Leading with Balance in a High-Speed World

Speaker Name: F. Duane Ackerman
Speaker Title: Chairman and CEO
Speaker Company: BellSouth Corporation
BellSouth Corporation Website

Good afternoon.

F. Duane AckermanDr. Schoenfeldt, Chancellor Peacock, and Senator Broyhill, thank you very much for that kind introduction. I’d also like to extend my thanks to the students that are here today, and I hope that we’re able to enjoy some give and take. One of the most pleasurable things that I do, from time to time, is to step back on a college campus and be able to engage with students and to talk about not only what’s going on today but a little bit about what’s going on tomorrow.

I’m often reminded of my time at Rollins College, as Dr. Schoenfeldt mentioned. He was probably kinder than he should have been. I went to Rollins College on a tennis scholarship, but I liked math and science so I wanted to major in the sciences. I ultimately picked physics as my major, but what I had forgotten about was that in order to obtain my degree in physics I also had to take two years of German and a year of scientific German. And so towards the latter part of my time at Rollins, I was in the process of translating the heat theory from German to English, which I submitted to my professor, and he said to me, “Herr Ackerman, I hope your tennis is better than your German.” Thank goodness it was.

I did some thinking about Appalachian and a little bit of research and found some very interesting things that I’m sure you are proud of. Obviously, one is being ranked among the best buys in the top universities. I noticed in one publication you were ranked 30th in the country in terms of the “best buy.” And you were ranked 15th as it relates to being in the top schools in the South. Extraordinary credentials as it relates to the scores and the graduation rates and what happens in the business school.

I was also very impressed by your Holland Fellows Program. And I certainly would like to add my welcome to those attending today from Fudan University. Yesterday, just by coincidence, I had the privilege of hosting a delegation from China Telecom at BellSouth, and we spent a lot of time talking about what was going on in China as it relates to Telecom, and they’re growing rather rapidly. Their governance is, as you might imagine, a great deal different than governance as we think of in the United States. But what I noticed was that their old land line telephone company, as it is referred to sometimes in the U.S., grew a BellSouth last year. When you think of China and its growth, you certainly have to put it in very different terms. So congratulations to Appalachian State on your accomplishments.

This slide is a good learning map that we used to communicate with our employees as we tried to explain the tremendous change that was taking place in this industry. We would go back to a time before the 1990s when there was simply one wire into the house. It was a copper wire and, primarily, that’s where communications actually were flowing. For the most part, across the country, most communications were using this particular media.

One of the things that has happened over the last few years is a tremendous shift. A portion of this shifting has been in the wireless environment, as we have more and more customers who’ve shifted from wireline to wireless. We also have many who are using both, and also a world in which the use of broadband is increasing rapidly. It started with the business market, but it is now going into the consumer or mass market. What you have as you get into that kind of environment are cable companies with broadband facilities into the home that want to provide voice, data, video, and other applications. You also have telephone companies wanting access to the home so that they can provide voice, data, telecommunications, and other applications. And there’s a lot of work on the drawing boards today for the power companies because there is a belief that the technology will work at some point in the future so that they can also deliver a broadband into the home and also into the business market.

All this brings some tremendous changes in this industry when it happens because as soon as you get a broadband client into a facility and you begin to get devices on the edge of this network that are IP-based, then everything else starts to become an application. And voice becomes an application just like SAP or any other application that runs on these networks, and that creates an entirely different dynamic. As you get into that environment you have facility-based players which is cable, which is telecom, which is power, but you also have the software players who get involved. It’s the Vonages of the world, it’s the Skypes of the world and the other players who are providing the applications that run on these facilities. You also have not just one wireless provider, but you have four or five wireless providers in almost every market. You have broadband wireless providers who are now also beginning to get involved in this marketplace. You have satellite providers and players who begin to get involved in this marketplace, and all of a sudden in a very short period of time it looks nothing like the world used to look.

