AT&T; Names New Chief for Cable Unit

AT&T; Corp. unexpectedly shook up the top management of its troubled cable unit Tuesday amid ongoing negotiations to sell off the group, whose fortunes have steadily eroded over the last two years.

Looking to shore up the crippled AT&T; Broadband group, embattled AT&T; Chief C. Michael Armstrong named respected cable industry veteran William T. Schleyer to replace Daniel E. Somers as its president and chief executive.

Somers, formerly chief financial officer of AT&T;, has taken heat from Wall Street as operating margins of AT&T; Broadband declined to 18% this summer, from the 40% range when he took the top job in late 1999. After searching for a replacement since spring, Armstrong turned to Schleyer, who was president of Continental Cablevision before it was bought by the company that became MediaOne Group.

AT&T; became the nation’s largest cable operator with back-to-back purchases of Tele-Communications Inc. and Media One.

Analysts and industry executives interpreted the shake-up as the latest attempt by Armstrong to keep control of the cable unit in the face of an unsolicited $35-billion bid from Comcast Corp. this summer to acquire AT&T; Broadband.

The board immediately rejected Comcast’s bid as inadequate, instructing Armstrong to search for other alternatives. AT&T; board members and top management view the Comcast bid as a low-ball offer designed to take advantage of AT&T; Broadband’s deteriorating health. Comcast has appealed to AT&T; investors by touting its solid track record and a management team that is among the best in the business.

Armstrong said Tuesday that the new management team will take AT&T; Broadband to the next level. He also said the company was continuing to review offers for AT&T; Broadband.

“We have a process in place and hope to complete that process by the end of the year,” Armstrong said in an interview.

After making headway in talks with Comcast over the last several weeks, sources said that discussions had stalled recently and that Armstrong was having, as one person put it, “seller’s remorse.”

Analysts said the new management team could give AT&T; leverage with Comcast, which has been reluctant to sweeten the terms of its bid unnecessarily. Comcast has been gambling that it is the only serious bidder, despite confidentiality agreements with AT&T; signed by rivals such as Cox Communications as precursors to merger or acquisition talks.

One AT&T; board member said the new management team will give the company added flexibility.

“We are sifting through proposals but have not seen one that is compelling,” said Amos Hostetter, who became a large shareholder of AT&T; as a result of the Media One acquisition last year. “If an offer comes in that is attractive, we’ll take it, but otherwise we have to continue as an independent company. We also recognize that if we do a deal, it will take 12 to 18 months to close it. We still have to run the business.”

Hostetter, the controlling shareholder of Continental, recommended Schleyer to Armstrong early this summer. Two other executives named Tuesday to the top management team of AT&T; Broadband also were part of the old Continental team. Ron Cooper, who became president of Media One after the Continental sale, was named chief operating officer of AT&T; Broadband, and David Fellows was appointed chief technology officer.

Hostetter said Cooper and Fellows were Schleyer’s choices.

Analysts and industry executives have blamed much of the decline at AT&T; Broadband on a brain drain of talent.

The entire TCI corporate management has left over the last two years, and many of the strongest Media One executives also have departed.

Comcast executives have pointed to the bloated overhead of AT&T; Broadband as another reason for the company’s declining margins.

Overall during the third quarter, AT&T;’s profit from continuing operations, excluding one-time items, dropped to 4 cents a share, from 35 cents in the year-ago period.

Including charges to end its Concert international joint venture with British Telecommunications and other items, AT&T; posted a third-quarter loss of $2.2 billion, or 69 cents a share.

AT&T;’s net income, including a $13.5-billion gain on the spinoff of AT&T; Wireless Services Inc., was $11.06 billion, or $3.13 a share. In the 2000 third quarter, AT&T; had profit of $1.3 billion, or 35 cents a share. Revenue dropped 7.7% to $13.1 billion.

Shares of AT&T; fell 60 cents to close at $17.70 in trading Tuesday on the New York Stock Exchange.