Q: How will AT&T change over the next five years as it relates to this reality?
A: We will always be an aggressive competitor for the smartphone marketplace because the connected world will come together at the level of the smartphone or the tablet. The home once served as the hub for content. In the next two years it will become just one connection among many.
From a business perspective, information about one’s customers will come from sensors via cloud technology and Big Data. We have tools now that allow any company to develop insights and analytics we could not have conceived of five years ago.
I’ll give you an example for what this means for us. We’re accumulating massive amounts of data on how our network is performing. That data is now being aggregated in the cloud. Big Data tools are being used and our network is constantly tuning itself without human intervention.
Q: What do you mean by tuning itself?
A: You can’t see it from this office, but up here there are antennas that can adjust to follow traffic or people down there in this courtyard below us. So if there’s a big event, say, a major parade here in downtown Dallas, the antenna can be adjusted for better performance on your network. Self-optimizing antennas or networks can adjust to maximize information and data. We think it’s pretty radical in terms of how a company like ours is run.
Think about the billboard-advertising business. By virtue of connected devices, billboard companies and billboard marketing agencies can know not only how many people are passing by that billboard at a particular time of day, they can know the demographics of the people passing by that billboard. Assuming people are willing to give permission to the billboard company, they can determine who went to the place advertised on the billboard.
The biggest change will likely come in healthcare. The idea that people go to a doctor for an annual check-up will be superseded in a world with biometric sensors where real-time data about your body—heart rate, sugar levels, everything that you might want to know about your health—is now available. This will radically change how a doctor administers medicine. We are working with MD Anderson and IBM using artificial intelligence and connected devices to see how medical care can be advanced.
Q: Given what you’ve said and the fact that much of the technology you’ve invested in is software AT&T seems closer to companies like Google, Amazon and Netflix than to traditional phone companies. Describe your new competitive set.
A: You just did. Our traditional competitors, Verizon and Comcast, will be our competitors for a long time. Google is building fiber into networks, so they’re a direct competitor there. Google is also working to build connectivity and leverage their data centers. They’re working to use advertising-supported models to displace what we call subscription models. Amazon is, obviously, in the video business and so are we.
As we branch out and do more it brings new competitors. Netflix is a major competitor of ours, but they’re also a major driver of bandwidth, which is a good thing for us. The competitive environment just keeps getting more and more complex.
Q: How far along are you in your conversion to a so-called software-defined network that replaces hardware with software? How will this effort reduce your costs?
A: lot of people get confused about what software-defined networks means. Think about what the cloud did. It stored computer data in a data center that was formerly very expensive to store. The cloud virtualized the hardware by using software. The cost in a data center to store and manipulate all this data has plummeted. Software-defined networking takes this technology and moves it into our network. Our network is doing what the data center did, allowing up to 60% greater efficiency in some places.
Yes, it drives cost down. But more importantly it revitalizes the innovation cycle, allowing us to bring new products to market faster. New products like Net-Bond are developed in months, not years. We have a capability called Network on Demand that allows business customers connected to our network to automatically turn bandwidth up and down as needed, giving the customer the flexibility to manage cost as well as to manage their networks.
Q: You’ve spent $140 billion over five years—in wireless, wireline, networking, software on demand. How long can you keep this up?
A: Industry analysts always ask me what our capital spend is going to be—basically a different version of the question you just asked. I tell them if you want to be a serious competitor in this industry, you better get ready because it requires an incredible amount of capital investment and it’s really not very complicated. Take revenues times 15% or 16% and drag it as far out as you want and that’s what you’re going to spend.