There’s a little story that goes with this environment that I saw in a New York Times magazine article. It talked about a young man who kissed his mom and dad goodbye and went off to college. As soon as he got there he plugged in his TiVo so he could time shift all his video and watch what he wanted to watch when he wanted to watch it. He hooked up to the campus wireless LAN, and he was ready to go with his laptop. He fired off an e-mail to his mom. He said, “Mom, I’m very proud of you, I’m glad you didn’t cry when I left, but I noticed that you said to not forget to write and call. Well, I want you to know that nobody does that anymore.” He went on to say “my preferred method of communication is instant messaging. Obviously we both have to be at the computer at the same time, but given the size of my room, that’s not a problem. If I happen to be on campus somewhere else, you can text me over the cell phone. Yes, Mom, text is now a verb and as you text me we will have to learn a new language because you’ve got to be able to say everything you want to say in 164 characters, but that works. And so, we’ll be able to get this fine. Now in the event you don’t like instant messaging, then perhaps you can use Skype. What is Skype? Well, Skype is just like instant messaging only it’s with voice instead of data and, by the way, it’s also provided by the Big Three. And the question is who are the Big Three – well it’s AOL and it’s Yahoo and it’s Microsoft and, by the way, that’s free.”

And then the discussion goes on about how you can use video messaging. It was just a continued dialogue – this story went on for three, four, five pages. It was very clear at the end that there hadn’t been one mention of a telephone call. I think it’s the dynamic of what’s taking place today in this very short period of time that begins to lay the background for all the change that’s taking place in the telecommunications network. Two fundamental things lie at the base of almost all of this, and one of them is that the world is shifting from wireline to wireless. It’s a reasonably gradual shift. Today we have more minutes flowing over the wireless network than we have flowing over the wireline network. Globally there are almost 2 billion wireless handsets that are connected to the network. This is a phenomenon that has grown very rapidly and in the territory that we serve, on average about 10 percent of our customers are wireless-only households today. And that is a very fundamental phenomenon that’s taking place.

The other one is the fundamental shift from a narrowband world to a broadband world. You might say “What does that mean?” In the old days that little house that just had that pair of copper wires – that was a narrowband connection. It’s almost like comparing a narrow pipe to a big pipe. You can only shove so much through that little one, and that’s true for information. It’s very hard to shove video across that pair of copper wires, just stand-alone like it was. By the same token, if you go to a connection like the one that comes to your house through a cable, the kind of connection that you get from your communication company that happens to be fiber – that is a broadband connection. And it enables you not only to put voice across it but to put data across it and to put video across it. Full motion video, movies, whatever the capacity of that particular facility, will take place.

Well, the bus has left the station. We are leaving the narrowband world, and we are in the process of moving to a broadband world. One of the things that we have to keep in mind as we manage these communications companies, is that this is where the world is going. We have to manage the business in a way that we are able to get there and also look out for our shareholders along the way. If you back away and you look at this from a national perspective and if you put ’03 and ’04 sort of in these actuals, and if you look at the current forecast on the compounded annual growth rate of the various segments of the communications business, it really tells us the same thing – which is that it’s going to be relatively slow growth as a total business – 1.8 percent.

Wireless is traveling at a different rate and broadband data, much of this being DSL, is traveling at a significantly greater rate, and wireline voice actually is on the decrease. That’s not necessarily because there are less minutes in total but it’s because a combination of slower growth in minutes and the pressure on price has continued to push that down. But that is telling us almost the same thing – that the fundamental driver, the place that this business is going to be, is going to be wireless and it is going to be broadband. I’d like to tell you just a little bit about our company. BellSouth today is a Fortune 100 company. We’re about number 80, but that varies day-to-day depending on what happens and who buys who. We currently have about 63,000 employees, serve almost 14 million households, and have 2.1 million DSL subscribers. The DSL business started in ’98 and ’99 and has gone from 0 to 2 million customers. That represents about a $1 billion revenue strand and it’s been growing since ’98.

