The new face of AT&T

NEW YORK (Fortune) -- The first thing I noticed when I walked into Randall Stephenson's office at AT&T headquarters in San Antonio a few months ago was the computer sitting on his desk. There was nothing remarkable about the computer, mind you, but just the fact that he has one at all is sort of a big deal.

AT&T (Charts, Fortune 500) today said Stephenson, 47, would become its new chairman and CEO. He succeeds 65-year-old Edward E. Whitacre Jr., the flinty, iconic telecom executive who built AT&T into the world's largest phone company - all without the benefit of a computer in his office.

Okay, the whole computer-in-the-office thing isn't that huge, but it underscores the generational shift taking place at AT&T. Stephenson will assume the top job at AT&T at a time when the company is trying to stay relevant to a new generation of consumers who aren't necessarily loyal to the kinds of phone services AT&T traditionally has supplied.

AT&T remains the country's largest provider of landline voice service, with more than 64 million phone lines, and it continues to get lots of profits from workhorse products such as call waiting and caller ID. But those are yesterday's products. Whitacre, who completed dozens of acquisitions during his 17-year-tenure as a CEO, smartly pushed the company into new areas such as broadband and television; it also is the No. 1 wireless operator in the United States with more than 62 million subscribers.

Now it falls on Stephenson to manage and grow those assets even as AT&T faces fierce competition from cable operators selling phone service, plus the challenges of keeping up with fast-changing technologies such as Google's (Charts, Fortune 500) YouTube, which use a lot of capacity on AT&T's network.

Stephenson, an easy-going Oklahoma native seems eager for the challenge. During my visit, our chat started not with talk of dry merger integration statistics but with a spirited debate about American Idol. "Did you vote last night?" he asked. "I voted for LaKisha." (To be sure, Stephenson has more than a passing interest in the Fox television program: AT&T is a major sponsor.)

Stephenson's pop-culture literacy - he also boasts a 100-inch-screen television in his home - will come in handy as AT&T pushes into the pay television business dominated by cable and satellite companies. AT&T is rolling out a service that delivers cable-like content over its phone lines.

"Randall understands content and technology, and he has a lot of credibility," says AT&T marketing executive Scott Helbing. "He is very good at articulating why we're in this business."

Stephenson likes the TV business because it has the potential to be big. And at AT&T's size, it needs to go after only the biggest opportunities out there. "We need to think about $2 billion to $4 billion revenue streams," Stephenson says. "IPTV is a multibillion revenue source for us." (A company with $120 billion a year in sales needs big streams of revenue to grow even 3% or 4% a year, which is what AT&T is promising.)

Stephenson may be focused on growth now, but much of his career has been spent cutting costs. He got his start in the business working part-time as a "tape monkey" loading tapes for billing systems at Southwestern Bell in Oklahoma City as a college student in the 1970s. (Southwestern Bell was later named SBC, and when SBC acquired AT&T in 2005 it took on the AT&T name.) His older brother, who still works as an installation technician in Norman, Oklahoma, for AT&T, got him the gig.

He served as SBC's chief financial officer from 2001 and 2004, lean years in the telecom sector. SBC kept up its profitability by cutting capital spending to the bone and it drastically reduced its net debt from $30 billion to near zero by early 2004, moves that positioned the company to acquire AT&T wireless, AT&T and BellSouth.

It was around this time analysts started to talk about Stephenson as Whitacre's heir apparent.

During our interview, which took place well before the succession announcement, Stephenson was mum on the topic of the CEO job, but he was quick to praise Whitacre and single him out as an influence. The cost cutting measures a few years back, he says, were Whitacre's idea. "We talked about what we ought to do," Stephenson says. Whitacre knew that despite the challenges the telecom sector faced, that another wave of consolidation was coming, and he wanted his company to be leading the charge. ("We don't talk about it much," Stephenson says, "but our moves tend to be industry shaping.")

Recalling his conversations with Whitacre, Stephenson turns reverent: "He had bold objectives," Stephenson said, "and he stayed true to his vision."