Can AT&T Retrain 100,000 People?

AT&T CEO Randall Stephenson
Photo credit: Brent Humphreys for Fortune
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Can AT&T Retrain 100,000 People?

Rapidly changing technology has ravaged the American workforce. But AT&T is determined to teach its old workforce to use its new equipment. The result is one of the largest challenges in the telecom titan’s 132-year history, with national implications.

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Nathaniel Meyer’s old office was nestled in a sea of high-walled cubicles in a hulking AT&T network reliability center outside Charlotte. In 2013, at 32, Meyer was working at the same facility where he had started when he followed in his father’s footsteps and joined the company, then BellSouth, at age 19 as a technician. After more than a decade with the telecom giant, and several promotions, Meyer’s work still revolved around the same basic technologies. He spent his days monitoring the massive switches that ran an old-fashioned telephone network scattered across more than 20 states, testing new equipment remotely, and updating databases with any changes.

Increasingly, though, Meyer was beginning to feel like he was in a dead-end job. He felt that way because, well, he was.

Meyer didn’t know it at the time, but a thousand miles away, in the executive offices of AT&T’s headquarters in downtown Dallas, the company’s leaders were realizing that they had a lot of people like Meyer working with old phone lines and other technology that were quickly becoming outdated. Internal research found that 100,000 of AT&T’s 240,000 work- ers in 2013 were in roles that the company probably wouldn’t need in a decade.

AT&T was, and is, in the throes of a huge transformation. Customers have been disconnecting their landlines for decades, while traffic on the company’s mobile network has exploded. Data usage at AT&T has increased 250,000% since the 2007 introduction of the iPhone.

Its corporate business has also boomed, as companies zap increasingly huge amounts of data among offices and the cloud-server farms run by the likes of Amazon and Microsoft. Now, every day AT&T’s network handles 130 petabytes of data—equal to more than 40 times the digital holdings of the Library of Congress.

For a while, the company tried updating its existing technology piecemeal, pouring billions of dollars into buying more switches, adding new cell towers, and laying more fiber-optic cables. But that didn’t stem the tide for long.

By 2012 the 132-year-old company had landed on a much more dramatic solution: replacing 75% of its hardware with computer- operated software systems by 2020. The task was immense. AT&T still has one set of 40-year-old switches, for example, that handle the 128 million 800-number calls a day, all with less computing power than a pair of iPhone 7s.

With almost 1 million boxes in service around the world—dedicated computers that perform functions like routing data packets or blocking hackers—AT&T has so far managed to convert 34% of the network to the software-defined model, with a goal of 55% by the end of 2017. “This year we will have hit the tipping point,” says John Donovan, AT&T’s chief strategy officer. “There’s no turning back.”

But even more difficult than replacing the hardware is finding the people to run and maintain it. In 2013, Donovan, who was then responsible for overseeing the company’s technology and services unit that employs Meyer and 135,000 other workers, got together with human resources chief Bill Blase. Together they crunched the data and found that, although only about 50% of his staff had training in the fields of science, technology, engineering, and math, the projected need for employees with that training by 2020 would hit 95%.

“It became clear that our people did not possess the skill set required to run a massively scaled software infrastructure,” says CEO Randall Stephenson. “We were facing a massive people issue.”

To address the problem, AT&T has embarked on what may be the most ambitious retraining program in corporate American history. That investment in its people is part of why its workers love it: This year, for the first time, AT&T made Fortune’s list of the 100 Best Companies to Work For. Still, the challenge facing the company is formidable: With nearly 270,000 employees after its acquisition of DirecTV in 2015, AT&T has one of the largest workforces in the world. By 2020 it aims to retrain 100,000 of those people for radically new jobs. The project, referred to at the company as the Workforce 2020 initiative, is a more than billion-dollar investment that comes with a suite of new programs, new facilities, and a concerted push toward worker reeducation.

If AT&T can pull it off, it will avoid sweeping layoffs and perhaps give its entire software net- work strategy a critical competitive edge.

If it can’t, as Stephenson himself admits, AT&T will be a company in long-term decline.

The skills gap AT&T is now addressing is far from unique. In many ways, the company’s conundrum is the same one facing the larger American economy. According to the nonprofit National Skills Coalition, “middle skill” jobs like those that require computer proficiency account for 54% of positions in the U.S., but only 44% of workers have those skills. One survey of 42,000 companies by HR consultancy Man- powerGroup found that 40% of employers in 2016 were struggling to find talent to fill avail- able jobs—the highest number since 2007.

Part of the problem is that companies have historically been resistant to look inside their own workforce to meet the demand for technical workers. The number of corporate apprenticeship programs, frequently cited as one of the best ways to get workers on-the-job training, fell by more than one-third to 21,339 from 2001 to 2016, according to Department of Labor statistics. And businesses—perhaps looking at the shrinking average tenure of their employ- ees—provide less training than they used to, according to research by Wharton School professor Peter Cappelli. In 1979 the average young worker received 21⁄2 weeks per year of training, he found. A few decades later the average had fallen to just 11 hours.