BellSouth today has about 6.1 million long distance customers. When AT&T split up in the divestiture in 1984, the regional Bell companies were not in the long distance business. And it took a long time to get back in there. BellSouth actually began in earnest in the long distance business in 2001, and we went from 0 to 6 million customers now through 2004. That too represents about a $1 billion revenue strain. It is very interesting because if you look at the access lines that we’ve lost in the world, it was about $2 billion. So the revenues in total have stayed reasonably flat, primarily because we have been able to generate new business in the new technology while we were managing the old technology down. Just to try to size BellSouth and what it looks like, our revenue in 2004 was around $27 or $28 billion. That includes the new Cingular which includes AWE Wireless in the 4th quarter – one million fiber-to-curb customers.

This is an environment where you hear and read a lot about placing fiber in the network. BellSouth has been quietly doing just that for a number of years. All of this fiber doesn’t have the kind of electronics on it that we’d like; the fact is that we do have an imbedded base of about a million. Because we’re in in-migration territory, we add another 100,000 to 200,000 each year and that will be done in fiber. But it leaves us with what we call the imbedded base – the neighborhoods that have already been established. What are we going to do there? We tried to go in and retrofit 200,000 of those homes with fiber, and we learned some interesting lessons. We learned that there were fences, there were sprinkler systems, there was landscaping, there were sidewalks, there were roads, there were lots of things that upset people when you go in and dig them up.

We’ve decided that one of best things we can do in the near term is to use electronics – to use technology – in order to increase the bandwidth with a throughput of that copper wire. That’s the 2 million DSL customers we talk about. Those are customers mostly working off of copper wire where we have put electronics on each end of that wire and instead of pushing through 64 kilobits, we’re now talking about a megabit, or a megabit and a half, and we believe we can see six. We’ve got twelve running in the labs, and if you bond pairs out here somewhere in the future, which means putting two pairs on the last mile instead of one, we think 24 megabits is a possible thing. Let me call your attention to the little notation at the bottom of the slide – it says 12/31/04. I thought you might be interested into why that is. That’s a very important point. As I was going through the SEC press releases last week, I noticed they had fined a CEO $50,000 personally because he had restated guidance that had been stated almost a quarter ago but he didn’t say it was as of that date. So I want everybody to know this is information as of 12/31/04, and that’s important.

An environment that’s changing as rapidly as the one that we’re talking about is not just a problem for the managers who are trying to manage the high fixed-cost business, but it’s also a challenge for the regulators. I want you to know that the North Carolina Utilities Commission has done an extraordinary job trying to keep up and, in fact, leading in this area around the country. And I think JoAnne Sanford, Chair of the Commission, is here with us today. Joanne is becoming known more and more across this country as a progressive leader in this environment, primarily because she has done her homework, she understands the issues, and she’s trying to create a level playing ground to enhance and continue to increase the competition that’s going on here. So I think that everyone is working hard to understand this environment, but it’s not just the companies, it’s also the regulators.

So what has BellSouth been trying to do while all of this activity is going on? In the last few years we’ve been trying to readjust our portfolio because we want to be sure that we shift our resources to where the opportunities to grow actually will be. And if you look at this pie chart, it tells you the approximate representation, from a revenue point of view, of our primary business segments. It says that, now, given our pro rata ownership of Cingular, about 40 percent of our business, or about 40 percent of the revenue of BellSouth Corporation, is exposed to wireless. And wireless, as you remember from a growth point of view, is one of the areas that is growing. It is growing more rapidly than the industry as a whole. So we have worked very hard to increase our exposure to wireless. If you look at long distance wireline and data, and that’s really part of local wireline service also, but the difference is that the long distance wireline and data, which is DSL and which is increasing the throughput on those copper wires, is also growing.

If you look at the little yellow slice that says A&P, that’s an interesting part of our business. It’s about 6 or 7 percent of our business, but it’s a low capital intensive business. It has high margins and it is a good business that is now growing again. For three years prior to 2004, this business did not grow, but it has now turned around. And then we’ve got local wireline voice which is the rest of the story. It’s the part that is experiencing the heaviest competitive threats from the outside. We’re doing a lot of things there. I mean that just says you get up and go to work in the morning and decide you’ve got to do battle. Nonetheless, it’s the part of the business that tends not to grow so fast. So when you think about it, we now have moved our portfolio to where about 65 percent of it is growing; but the bad news is that about 35 percent is not growing, and that’s where we will continue to focus. As the environment changes, it brings me to something about leadership, because part of this story is telecommunications, part of this story is every business or every part of the public sector that technology touches. Almost everywhere you look you’re seeing dramatic and rapid change. That’s not necessarily a bad thing – it’s just something that has to be managed. But it says that there’s a premium on adapting.

