Kathryn Morrissey, AT&T: Wholesaling past and present

10 May 2012 | Kavit Majithia


From junior high school teacher to head of one of the largest wholesale divisions in telecoms, Kathryn Morrissey has seen it all. Here, the EVP of wholesale at AT&T gives Kavit Majithia a lesson in how to survive a very public break-up.

     
    Kathryn Morrissey, EVP of wholesale, AT&T

“I start every morning by talking to a reporter,” jokes Kathryn Morrissey, EVP of wholesale at AT&T, the world’s largest telecoms company by revenue.

It’s a very long way from Morrissey’s former life, teaching English and History to elementary school children and yet, one suspects, her experiences in the classroom have probably served her well in her dealings with an often recalcitrant press pack these past  few months.

For AT&T, the company Morrissey has served for more than a quarter of a century, has scarcely been out of the headlines since taking a $39 billion tilt at T-Mobile in May 2011.

Rumours, accusations and even threats have come thick and fast and from all angles - the government, the FCC, consumer watchdogs, not to mention rivals, have all levelled criticisms at the telco. And all in the pages of America’s probing business press.

As you might expect, Morrissey has polished her responses when talking about that bid. She approaches the subject with equal measures of caution and diplomacy.

But one thing becomes clear as she expands on the challenges facing the company going forward: the bruising events of the past eight months have left AT&T’s leaders more determined than ever to meet those challenges head on: “We won’t talk about target companies publically, but I assure you there is a separate group working to address spectrum, to address the failed T-Mobile bid,” says Morrissey.

The continued restrictions on US wireless spectrum certainly haunt the company’s every move today: “The whole purpose of the deal with T-Mobile was to secure spectrum that we needed, and that remains the single most important issue we continue to work on now,” says Morrissey.

“It’s time congress and the FCC addressed how to make spectrum available in the market by putting on a fair and open auction,” she adds.

The immediate legacy of the bid’s collapse is a whopping $4 billion break-up fee. The fee, equivalent to just over 10% of the proposed purchase price, ranks among the largest penalties a company has ever had to pay for tearing up a marriage proposal, prompting fears that it may force the company to reign in investment plans. Nevertheless, Morrissey and AT&T retain the defiant message that aggressive network investment of this kind is a requisite of growing market demand.

“Making an investment of $95 billion in capital expenditure in five years is no mean feat, but we have had to do this to keep up with bandwidth requirements growing at over 2000%.”

$39 billion and 32 years

When Morrissey first took her place in the world of wholesale, the idea that a business in the sector might be worth $39 billion was unimaginable. “Back then, there was no wireless business, it was heavily voice and it was heavily domestic – there were near to none international trends or global contractual agreements,” she says. “I am actually immensely proud of how this segment has grown.”

Her ascension up the ranks of AT&T is far from conventional. Morrissey began her career in a profession completely removed from telecoms, engineering or indeed even business. She devoted her degree to teaching English and History to gifted children for over 10 years, before going back to school to study international marketing. “I don’t really know what the impetus behind my decision was, but I felt I should go back to school and see if I understood business.”

Having held numerous early positions at AT&T, Morrissey was quick to recognise that “wholesale had growth potential”. She was perhaps one of the few - back then, the company only had one advanced network connection product, serving as a voice platform and Morrissey’s first charge was to customise the voice platform and make it wholesale.

“In the mid-1990s it used to take us almost a year to pass a billion minutes through the network. Now we surpass this every couple of days.”

The mobile era

While Morrissey has seen it all, the transition from a rather static wholesale environment to cope with the trend towards mobility was, in her opinion, the biggest evolution in her three decades at the company. “It created a new world for us, and it meant wholesale customers were no longer content with being lumped together, it was about originality, it was about system integration and tailoring offerings to suit requirements.”

