Repost of author’s article as written in Chief Executive magazine | August 18, 2015
by William J Holstein
AT&T’s purchase of DirecTV could transform the entire phone and television industries, and serves as a lesson in digital transformation for all CEOs to watch and learn from.
Usually when the CEOs of large incumbent companies launch mergers or acquisitions, their strategy is to combine two companies and strip out costs, and thereby make themselves look like profit-making heroes. Or else they are trying to consolidate to gain in size and negotiating power against other players. That’s what is happening in the hospital and insurance industries today.But every once in a while, a CEO makes a strategic acquisition that transforms what many people might consider a “mature” industry. It’s increasingly clear with each day that passes that AT&T Chairman and CEO Randall Stephenson has achieved just that by acquiring DirecTV in a transaction that closed roughly one month ago. AT&T has never been known as a particularly innovative company either in the days when it was the Ma Bell monopoly or when it reconstituted itself by sweeping up fragmented regional telephone companies.Thanks in large part to the DirecTV deal, however, AT&T is now going to disrupt the whole field. It owns wireless Internet assets, meaning its wireless phones and wireless service to homes, plus its land lines of course, plus DirecTV, which is a satellite-based content provider and a major competitor to traditional cable TV companies. So AT&T now owns key distribution assets as well as the ability to create content. Neither Verizon, T-Mobile nor Sprint have that capability. And cable TV companies don’t own the pipes either—they depend on someone like AT&T to distribute their content.At the same time, Stephenson is presiding over a major expansion of AT&T’s core networks and says that video now accounts for 50 percent of all the traffic going over and through its system. It’s easy to see that if more customers start pulling out their cable lines and resorting to television and entertainment over the Internet, AT&T will be better positioned than any of its competitors in either the traditional telecommunication industry or in cable.In the short term, AT&T can now offer bundles of services to customers that no one else can at prices that others will find hard to beat. It’s offering a $500 credit, for example, to DirecTV customers who are not already AT&T Wireless customers. It can package four televisions and four smart phones for a family for $200 a month.In the longer term, AT&T is going to be giving everyone a run for their money. And the DirecTV acquisition played a key role in making that happen. The message to CEOs: don’t do acquisitions just for the sake of pumping up earnings. Do it to transform.
