AT&T chairman and CEO Randall Stephenson defended the $85 billion deal for Time Warner as the right strategy for the company in response to criticism from an activist investor.

Consumers are watching more content and more of that viewing is digital, so combining a telecommunications company like AT&T with a content powerhouse like WarnerMedia is the right vertical integration play, Stephenson said, speaking at Goldman Sachs’ Communacopia conference Tuesday in New York.

“If you had asked me that question [about vertical integration] five years ago, I probably would have been hard-pressed to make a case for why that makes sense,” Stephenson said. “In the new world, we believe it makes all the sense in the world… All of the growth is happening digitally.”

He pointed to WarnerMedia’s HBO Max streaming service, which it will preview for investors at an event Oct. 29 and will launch in 2020. “This is not Netflix, this is not Disney [Plus], this is not Hulu,” he said. AT&T has the opportunity to drive uptake of HBO Max through its 170 million customer relationships and 5,500 retail stores. “Content is king, I’m an evangelical on that,” Stephenon said. “But distribution matters.”

On Sept. 9, activist investor Elliott Management announced that it had taken a $3.2 billion stake in AT&T and called on the telecom giant to refocus on its core business. The hedge fund criticized AT&T’s “underperformance” relative to the rest of the market and argued that moves including its massive deals for Time Warner and DirecTV have hurt the telco’s financial health.

Stephenson said he and the AT&T board have reviewed Elliott’s letter, calling it a “mixed bag.”

“There are some things in the letter that we’ve looked at and say it makes a lot of sense,” he said. “There are some other areas you look at, and it’s not as clear in terms of how it would make sense for us. But these are smart guys, right and they put a lot of ideas into the paper that we need to sit down and engage with them on.”

One point in Elliott Management’s letter that was “pretty thoughtful,” Stephenson said, was that AT&T must be “more prescriptive” about its capital allocation strategy to get debt — much of which it amassed in buying WarnerMedia and DirecTV — down to manageable levels. Stephenson said the company has been focused on reducing the debt-to-EBITDA ratio to 2.5 by the end of 2019 but added, “we’ll have some conversations about… how we get a little more prescriptive in terms of what our capital allocation will be going forward.”

AT&T’s appointment of John Stankey, a longtime AT&T exec who is currently CEO of WarnerMedia, as its new COO — positioning Stankey to succeed Stephenson — spurred Elliott Management to engage in its battle with the company, per a Wall Street Journal report.

Stephenson talked up Stankey as one of the few executives with a background to manage WarnerMedia for the new digital streaming era. “When we acquired Time Warner, it was recognizing that the business had to make a pivot and a change,” he said. “It’s a hard play, to take a legacy company on legacy distribution models and business models, and make a pivot to a digital distribution model. When you think of who can move that, it’s not a big list of people.”

Stankey has “done a really nice job of breaking down silos and getting the business reoriented toward HBO Max digital distribution,” Stephenson said. As for whether upping Stankey to COO puts him in line to succeed Stephenson, Stephenson commented wryly, “The board hasn’t informed me I’m retiring yet,” adding that “if Stankey is successful, he’s in a pretty good position if he executes this play.”

On the pay-TV front, where AT&T has been hemorrhaging customers for more than a year, Stephenson said the company has had “to make really hard decisions” about carriage renewal deals. “We said, we can’t just sign these price escalators,” the CEO said. AT&T engaged in contract fights with CBS and Nexstar this summer, which led to blackouts of both broadcasters. As a result, AT&T stands to lose as many as 300,000 additional pay-TV subs in the third quarter of 2019, Stephenson noted.

Stephenson also said the U.S. economy is slowing down as “trade issues are a burden on the economy” but he said he supported the Trump administration move to challenge China on trade. “Getting aggressive on [China], I actually applaud the administration on their approach, I don’t think it’s wrong-headed at all,” he said.

In addition, Stephenson said the Trump administration’s 2017 corporate tax reform resulted in great capital investments and has led to historic lows in unemployment and the first productivity gains in 15 years. “Employment [is] at crazy-low levels, across all demographics,” he said. “We ought to be doing high-fives.”