Mobility meant wholesale finally had the chance to adapt its networks. It was now no longer purely domestic, nor was it a transactional product selling voice solutions. Morrissey had to restructure her team and its wholesale solutions to wireless carriers preparing for mobilisation. This included providing relevant backhaul, supplying TDM support, developing Ethernet-as-a-service and perhaps most importantly, addressing an emerging trend towards globalisation.

As such services have come to fruition, does Morrissey fear a threat to margins and growth from the proliferation of smartphone and tablet devices as well as the growing value of the OTT player?

“Demand for wholesale services will not change with proliferation of next-generation devices,” says Morrissey defiantly. “Wireless customers still need network performance, reach, speed and capacity. The trend, particularly in enterprise, is towards securing relevant bandwidth to cope with increasing demand, not only to address traditional traffic, but also the proliferation of machine-to-machine which will have a huge impact on the wholesale data business.”

Your move, AT&T

The US telecoms market has been nothing short of a minefield this year, but while AT&T’s problems have been widely reported, Verizon, its biggest competitor, has tried to quietly go about its business.

The company took a different tack to AT&T in its bid to secure much sought after spectrum, and turned its attentions
to the lucrative cable market, making a $3.6 billion investment in 122 wireless spectrum licences from SpectrumCo (a joint venture owned by Comcast, Time Warner and Brighthouse networks).

Market watchers have since suggested that this move was an indirect call to arms by the largest US wireless provider, in effect, inviting AT&T to dip its toe into satellite spectrum and thereby establish which vertical will prevail.

“We are waiting to see what Verizon and the cable companies will launch in terms of services,” she says, implying that AT&T will not act until they know how successful Verizon has been through cable.

Morrissey is, however, more forthcoming about the strategies of companies such as LightSquared and Clearwire, which openly set out to compete directly with the wireless wholesale divisions of larger telcos like AT&T by bidding to create tailored wireless spectrum offerings.

While Clearwire seems to have found some room to manoeuvre in a clearly volatile market with the support of Sprint, LightSquared has increasingly found itself heading towards bankruptcy.

Investing for the future

While Morrissey stresses that she is simply an outsider looking in, her industry experience inevitably shines through: “The importance of understanding that wireless is entirely capital intensive should not be underestimated,” she says.

“If you look at AT&T, we have spent between $18 and $20 billion in building out wireless and wireline infrastructure, and I don’t think these companies have figured out a business model that works for them. I know they have tried wholesale models, but they need to figure out that it needs continuous reinvestment.”

Morrissey may have given up teaching long ago, but more than a few wholesale competitors could do worse than learn a few tips from an established master.



AT&T



History: Today’s AT&T was formed following the divestment of the original AT&T’s local telephone operations in 1984. From this arrangement SBC Communications (Southwestern Bell Corp) was born.

Twelve years later, and as a result of the US Telecommunications Act of 1996, SBC was able to establish itself as a global communications provider by acquiring Pacific Telesis Group in 1997, Southern New England Telecommunications in 1998 and Ameritech Corp in 1999. Finally in 2005, SBC Communications acquired AT&T Corp creating AT&T.

Further acquisitions of BellSouth in 2006 and the consolidated ownership of Cingular Wireless and YP.com expanded AT&T’s operations further.

EVP of wholesale: Kathryn Morrissey

Revenue: AT&T had an operating revenue of $126,723 million in 2011.

Customers: AT&T serves millions of multinational and business corporations on six continents and provides wholesale services to carriers, wireless service providers, cable providers, systems integrators, internet service providers
and content providers.

Networks: The AT&T network includes extensive wireless and wired access capabilities, as well as one of the world’s most advanced IP backbones.

The AT&T global backbone network carries 28.9 petabytes of data traffic on an average business day and offers MPLS-based services available to 182 countries over 3,800 service nodes, 38 internet data centres across the globe and more than 916,000 worldwide fibre route miles.

AT&T’s US wired network includes 43.6 million access lines and 16.5 million broadband connections.