In addition, Stephenson said, the falling cost of storage is driving bandwidth usage. “As storage costs have come down, the amount of information that is being stored is exploding,” he said. “And that stored information is really important to us because it drives bandwidth demand as people in businesses start to share that information.”

Wireless data growth is also exploding, driving by usage of smartphones such as the iPhone, he said. “After upgrading to iPhone, customers have on average doubled data usage. There is huge potential ahead of us in wireless data, and we are early on that adoption curve.”

International demand is growing as U.S. customers seek overseas connections for customers, suppliers and their own operations and take their expectations for service quality and reliability with them, he said. “The network is increasingly relevant – the network is more critical than it has ever been. It is the foundation for value creation – seamless, low cost, high capacity, capable of delivering high levels of functionality and security. That’s what we are building now.”

The first step in the “major transformation” of AT&T as a company took place on the wireless side, he said. “We think we have executed the best large-scale integration and operational turnaround in the wireless industry and perhaps even in the American industry,” Stephenson said. “We combined networks, we‘ve improved performance and reduced costs, we saw the best churn improvement in the industry, all resulting in a 1350-basis-point improvement in the margins of this business.”

On the enterprise side, Stephenson said AT&T has “the best global IP network, the highest quality and the broadest reach, the most advanced product set, the deepest sales and technical resources that this industry has to offer, and that includes AT&T Labs.”

AT&T enterprise revenue was declining 10% a year when it was acquired two years ago by SBC, but based on additional investment, better execution and increased demand, “We have turned enterprise revenues to growth a year ahead of time,” he said.

The most profound change continues to be the move to an all-IP network, Stephenson told investors. AT&T is using its IP network to deliver broadband connections and its U-verse video service. He promised rapid scaling of that service.

“We will expand U-verse to 30 million customer locations including the southeast region by the year 2010,” Stephenson said. “We know how to scale networks. We started a little wireless business in the 80s, from scratch, and we now have 67 million subscribers. In the ‘90s, we started a broadband business from scratch – today it’s the largest in the U.S., with 14 million subscribers. This decade it’s TV. We know how to do this. It will scale just like broadband, just like wireless. Our video build will be more efficient than either our wireless or broadband builds -- that’s the power of IP.”