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Last Updated: April 30, 2008: 10:51 AM EDT
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AT&T's new operator

His predecessor built the world's largest telco. Now CEO Randall Stephenson is trying to reinvent it. Can he make Ma Bell sexy?

By Paul Sloan, senior writer

Early adopter: Stephenson likes new gadgets, especially the iPhone, which has helped boost AT&T's sales - and its cool quotient.
New frontier: Longtime employee Cathy Coughlin has a key role - updating AT&T's image.

(Fortune) -- Randall Stephenson, towering and rail-thin, expertly works the crowd, shaking hands and slapping backs as he strolls through the AT&T auditorium at a sprawling office park in Bedminster, N.J. A throng of people crane their necks and press toward him as he makes his way to the stage; every seat in the theater is filled, and folks are standing in the back. Some 17,000 people across the world are watching his speech via the Web.

Stephenson, 48, is an accountant by training and a tech nerd by choice. (He's the kind of guy who enjoys discussing the fine points of moving terabytes of data.) "Charismatic" is not the word friends use to describe him. Yet in this group of networking engineers, corporate sales executives, and finance managers, he might as well be Steve Jobs or Bill Clinton.

While Stephenson's name may not be as instantly recognizable as those other fellows', the company he runs certainly is: AT&T is now No. 10 on the Fortune 500, and it is as ubiquitous as ever. One in three Americans uses a cellphone that runs over AT&T's wireless network, 31 million homes rely on the company for phone service, and every company on the Fortune 500 list uses AT&T for data and phone connections.

Indeed, today's AT&T - a $119 billion revenue amalgamation of four former Bell operating companies, a huge wireless business, and a national data network - is much bigger than the old Ma Bell monopoly that split up in 1984. (Before it divested its local phone companies, AT&T had inflation-adjusted revenue of about $69 billion.) It employs 309,000 people worldwide, hundreds of whom gathered earlier this year to hear their CEO explain his plans for the behemoth.

The optimists in the room were not disappointed. If Stephenson has his way, AT&T is about to become even bigger and arguably more influential in its customers' lives. Today, it seems, the businesses that grew out of old-line telephone companies - AT&T, archrival Verizon (VZ, Fortune 500), and international carriers such as BT - all are at the center of our digital lives.

Seamless access

AT&T has started deploying television services, mostly to compete with cable-TV companies that now offer phone calling; it already sells broadband connections and, of course, wireless services. Stephenson's goal is to tie all those services together using Internet technology, allowing consumers to access their content seamlessly, from work files to home movies, through any device, anywhere they happen to be.

It's been almost a year since Stephenson took over San Antonio--based AT&T from Ed Whitacre Jr., who was known simply as "the Chairman." A by-the-gut leader who kept even those closest to him guessing, Whitacre stepped down in typically enigmatic fashion. When he announced his retirement at the company's annual meeting in April 2007, he told almost no one what he intended to do until an hour before he took the podium.

In doing so, he ended one of telecom's most enduring reigns, during which he built SBC, the smallest of the Bells divested by AT&T, into the world's largest phone company through a series of increasingly ambitious acquisitions. His most spectacular deal: SBC's 2005 purchase of former parent AT&T.

Stephenson, for now, doesn't seem to have any big purchases in his sights, not that there are many phone properties in the U.S. left to gobble up. (Verizon, No. 17 on the Fortune 500, has bought up most of the other prime telecom assets.) Instead he'll have to find ways to grow AT&T (ATT) organically, no easy feat for a mature company of its size. Put another way, to add just 6% in revenue this year - and that's roughly what Stephenson is promising investors - the company will need $7 billion in new sales, essentially the equivalent of a Yahoo (YHOO, Fortune 500) (No. 353 on the Fortune 500) or a Whole Foods (WFMI, Fortune 500) (No. 369).

Meanwhile, what was once AT&T's main business, local phone service, is shrinking as cable operators continue to grab customers and people ditch landlines altogether. Investors, worried about the economy and a ruinous wireless price war among AT&T, Verizon, and Sprint, have kept the stock down all year. Then there's the specter of Google, which has dabbled in telecom networks and is now spearheading technology that threatens to disrupt AT&T's wildly profitable wireless business.

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
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