Jeff McElfresh was born to parents who spent their entire careers at AT&T. He has himself worked 25 years at the US telecoms group that traces its roots back to the telephone pioneer Alexander Graham Bell.

Now chief executive of the company’s telecoms business, McElfresh is a self-confessed “bellhead” — a term used to describe AT&T workers that dates back to a time when the monopoly US telecoms business was the largest and most innovative technology group in the world.

“Whether it is laying out a POTS [plain old-fashioned telephone service] line from station wire, or going into a hurricane to reconnect a generator or antenna, or parachuting in during a fire in parts of the states where we have to deploy a cell site on wheels for firefighters — that’s a bellhead,” he says.

Alongside John Stankey, chief executive since 2020 and another proud bellhead, McElfresh is in charge of navigating yet another new chapter for AT&T after it announced in May it planned to turn its back on Hollywood and split off its media assets.

The unexpected, costly and humiliating U-turn is the fourth time that AT&T has “reinvented” itself in as many decades and returns the company’s strategy to its roots — plain old-fashioned telecoms services. But the dilemma it now faces is that it has fallen far behind its telecoms rivals in 5G during the time that it was dabbling in media.

Line chart of Share prices rebased in $ terms showing AT&T has underperformed its peers

AT&T spent about $170bn since 2015, including taking on new debt, to transform itself into a media conglomerate via the acquisitions of US satellite broadcaster DirecTV and Hollywood studio owner Time Warner. So it is still trying to justify its rapid reversal, having destroyed tens of billions of dollars’ worth of shareholder value.

The decision to unwind the $100bn acquisition of Time Warner — the company behind WarnerBros, HBO and CNN — took many people by surprise, including some inside AT&T. “It was an utter shock for pretty much everyone at the company, everyone in the top ranks of the company,” says a senior AT&T executive who spoke on condition of anonymity.

Stankey, who was promoted to chief executive last year, now finds himself under intense pressure. He was deeply involved in the media investments and shared a $9m bonus with other executives after the completion of the 2018 deal to buy Time Warner. But he has also won some grudging praise for the speed at which he decided to shift away from Hollywood and get back to basics once it was clear the strategy was not working.

An executive at a rival telecoms company says that the longer he kept AT&T in both the media and telecoms worlds, the danger of creating two weak businesses rather than one strong entity was increasing.

“In many ways, Stankey was courageous to acknowledge that there were clear problems between the old and new AT&T,” says one veteran at the company. “Everybody who came from Time Warner hated being part of AT&T, it’s just a fact . . . we were seen as the guys wearing suits and they, the Warner guys, were the cool ones.”

AT&T has invested heavily in expanding its fibre broadband network during its six-year media foray but analysts say it also needed to put more money into the network especially as its rivals Verizon and T-Mobile have been racing ahead in the era of 5G.

McElfresh says it is easy in hindsight. “If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah,” he asks himself with a reference to the film Back to the Future and the fictional technology that allowed time travel. “There’s a reason why the windshield on a car is so big compared to a rear view mirror.”

John Stankey, AT&T chief executive since last year and proud bellhead

The route that has taken AT&T back to its core telecoms business has been a long and tortuous one. In its monopoly days, “Ma Bell” as AT&T was known colloquially, created some of the most significant technologies that underpinned the evolution of communications including radar, the transistor, digital hearing aids and the telephone itself.

It was arguably the most influential telecoms company ever and, according to Brian Cheffins, an author of a book on the history of public companies, the “bluest of blue-chips”.

The business was broken up in 1984 when seven so-called “Baby Bells”, or regional telephone companies, were split off from AT&T, ushering in a new age of competition. After struggling to adapt AT&T’s subsequent buying spree set a precedent for the company’s strategy over the next four decades, characterised by one veteran banker as a “trail of carnage”.

Bob Allen was the chief executive who embarked on a series of deals culminating in the takeover of computer maker NCR Corp for $7.4bn in 1991, the biggest deal in the history of computing at the time. The acquisition resulted in losses of around $6bn, including write-offs, and AT&T was forced to reinvent itself five years later when it split into three new companies.

Michael Armstrong, an aerospace specialist who was instrumental in launching DirecTV, was drafted in as chief executive of the slimmed down telecoms company in 1997.

AT&T simplifies its core mix, New ebitda* mix and pre-asset sales/spin-off ebitda mix

His vision was to transform the long-distance telecoms company into a cable giant. AT&T spent more than $100bn on companies, including TCI, controlled by billionaire John Malone, to bring telephony, pay TV and internet access under one roof. It was the right strategy but spiralling costs meant it backfired. In 2004 Armstrong spun out the cable assets into a new joint venture company with Comcast, which went on to become the world’s largest broadband provider.

By 2005, a denuded AT&T was bought for $16bn by SBC Communications, one of the Baby Bells. The child of the 1980s telecoms split took its former parent’s name and inherited some of its dealmaking habits under the stewardship of Randall Stephenson, the Oklahoman son of a cattle farmer.

