country want to be pursuing. I think it creates a competitive advantage that we as a country can leverage for a long time, giving, you know, virtually all of your country access to this technology.

FREELAND: I can't imagine a more encouraging note on which to conclude our conversation or, you know, a better person for us to be talking to about, you know, all of these issues, ranging from democracy in emerging markets, to jobs and productivity in America.

STEPHENSON: Enjoyed visiting with you.

FREELAND: Thank you so much, Mr. Stephenson. It was fascinating.

(Applause.)

Don't go yet. Please, please don't go. I'm just supposed to advertise the next two upcoming events for Richard here, and they are fantastic. Sergei Ivanov, who is the deputy prime minister of the Russian Federation, he's on April 4th. That's pretty exciting. And then further showing that Richard anticipated the Japanese tsunami and how we would be really interested in nuclear events, he's going to have Anne Lauvergeon, who is the CEO of Areva. That is fascinating, right? May 4, pretty hot ticket.

Thank you very much. (Applause.)

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