The result is a high-stakes economic challenge. “We cannot afford to let people’s skills fall behind the cutting edge, or they will be displaced,” says Katherine Newman, provost of the University of Massachusetts at Amherst and coauthor of Reskilling America. “It becomes a cycle of wasted cultural capital.”

One bright spot: ManpowerGroup estimates that only 20% of firms were focusing on training their own employees in 2015; however, as of 2017, more than half reported that they will focus on training.

For an indication of how—and if—those companies will manage to develop their work- forces to meet the growing demand for skilled laborers, a good place to look may be AT&T’s retraining push. The sheer scale of the company’s programs not only has the potential to avoid thousands of layoffs, but also could serve as a model for other businesses facing their own talent shortages. Like many companies, says Newman, AT&T “has realized that this up- skilling is critical to their future.”

AT&T didn’t come to this solution immediately. About five years ago, the initial problem was how to deal with the skyrocketing traffic while revenue growth wasn’t keeping pace. The landline business was dying, and the mobile market was nearing a saturation point amid growing price wars.

So CEO Randall Stephenson brought the problem to John Donovan. One of Stephenson’s only direct reports who had not spent his career in the Bell System, Donovan, then AT&T’s chief technology officer, had come from Silicon Valley and was steeped in its culture, with a background in Internet infrastructure. A rock- steady presence with a laser stare, Donovan had initially imagined three scenarios for the way mobile data growth might play out, ranging from quick to astronomical. In 2012 he told Stephenson that scenario three—his most extreme case—was the one that was coming true.

With Stephenson immediately ruling out big price hikes for customers, Donovan needed to find a way to reduce the cost of AT&T’s legacy network while adding huge amounts of capacity to its newer mobile and business platforms, all without any increase in its capital budget.

First, the company responded with its soft- ware push. The wholesale update of AT&T’s technology was a risky move away from depending on the big telecom equipment makers like Nokia, Ericsson, and Alcatel-Lucent. AT&T couldn’t wait for the gearmakers to innovate and make faster products, a dynamic that had slowed as semiconductor innovation ebbed and the industry had suffered from repeated financial difficulties. The carrier would have to move on its own to radically simplify the hardware in its data and switching centers. Generic, lower-cost computing boxes could replace the proprietary devices that had each been dedicated to a specific function. Instead of having one set of boxes that could route data, and another bank that established a security firewall, and then yet another that created encrypted private networks, all of the functions would be provided by software applications running more efficiently on the generic computers.

Some of the hardware that was being updated was prehistoric by tech standards. In the old system, when AT&T wanted to upgrade—to install faster routers, for example—it had to physically replace all the old gear. “We would have to use a forklift—we literally called it that, a ‘forklift upgrade’—to pull out the old piece of equipment and put in the new piece of equipment,” explains Steve McGaw, an AT&T veteran who currently runs marketing for its corporate business. Some gear stayed in service for decades.

Under the new system, capacity can be increased quickly just by adding more banks of simple computers. At the extreme end, adding a major function to the network might have taken 18 months before and now can be done in a week, says Melissa Arnoldi, president of technology development, who oversees the company’s more than 80 global data-center sites. Says Arnoldi, “This isn’t technology that any of us grew up with.”

Next, AT&T must tackle its workforce issues. As the new systems rolled out, Donovan realized that filling the tens of thousands of software and engineering jobs he needed to build and manage for the new AT&T network might be an impossible task. But if the company couldn’t hire skilled workers at that scale, the only real alternative was to teach their existing workers how to do the new jobs.

After Donovan and HR chief Blase explained the severity of the shortage to the CEO, Stephenson gave his blessing to taking dramatic action. They would need a new training system capable not just of imparting new skills to workers, but also of helping those workers make decisions about which ones they might need and which would be in demand as AT&T shifted toward software.

To help create that program, Blase called on Cynthia Marshall, then the president of AT&T North Carolina. Another Bell lifer, Marshall went to the University of California at Berkeley, the first in her family to graduate from college, and started at Pacific Bell in 1981. Over the next 30 years, she had done everything from climb telephone poles to run central offices and lobby governors to approve mergers. She is now the company’s SVP of human resources and chief diversity officer. Marshall recalls that the mission was clear: “We’re not just going to tell those engineers that they can leave and somebody else is going to come do their jobs,” she says. Her mandate was “We are taking the people.”

The initiative, Workforce 2020, started with a sweeping restructuring of the company’s organizational chart. Marshall helped stream- line the phone company’s 2,000 job titles into far fewer, broader categories with similar skills. Seventeen different programming-related jobs, for example, became “software engineer.” Every new title was associated with specific skills or abilities, such as knowledge of a particular software-development language or techniques for being a project leader.

Then came the task of explaining the changes and helping employees navigate the new land- scape. AT&T created an online system called Career Intelligence, which allows an employee to surf through possible alternative jobs, see what skills are required, how many positions are available, investigate whether the segment is projected to grow or shrink, and view the potential salary range.