Dubbed the “deal junkie” by bankers, Stephenson’s biggest gamble turned out to be a plan to acquire the then struggling US wireless network T-Mobile in 2011 for $39bn. Regulators blocked the move on competition grounds and AT&T was forced to hand over a $4bn break-fee plus spectrum — the valuable airwaves that carry mobile phone signals. Those airwaves helped transform T-Mobile over the next decade into a wireless growth engine that drove down prices and took huge amounts of market share off its larger rivals.

American Telephone & Telegraph Co’s 98th and last annual meeting. It was founded in 1885 to build a network in New York

A rebuffed Stephenson cast an eye toward Europe where Vodafone, Telefónica and the UK network O2 were considered targets. But instead he opted to buy DirecTV for $67bn in 2015, including debt. AT&T made clear its ambitions with the subsequent Time Warner acquisition for $100bn, a deal that closed in 2018 after a two-year battle with the Department of Justice to get the acquisition cleared. That took AT&T into direct competition with global content players Netflix, Amazon Prime and Disney on top of its traditional local telecoms foes.

When he was named chief executive, Stankey, who worked alongside Stephenson during the acquisition spree, had to deal with net debt that had soared to $180bn on the back of the deals. It then spent another $23bn on spectrum in February. He started to explore options for the media business that ultimately led it to another reinvention: the spinning off of DirecTV and merger of Time Warner’s assets with Discovery. The latter deal, struck in May, will split WarnerMedia into a new media company run by Discovery’s management and majority owned by AT&T’s shareholders.

One banker says that AT&T’s series of botched deals have primarily benefited those that have picked up the pieces: Nokia in telecoms equipment, Comcast in cable, T-Mobile in wireless and now, potentially, the Malone-backed Discovery in media. “They need to stop building empires [for other people],” he says.

Jeff McElfresh: ‘If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah’

AT&T’s attempt to crack the media market is just the latest example of a telecoms company trying to use its giant cash reserves to expand into content, sports broadcasting or advertising. Few have succeeded and most, like Verizon and Vodafone, have struck deals with media companies like Disney or Spotify to bundle the content into their broadband and 5G packages rather than taking control of producing the content.

Taking on Netflix and Disney requires an “all in” mentality due to the amount of money that needs to be spent, says Jimmy Maymann, a former AOL and Huffington Post executive who sits on the board of Swedish telecoms and media company Telia. “If you are not willing to play in the content arms race then you can’t win,” he says, something AT&T struggled to do due to its debt and the cost of running its telecoms network.

For months, AT&T toyed with the idea of selling or spinning off CNN, while some HBO executives were also hoping to be sold or split from the mothership. Stankey, however, viewed its HBO Max streaming platform — home to hit shows including Succession and Mare of Easttown — as a key tenet of AT&T’s vision to be the world’s largest integrated content and distribution company.

The reversal has left AT&T fighting a rearguard action against accusations it has destroyed tens of billions of dollars in shareholder value, mostly at DirecTV, and distracted itself at a crucial time in the evolution towards 5G and fibre.

McElfresh insists that the combination benefited both sides of the business, with HBO Max given a strong start by the distribution power of AT&T’s telecoms business and sales of its fibre and 5G packages bolstered as the premium content was bundled in. What was missing was the “reward” for shareholders. AT&T’s market value has been treading water while those of pure play media companies like Disney and Netflix soared. That disparity forced the issue.

Stankey had viewed AT&T’s HBO Max streaming platform — home to hit shows including ‘Mare of Easttown’ — as a key tenet of its vision to be the world’s largest integrated content and distribution company

Barry Diller, the media billionaire, described the split of AT&T and what will be called Warner Bros Discovery as “the great escape” for both sides of the business. More telling was his view, in an interview with CNBC, that after so many missteps, “Ma Bell should have been dead and buried by now”.

That is a media industry view, shared by some M&A bankers, but AT&T remains a huge, cash-generating business with 186m wireless subscribers, including smart gadgets, and 14m broadband customers across the US.

“Walking away from content was the right call,” says the veteran executive. “What we do next is very unclear. Being just a wireless and broadband company isn’t very exciting and the competition has [become] significantly harder.”

According to McElfresh, the target is to expand its fibre network to 30m homes by 2025 and to go “full throttle” in 5G. AT&T plans to spend $24bn in 2023 — around 20 per cent of its revenue — on its network, which would make it the single largest infrastructure investor in the US.

AT&T workers install fibre optic lines for a mobile phone tower station in LA’s Chinatown neighbourhood last year

The company, like its US and European peers, has gone back to the future by returning its network to the centre of its strategy while also cutting its dividend. Some point to Verizon’s decision to wash its hands of its own ill-advised media acquisitions. Since the start of the year, it has sold the rump of the AOL and Yahoo assets it owned in order to target supremacy in 5G.

AT&T is no longer in pole position. Spinning out WarnerMedia equity could value the core “new” AT&T at about $130bn. That compares with Verizon at $232bn, Comcast at $262bn and T-Mobile at $175bn.

McElfresh, who was promoted to run the then struggling telecoms business in 2019, has presided over two of the best quarters for wireless subscription additions in a decade over the past 12 months. But he admits the company “has nothing to brag about”, having fallen behind Verizon and T-Mobile in the wireless market.

“We don’t like being number three in a three horse race,” he says, pointing to the company’s heritage and innovative past — as any true bellhead would.