Hughes Chief Expected to Go to AT & T
AT & T Corp. is expected to announce Monday that Los Angeles aerospace executive C. Michael Armstrong of Hughes Electronics Corp. will become its chief executive, officials close to the two companies said Friday.
Armstrong, who is widely credited with shifting Hughes from a military to a commercial footing, will face another difficult task at AT & T: restoring the industry leadership that the long-distance giant has allowed to slip away. AT & T faces nimble rivals who have forged alliances that pose greater challenges to the carrier than ever before.
AT & T’s wooing of Armstrong, who turns 59 today, has been complicated by the telephone firm’s efforts to retain AT & T Vice Chairman John D. Zeglis, who was a rival candidate for the firm’s top post.
After lengthy delays in making its decision, AT & T offered--and Armstrong signed--an employment contract to join New York-based AT & T, sources close to the firms said.
No details of the agreement were disclosed, and AT & T and Hughes spokesmen declined to comment.
Gary Epstein, a Washington communications lawyer who represents Hughes, said Friday that he had learned AT & T picked Armstrong for its top job.
“I think he will make a better CEO than John Zeglis,” Epstein said.
Zeglis, a lawyer, was supported by Allen and some board members as a way to demonstrate corporate loyalty and ensure continuity in management. Zeglis, who played a key role in winning government approval of AT & T’s $11.5-billion purchase of McCaw Cellular in 1994, is still regarded as being crucial to AT & T’s future and is expected to be offered the No. 2 job in the company.
The tortuous search for a leader to succeed AT & T Chairman Robert E. Allen began last year, when the firm selected Chicago printing executive John R. Walter. Investors reacted sharply to Walter’s lack of experience in the telephone business, sending AT & T stock down by $3 billion in a single day.
Walter was forced out as AT & T president in July after the firm’s board concluded that he lacked the “intellectual” capability to succeed Allen. Armstrong had sought the AT & T job a year ago, but was passed over for Walter.
While AT & T has been conducting its search for a new boss, the company appears to have been missing out on the rapid consolidation overtaking the telecommunications industry. Lesser rivals are finding partners and becoming even more competitive. WorldCom and GTE have been waging a high-stakes battle this month to buy MCI Communications, which had previously agreed to a merger with British Telecom.
Now, with industry consolidation rapidly depleting the number of parties with whom AT & T can team up, some experts say AT & T runs the risk of becoming a second-tier player in such booming sectors as Internet and local telephone service.
“This is an almost unbelievable story of what had been one of the most formidable business organizations in our society now finding itself in a state of substantial disarray,” said Philip Verveer, a Washington communications lawyer who served as lead counsel in the antitrust investigation of American Telephone and Telegraph Co. from 1973 to 1977.
AT & T, he added, “has fallen victim to a bureaucratic corporate culture that has betrayed it in an environment where quick decision making is necessary.”
Armstrong faced difficult challenges at Los Angeles-based Hughes when he arrived in 1992 after a three-decade career built on marketing at IBM. Hughes was facing a collapsing market for defense electronics and stronger competition for many of its key products.
Armstrong invested heavily in the satellite-based television distribution system that became known as DirectTV, which created a new growth market for Hughes. He moved to slash employment and close facilities around Southern California.
But it is not clear what future Armstrong would have at Hughes at this point.
General Motors, which owns Hughes, has agreed to sell the defense operations of Hughes to Raytheon, leaving only the satellite manufacturing arm and its communications business.
Now, GM is considering a plan to shed ownership of the rest of Hughes by auctioning off the various Hughes pieces: satellite manufacturing, DirectTV, business communications systems and its share of PanAmSat, according to sources close to the company.
It is expected that Armstrong will be succeeded by Michael T. Smith, vice chairman of Hughes Electronics.
Armstrong is widely considered to be an engaging and politically savvy executive who is expert at selling his point of view.
But he would arrive at a telecommunications giant that is teetering on the verge of surrendering its half-century dominance of the $70-billion long-distance market to upstarts such as MCI and Sprint.
Although total revenue earned by long-distance carriers has risen consistently since 1984, AT & T’s revenue share has dropped 39% over the last 13 years and its share of U.S. long-distance revenue fell to 51% in the second quarter this year, according to a new report compiled by the Federal Communications Commission.
Of course, AT & T still has a formidable franchise. It has 90 million customers, the industry’s best-known brand name and a global communications network that handles more than 250 million calls and data transactions a day. Armstrong will have to find a way to staunch the loss of AT & T’s market share and find ways to more effectively compete in new growth markets.
Many said Friday that they were eager to give Armstrong a chance at AT & T, even though his stewardship of Hughes coincided with some of the biggest job cuts--13,000 between 1992 and 1994--in that company’s history.
“I’m looking forward to working with him and being as supportive as I can because our workers can’t afford to have a company like AT & T fail,” said Mort Bahr, president of the Communications Workers of America.
Times staff writer James Bates contributed to this story.
* TASK AT HAND: Michael T. Smith, Hughes Electronics’ likely new CEO, is up to the challenge. D1