The drawback for employees, however, is that they must take the initiative for their own retraining. Some of the work can be done on the job, but the company’s new, more extensive online courses also require a large chunk of time outside work. Economic sociologist Newman calls the program “impressive in a not altogether happy way,” given that employees who can’t find time at home to participate may find that their jobs are being eliminated. (AT&T’s roughly 75 hours of annual training for employees per year averages on the high end compared with other companies on the 100 Best Companies to Work For list.)

Back in North Carolina, technologist Nathaniel Meyer was getting used to seeing many of his experienced coworkers in his network reliability center slowly disappear—retiring and not being replaced. Sitting among shelves of training materials and schematics for gear like the 1970s-era 1AESS switches that were once the foundation of the network, he gradually found that he was spending more time talking on the phone with AT&T staffers in places like Sacramento, Kansas City, and Milwaukee than with anyone in the shrinking Charlotte office.

Then, in May 2013, Meyer got wind of AT&T’s big retraining push. In partnership with the Georgia Institute of Technology and its top com- puter science program, AT&T was rolling out a fully online master’s degree program in com- puter science aimed at technologists like him.

Almost immediately, Meyer applied to be in the first class. Realizing he needed a graduate degree to get the kind of computer science job he wanted to break out of the Charlotte office, he had been considering quitting work and enrolling full time at the University of North Carolina or North Carolina State. Instead, he got into the online version of Georgia Tech’s program, and AT&T footed the bill for the tuition. “It was the best of all worlds,” he says. “I got a master’s degree, and I got zero debt.”

But it wasn’t easy. Meyer had to complete the course work for the degree during off-hours, while holding down his day job and helping his wife raise two small kids. The program included all the same material and intensive requirements as an on-campus degree program. Meyer was required to watch video classes, do hours of homework, and complete extensive projects. But the online flexibility allowed him to squeeze the time into nights and weekends. Also, he’ll readily admit, “I had a lot of help from my wife.”

AT&T says putting the onus on employees to better themselves is a feature, not a bug. “You have the choice of what your future is, and how you go about getting there, and how aggressively you pursue that,” Donovan says. “If you don’t opt in, all the tools and the vision [at AT&T] aren’t going to do any good.”

To give further encouragement and make clear just how serious AT&T is about the program, the system also assesses employees’ current skills and assigns them to a specific future job that they could attain in a few years with additional training. Employees can choose a different future target if they’d like. And they can also set the program to alert them when roles of interest matching their desired skills are available.

That’s how Kara Reeves, 34, got her promotion. After working on the retail store side of the company for eight years, she decided she wanted to shift to more technical work. She input her existing skills and interests in the system, and it suggested she vie for the role of “scrum master”—one of AT&T’s new job titles, which entails leading a small team working on almost any kind of project, acting as a facilitator, and helping the group make decisions and work smoothly with other parts of the company.

Reeves had no previous formal training in that kind of project leadership, so she turned to AT&T’s vast catalog of short online courses created as part of the retraining program. Developed both internally and in conjunction with Udacity, the program has helped employees like Reeves complete over 2.5 million of the minicourses, which typically take a few hours or less. Completing a set of courses in a specific area like cybersecurity or project management grants the employee a virtual “badge” on his profile page. AT&T has given out 173,000 so far. And Reeves’ transition to her new job last March has been successful.

Another key part of the retraining effort is AT&T’s internship program, which lets workers who have added skills try out a new position for a limited test run. Susan Bick, a 20-year veteran of the company, used the program to make a jump from billing systems to scrum master for teams in the software interface development unit. To make the move, she simply relocated from the seventh floor of one of AT&T’s large offices in St. Louis to the 22nd floor.

Meyer had to travel a lot farther for his new job as a big-data scientist. He now feels and looks at home amid the lava lamps, Nerf guns, and other nerdy gadgetry in an AT&T Plano, Texas, office that looks more like a hip Menlo Park startup. Toting an “I heart me” coffee mug and making the occasional reference to the movie The Matrix, he gets excited while explaining how he sifts through the reams of information previously lying unused in various databases to identify where there might be potential customers for AT&T’s Internet and cable-TV service who have been skipped over or missed in the past. “I feel like this is an awe- some place,” he says, grinning.

CEO Stephenson hopes that after the training is complete, the result will be a workforce that’s more nimble and better equipped to take on future competitors. However, AT&T is only midway through its transformation. It still has tens of thousands of employees to retrain if the company hopes to meet its goal of having a technically proficient workforce in the next three years. And more than half the network still needs to be shifted to the software platform.

But there are some signs of progress. Last year AT&T filled more than 40% of the 40,000 jobs with internal candidates. And the company estimates that 140,000 people are undergoing at least some sort of development that will prepare them for a new job in the future—and then another new job only four years after that one, if the industry speeds along at its current pace of disruption and development, according to company predictions.

“Technology shifts have become somewhat routine,” says Stephenson. “But who can transition their talent at scale as the technology changes?” That’s the more important question for both AT&T and the American workforce writ large. The answer, says the CEO, will be the difference between growth and obsolescence.

A version of this article appears in the March 15, 2017 issue of Fortune.