I’m reminded of a book by Bill Bryson called A Short History of Nearly Everything. In it he talks about life on earth which is approximated to be about 3.8 billion years. What’s interesting about that fact is that 99 percent of the species that have been on this planet are now gone. When you think about the planet Earth, you think about how nurturing it is to new life. When you think about the water, and the sunshine, and the climate, and the oxygen, and the elements – all those things nurture new life. But it is extremely harsh on those species that fail to adapt.

When you young people look into this future about the world that you’re going to be engaged in and managing, whether you’re in the public sector or in the private sector, this is an item, I think, that needs to stay on the front load all the time. And that is, are we adapting? Are we adapting fast enough? I was talking to Robert Nardelli the other day at Home Depot, and he has a little theory that came from General Electric that says, “If the rate of change outside your business is greater than the rate of change inside your business, you’re backing up.” That makes a lot of sense, and it’s a part of this adapting curve. It says you can’t sit around or stand around and wait to react. You’re going to have to constantly reach out and seek change because of the pace that things are moving. You can look at the global economy or the global marketplace that we’re talking about. You can look at the changes that are taking place in labor and in skill bases. You can look at some of the issues in education. You can look at the exploding changes in technology. It says that we’re in a period of very rapid movement and it’s going to be incredibly important that we keep the need to change on our front load.

The Fortune 500 came out in 1955 and you might ask the question, “How many of those original 500 companies are still on the Fortune 500 list?” I’m sure that some of you probably know the answer to that, but for those who don’t, it’s about 71. And of the top 20, there are only seven left. So now think about what happens in an environment where the species fail to adapt. Look at the life cycle of a company. The life cycle – if this is any gauge – on average is probably less than the life cycle of a human being. Those are not gloom and doom statistics, they’re just facts, theories, or hypotheses that say when you get up in the morning you better start running because things are changing and things are moving. What do we need to do in order to engage the new world?

I’m at a point in my career where I’m starting to spend a lot of time looking at leadership. And we look at leadership through several different layers in the company. I thought about “what are the things that are important and that we have learned?” I’ve got two lists here and I think the first list applies whether it’s public sector or private sector or whatever it is that you might be engaged in. You probably would find this first list on a number of human resources slates. We’re talking about basic IQ, judgment, communication skills, perseverance, accountability, and work ethic.

Those of you who are students and are thinking about leadership know that you’ve demonstrated a lot of these qualities already. You know, obviously, that you’ve got the brains or you wouldn’t be successful in gauging the work at the level that you are on. You’ve got good judgment or you wouldn’t have come to ASU. Obviously, communication skills are something that you will continue to build. And I think what strikes me about this list is I sense that it’s pretty much table stakes. These are the things that get one to the table in order to play at the next level. But there’s another list that I think is very important for someone who is going to step into a leadership role in either the public or private sector. This is not new, but it’s something that we need to focus on a little more than we have in defining requirements for leadership.

Integrity is up there as number one. You know that is not a new issue, but I think what it says is that it can’t start too early. Most of it started when you were kids at home, but I think that while you’re at the university, this is a great time to explore not only your mind but your inner compass. What do you believe? What are your values? What will you stand up for? What will you bend in the wind for? Get a true understanding of who you are as it relates to integrity. Without integrity you won’t be successful – not in the long term, not over the long run – and it’s just going to be a fundamental if you want to be a leader.

The second item is to know your center. The world that we are involved in today is moving so fast it’s changed a lot of things. I sent an e-mail to my middle-level managers and above the other day, and then I walked down the hall. When I came back to my desk, I had the local newspaper on the telephone, and they had my e-mail in their hands and they wanted to ask me about it. One of the things that continues to impress me is how quickly information is moving as a result of the Internet. There are no secrets. Managers in either the public or private sector in the future are going to be managing in a glass bowl. People are going to watch what you do as you do it – not after you do it. They’re going to be commenting on it. Think about CNBC or any of the 24-hour channels that are trying to fill up their news.

