AT&T; Cable Executive Hindery to Leave Firm

Ending a turbulent seven-month tenure marked by continued conflicts with his boss and associates, AT&T;’s key cable executive, Leo J. Hindery Jr., is leaving the company in what could be a setback for the long-distance giant’s transformation into a cable-based enterprise.

As president of AT&T; Broadband & Internet Services, Hindery has been architect of the long-distance giant’s $120-billion bet on cable as a pathway for delivering a bundle of new services, including local phone calling, high-speed Internet access and pay and interactive television.

Cable is the cornerstone of AT&T; Chairman and Chief Executive C. Michael Armstrong’s bids to reduce AT&T;’s reliance on the profit-starved long-distance business and to shake up its hidebound culture.

Although Wall Street embraces the vision, some investors have become skeptical about the execution as well as AT&T;’s ability to sign on cable affiliates for creating a national brand for local phone service without Hindery’s forceful leadership.

Many analysts and industry executives say the rising tensions between Hindery and Armstrong are rooted in the clash between AT&T;’s button-down bureaucracy and the entrepreneurial culture of Tele-Communications Inc., the cable firm Hindery ran before joining AT&T; earlier this year.

“It was a clash of culture,” said James O. Robbins, president and chief operating officer of Cox Communications, the nation’s fifth-largest cable operator. “It’s not surprising that he’s gone, but I’m saddened that he’s gone. The industry has lost a great visionary of great accomplishment.”

After achieving hero status in the cable industry in 1997 for saving TCI from financial disaster shortly after being named its new president, Hindery orchestrated the sale of the cable giant to AT&T; in March, with the help of controlling shareholder John Malone.

Two months later, he wrested MediaOne Group from Comcast in a bidding war, positioning AT&T; as the nation’s largest cable systems operator. In the works are a series of customer swaps he crafted with the nation’s seven large operators to give each regional dominance to compete against local phone giants with bundles of services.

Hindery’s departure has been the subject of wide speculation for more than a year. Some sources contend that he was ousted by the board for his increasing independence, but company executives say the decision was mutual. One source close to him said he has been “consistently pleading” with Armstrong for early release from his five-year contract. Sources said Hindery signed the agreement after being urged to do so by his cable mentor Malone, a major AT&T; shareholder.

Sources said Hindery had pushed the envelope in recent months to force Armstrong’s hand. A week ago, they said, he ordered $1 billion worth of set-top boxes from Motorola without informing Armstrong, who was angered when he read a speculative account of the deal in the press.

Armstrong himself is not authorized to make deals worth more than $100 million without the consent of the board, and sources said he felt Hindery was undermining his ability to run the enterprise.

People close to Hindery, however, say Armstrong increasingly meddled in his cable and Internet operations. They say the final straw came last week, when Hindery discovered that top officials of AT&T; had held discussions with America Online about a high-speed Internet deal without his knowledge.

Daniel E. Somers, the AT&T; chief financial officer who will temporarily assume Hindery’s role as leader of the cable group until a successor is hired, would not comment Wednesday on the speculation. Sources said no deal was struck, and Hindery said the “open access” controversy, fanned by AOL, was not an issue in his departure.

“It wasn’t a precipitating event,” Hindery said Wednesday, acknowledging his difference of opinion on the issue with top management of Excite@Home, the high-speed Internet service controlled by AT&T; that is the target of AOL’s crusade to force cable operators to lease space on their networks to rival Internet service providers.

Part of the problem may be that Hindery, who before joining TCI built his own cable company, InterMedia Partners, is used to running his own show. Sources say he bristled under the autocratic Armstrong and was frustrated by the layers of bureaucracy at AT&T.; Hindery, a workaholic who typically starts his day at 5 a.m., is stylistically Armstrong’s opposite.

Hindery is a onetime merchant marine who put himself through Stanford University’s Graduate School of Business, earning his MBA in 1971. He worked for a time in the mining industry and on Wall Street as an investment banker before moving into media. He sometimes drives race cars in his spare time.

Armstrong, charismatic and polished, is a product of corporate America who rose through the ranks for three decades at IBM before leaving to lead Hughes Electronics into new businesses. Armstrong was captain of his high school football team in Detroit and went to Miami University on a football scholarship.

“In the end, the farmers and the cowboys can’t be friends,” said Chris Dixon, an analyst at Paine-Webber. “But if somebody as focused and hard-driving as Leo can’t survive, you have to ask whether the AT&T; culture is ever going to change--and whether it can compete with the likes of [MCI] WorldCom and Global Crossing that are nipping at its heels.”

Wall Street applauded Armstrong’s arrival two years ago, when it ended years of a leadership vacuum at AT&T.; Investors rewarded his changes by running up AT&T;’s stock to a 52-week high of $64.06 a share earlier this year. But investor enthusiasm for the company has wavered lately on concerns about price competition in long-distance, the cost of upgrading cable facilities to carry new services, and uncertainties over the open-access movement.

Though AT&T; shares rose $1.63 on Wednesday to close at $46.63 on the New York Stock Exchange, most analysts attributed the uptick not to Hindery’s departure but to a plan recently floated to Wall Street to create new stocks for wireless and cable enterprises that will allow investors to choose among the various levels of risks in those businesses.

AT&T; confronts a huge challenge in executing its vision of using cable as the vehicle for establishing a national brand in local phone service and upgrading TCI’s antiquated systems for delivering quality-sensitive services such as telephone.

Some analysts say Hindery’s strength is not in operations and that his departure clears the way for a world-class manager who is a better fit with AT&T; culture.

But others in the industry say his departure leaves a “huge vacuum,” especially at a time when the company faces knotty negotiations with other cable operators, talks in which AT&T; could have benefited from Hindery’s deep industry relationships and deal-making skills.

Cable pioneer Amos Hostetter, an AT&T; board member and the largest individual shareholder of MediaOne, will assume some of Hindery’s duties until a successor is chosen.

Though Somers, the AT&T; CFO, has experience in the cable industry as CFO of Bell Canada International from 1992 to 1995, analysts disagree about his abilities to handle negotiations with companies such as Time Warner.

AT&T; officials said Hindery will stay on as an advisor for several months to see some pending deals to fruition.

Hindery’s departure comes as AT&T; seeks regulatory approval for the acquisition of MediaOne, which would give the company access to more than half the nation’s 100 million households. Federal regulators are expected to require AT&T; to restructure Media One’s cable partnership with Time Warner or to shed assets to bring its reach below 30% of the country.

Sources say Time Warner is concerned that Hindery’s departure will slow the restructuring. That could put a snag in AT&T; plans to form partnerships to provide local phone service through Time Warner and other cable operators.