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Verizon’s Response to the Digital Revolution

The digital revolution is playing out the same way Mike went bankrupt in Hemingway’s The Sun Also Rises: “Gradually and then suddenly.” For all of the revolution’s world-changing effects so far, it’s only now transforming some of the biggest players in some of the biggest industries, as this week’s news illustrates.

-Telecom. AT&T, which we used to think of as telephone company, announced last fall that it would buy Time Warner, creator of Warner Brothers movies, HBO programming, and Turner television from Conan O’Brien’s show to CNN. This is the phone business? Well, it is now. Attention has turned to AT&T’s major competitor, Verizon, and how it will respond; speculation is that it might buy a big cable TV company, either Charter Communications or, less probably, Comcast, owner of NBC Universal.

Most noteworthy is the size of the companies involved. As of yesterday, AT&T was the 12th-most-valuable public company in the world; Verizon was 19th, and Comcast was 25th. These are mastodons of business, now transforming themselves to the point of unrecognizability.

-Retail. The nature of retail is that nobody lasts forever, but the news of recent days shows something deeper: The biggest players, almost in unison, are staggering under the onslaught of digital disruption. Target is the latest, yesterday reporting a lousy holiday season – just like Macy’s, J.C. Penney, and Kohl’s – and lowering its profit forecast for the year. Let’s not even talk about Sears. The key reality is that all the leaders of all these companies thought they were on top of the industry’s digital transformation. They saw it coming, kept an eye on Amazon, launched their own online operations, and for years thought they had the situation under control. Then comes 2016, and in an overall strong holiday season, they get clobbered. Gradually and then suddenly.

-Publishing. This was the most predictable transformation of all, yet major players are crumbling anyway. Pearson yesterday slashed its profit forecast and gave up even trying to predict its dividend. The stock dropped 30% — the worst day in its history. The problem, described 22 years ago by Nicholas Negroponte in his book Being Digital, is that books make far more sense as bits than they do as atoms; but they’re much less expensive and less profitable in that form.

Last week Time Inc.’s board reportedly decided to begin discussions with interested buyers. The company is America’s biggest magazine publisher (and Fortune’s parent), and it launched its digital transformation over 20 years ago. Yet revenue has been falling steadily for years, and the company is worth only $1.9 billion, even after rising on takeover rumors.

Gradually and then suddenly. For many of the world’s biggest and most famous companies, the “suddenly” part of the digital revolution has finally arrived.

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What We’re Reading Today

Republican governors urge caution on Obamacare repeal
Ohio Governor John Kasich, Nevada Gov. Brian Sandoval, and others have expressed concerns to lawmakers about the effect a repeal would have on their constituents. Most notably, the impact of losing the expansion of Medicaid could lead to the loss of coverage for nearly 700,000 in Ohio, said Kasich. Instead, they want to avoid immediate repeal without a clear understanding of how a new law will replace the positives in the current one. WSJ

Jack Ma: Beware of a trade war 
While speaking at the World Economic Forum in Davos, Alibaba founder Ma said that China should give President-elect Donald Trump time before reacting to his trade comments. He added that it would be easy for the world to “slip into a trade war,” which he said would be a disaster. Fortune

Canadian Pacific Railway CEO steps down…
…to target top job at rival railroad. Hunter Harrison has resigned his position at Canadian Pacific earlier than the board had planned, in order to team with activist investor Paul Hilal. The two are expected to target the railroad CSX, in an effort to shake up its management ranks. Mike Ward is the current CEO of CSX, but he’s expected to step down in the next couple of years. Bloomberg

Government sues largest student loan servicer 
The Consumer Financial Protection Bureau has brought a suit against Jack Remondi‘s Navient for cheating borrowers out of repayment rights. CFPB Director Richard Cordray said that at every stage of the repayment process, Navient looked for ways to cut corners to shortcut customers and save costs. Navient has denied the charges. CNNMoney

Building Better Leaders

U.S. sues Oracle for a “systemic practice”…
…of paying white men more than their counterparts. The Department of Labor added that Oracle also favors hiring Asian workers for technical roles, which leads to discrimination in its hiring practices. Oracle denies the charges. NYT

It’s time to bring back the cubicle
The open office experiment makes it difficult to get any deep thinking done. But it comes down to costs, and it’s difficult for managers to show that cubicles are worth the extra investment. Fortune

More workers look for new jobs in January…
…than any other month. said nine out of its ten busiest job application days of 2016 came in January. With all those applications hitting hiring managers’ inboxes, look to catch their attention quickly. Fast Company

Critical Responses

Court rejects arrest warrant for Samsung head
Special prosecutors had sought to arrest Jay Lee, Samsung Electronics vice chairman and defacto head of Samsung Group, on bribery charges due to payments given to foundations engineered by the confidant of impeached President Park Geun-hye. It doesn’t end the issue for Lee, as the court said it couldn’t issue an arrest warrant at the “current stage” of the investigation. Lee and Samsung have denied any wrongdoing.  TechCrunch

Anonymous to Trump: “You are going to regret the next 4 years”
The Anonymous hacking group made the statement to President-elect Donald Trump on Twitter. It cited that information doesn’t disappear online, then indicated a belief he has ties to Russian mobsters and money launderers. Anonymous threatened Trump in April as well, before releasing personal information, including a potential Social Security number. Much of the information released, however, was already readily available online.  Fortune

Former VW CEO denies knowledge of emission cheating
While testifying to German lawmakers, former Volkswagen CEO Martin Winterkorn wouldn’t say when he first heard about the emission cheating efforts. He added it was in line with VW’s official statement on when the board knew, which was August 2015. When asked why he wouldn’t have known about the cheating device sooner, Winterkorn said that the software applications division represented “a very specific area of work in engine development.” Reuters

Up or Out

Legendary Entertainment founder and CEO Thomas Tull has stepped away from the company.  Fortune

Fortune Reads and Videos

Bill Gates to help launch epidemic coalition
The Coalition for Epidemic Preparedness Innovations aims to create vaccines that prevent the spread of infectious diseases, and has $460 million in initial funding. Fortune

Derek Jeter’s The Players’ Tribune snatches $40 million in new funding
IVP led the round, but investors also included GV (Alphabet’s venture capital arm) and a number of athletes. Fortune 

The Chinese province of Liaoning admits to falsifying financial data…
…over the past four years. The revenues of the province were improved by at least 20% each year. The admission comes days before China will provide its full-year growth report. Fortune

Nintendo to launch Super Mario Run for Android…
…in March. Fortune

Happy Birthday

Dan Schulman, CEO of PayPal, turns 59 today.  Boardroom Insiders

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Produced by Ryan Derousseau