Think about Forbes or Fortune or The New York Times or The Wall Street Journal and the insatiable appetite for new information. Information flies at a rapid rate and more and more people think it’s okay to disseminate and disclose that information or, in fact, some think it’s a duty, no matter what you say.

The point is that it’s going to be important to know your center because as you make decisions real-time, you’re going to have a lot of people out there that will be sort of play-by-play, and they may be for it or they may be against it – usually you’re going to have some on both sides. Employees get in the act now. They get on the Internet and they’ll let you know what they think. It’s becoming an environment of real-time managing in a glass bowl with moment-to-moment critique from your constituencies. Again, I don’t think that’s a bad thing. I think it’s a realistic thing, and it says that in this world to which we’re moving, there is such rapid communication, you’re going to get a lot of folks either agreeing or disagreeing. It’s helpful, especially while you’re at the university, that you have some time to explore yourself. How solid are you on what you believe? As you make a decision, what is your confidence level? Because that will continue to be important as you take leadership roles into the future.

We talked about seeking change. I don’t think there’s any question about this. We’ve got to constantly push ourselves to try to get on that adaptation curve ahead of the phenomenon so that we’re moving faster inside than the outside is actually moving.

Treat your colleagues and your associates with respect. You know this doesn’t cost much. You learned it a long time ago, but at the end of the day it doesn’t matter how smart you are, how fast you are, or what you can and can’t do. You can always treat your colleagues and your associates with respect. When I think about some of the problems and the challenges that we’re seeing today in the courts relative to corporate America, my thesis is that as much of that is a result of arrogance as it is a result of criminal intent. This issue of treating people right and listening as much as you talk is a very important element of leading in today’s world. I think it’s worth a great deal of thought and, again, this is something that you can begin to practice very early in your careers.

Be professional. I’ll share with you what I mean by that point. I have an individual who runs one of my divisions – about a $2 billion piece of business. This individual used to play for the New Orleans Saints, and in a long conversation one night he talked to me about what he thinks of as “being professional.” To him, being professional is going out and doing your job every day even when you don’t want to. And that’s true whether you’re studying, it’s true whether you going on the sports field, or it’s true whether you’re in business or in the public sector. You’ve got to show up, you’ve got to do your job, you’ve got to do it at a high standard, and you’ve got to do it whether you want to or not. I think that is a discipline that serves all of us well because most careers are not short-term sprints.

They’re marathons; they are long-term. And you have to be professional because every day won’t be sunshiny, and every day won’t be happy, but you’ve got to go out there and do your job and lead your people whether you want to or not. And that’s a good thing to start thinking about. Sometimes you might want to say, “Well, I could sleep-in this morning,” or “I really don’t have to go to that class.” Show up; be professional. Do what you have to do.

And finally, take care of yourself. This is again a marathon; it’s not a sprint. If you don’t take care of yourself, I don’t think a lot of people are going to flag you down and say, “I sure wish you would work out,” or “I sure wish you would take care of yourself along the way.” They’ll probably say, “I’ve got some more work to be done. Can you do it?” If you say, “yea,” they are going to say, “fine.” But it’s your discipline. It’s your individual commitment to yourself. If you are going to lead, then you’ve got to finish the race. If you are going to finish the race, then you’ve got to take care of yourself. When you think about sustainable, credible, effective leadership, you are going to find people that ultimately have learned to take care of themselves. Where does that lead us?

Here’s an interesting fact. If the average life span is around 75 years, each of us has about 650,000 hours to burn. How do you want to use it? If you happen to be about 25 years old, you probably have about 220,000 hours of this that is gone. If you are one of those unfortunate people who have to sleep eight hours a night, you can probably write off another 140,000 hours going forward, and it leaves you roughly 285,000 hours that you’ve got to spend. What do you believe? What are you willing to commit to? What do you have passion for? And how are you going to use those remaining hours? Thank you very much.