In CEO, AT&T; Looks for Lifeline
At an age when many executives are pondering the transition to retirement, C. Michael Armstrong is looking to lead AT&T; Corp., a phone company in the midst of a conversion of its own.
AT&T; is expected to announce today that it will tap Armstrong, who turned 59 on Saturday, as its new chief executive. The selection of the head of Hughes Electronics Corp. would bring to a close one of the most tortured and closely watched head hunts in corporate history.
But AT&T; has a lot riding on the new appointment: Falling market share, an unfocused business strategy, aging equipment and a work force demoralized by job cuts have left AT&T; struggling to compete.
The New York-based company, which once commanded more than 90% of the U.S. long-distance market, has seen its share plunge to 51%, losing to such rivals as Sprint Corp., GTE Corp., MCI Communications Corp. and WorldCom Inc.
The increasing strength of rivals has been complicated by new federal laws that have encouraged greater competition and innovation in the industry, says Donald B. Reed, a former AT&T; executive and former president of regional Bell telephone company Nynex Corp.
“They are coping with a huge transition in the industry stemming from the passage of telecommunications legislation and at the same time AT&T; is fighting for its life in the competitive long-distance market,” said Reed, who is now president of Cabletron Systems Inc., a Rochester, N.H., company that manages and builds switching products for computer networks.
“I guess the question [for AT&T;] is: ‘How do you deal with the issue of spending a lot of money to get into the local telephone market at the same time you are trying to watch your competitive situation in long distance?’ ”
People familiar with Armstrong’s management style say the politically savvy and engaging executive is likely to focus on further streamlining AT&T; and bolstering its existing markets.
Key on his agenda must be finding a way to stem AT&T;’s massive loss of long-distance customers and attract subscribers for its new local phone service. At the same time, he must rally a 133,000-person work force that has been dispirited by the announcement last year that 40,000 jobs would be cut by 1999.
Observers say Armstrong is unlikely to pursue cutting-edge technology, such as AT&T;’s promising--but costly--fixed wireless service that would allow consumers to use their current phones and have a single phone number for regular and wireless calls. That service is currently being tested in Chicago.
“AT&T;’s problem for the last five years has been leadership at the top, and a change in that leadership is a welcome event that’s long, long overdue,” said A. Michael Noll, a communications professor at USC. “But these are complex issues that AT&T; faces, and they require the attention of someone that understands history and someone that understands the telephone business.”
Armstrong has little previous telephone experience, although he has spent more than two decades in communications, computers and consumer electronics. At Hughes, he shepherded the once-major defense contractor through a painful downsizing, transforming the company’s focus from military to a commercial communications company. Before joining Hughes, he spearheaded key marketing efforts at IBM Corp.
At AT&T;, Armstrong would again take the helm of a company in transition. And this time, rapid consolidation in the $600-billion telecommunications industry would put a premium on speedy decision-making.
Experts say AT&T;’s slow, bureaucratic decision-making process has long allowed nimbler rivals to snatch up prime businesses, leaving AT&T; with fewer options for growth. WorldCom, whose UUNet Technologies unit carries a large share of the nation’s computer data traffic, is dominating the Internet. And once-staid telephone carriers like British Telecom and GTE have burnished their clout and stature through a number of acquisitions and alliances, most notably competing bids to acquire AT&T;’s chief rival, MCI.
Meanwhile, AT&T;’s aging, 40,000-mile fiber-optic communications network is badly in need of a costly upgrade, one that William Vogel, an analyst at San Francisco-based Montgomery Securities, contends has been eclipsed by more modern and higher-speed technology.
“It seems like the train has left the station and AT&T; is still standing on the platform,” said Mort Bahr, president of the Communications Workers of America. “They have 90 million customers . . . and one of the best skilled work forces. We just hope they get their act together and become the kind of player that they will have to be to compete.”
Inside the company, Armstrong would be forced to broker a truce with his cerebral and ambitious lieutenant, John D. Zeglis, the AT&T; vice chairman who was a rival candidate for CEO and who is expected to remain at the company.
“Zeglis, if he stays, will have his nose out of joint,” Noll said. “And the old [AT&T;] board who helped create this crisis in the first place is still there.”
To be sure, Armstrong would command a company that remains a formidable force in business, operating in more than 200 countries and with annual revenue of more than $52 billion.
And while AT&T; has been criticized for its hesitations, it has demonstrated an ability to capture huge markets by flexing its marketing muscle and financial resources.
Through its $12-billion acquisition of wireless behemoth McCaw Cellular in 1994, for example, AT&T; overnight became the nation’s largest cellular phone operator and today boasts 7.6 million customers. Similarly, over the last 18 months, AT&T; has become one of the largest Internet service providers, even though computer-savvy companies such as Microsoft Corp., America Online Inc. and IBM had as much as a three-year head start in the business.
