AT&T names an outsider chairman Hughes Electronics' Armstrong to succeed Allen

more sell-offs set

Telecommunications

October 21, 1997|By BLOOMBERG NEWS

NEW YORK -- AT&T Corp. for the first time named an outsider as chairman of the struggling long-distance company yesterday, and plans to sell its credit-card and some telemarketing businesses in its latest turnaround effort.

C. Michael Armstrong, chairman of Hughes Electronics Corp., beat out AT&T Vice Chairman John Zeglis, who will become president on Armstrong's recommendation.

The company said it will sell AT&T Universal Card Services and the customer-care operations of AT&T Solutions.

Armstrong, 59, takes over Nov. 1 with a reputation for turnarounds, having transformed Hughes into a satellite TV company from a maker of military hardware. AT&T is betting Armstrong's experience in marketing to consumers will help halt a slide in its long-distance telephone market share.

"He's the kind of person AT&T needs. He's a strong choice," said Doug Herold, who manages an $8 billion U.S. stock fund for Invista Capital Management, which owned 4.16 million AT&T shares at the end of June.

Current AT&T Chairman Robert Allen, 62, criticized for AT&T's lagging stock growth, will become chairman of the board's executive committee until he retires in February. AT&T directors said they have not yet discussed whether Zeglis, 50, will succeed Armstrong.

Armstrong will bring new ideas to AT&T on how to enter new markets, cut costs and stop market-share losses, analysts and shareholders said.

"He's a breath of fresh air, and AT&T needs it," said Chris Landes, an analyst at Tele-Choice Inc., a Verona, N.J.-based consulting company.

When Armstrong took over Hughes in 1992, the company was seeking to end its dependence on a dwindling pool of U.S. Defense Department work. He spearheaded efforts to sell its military and other businesses to focus on the consumer market by developing Hughes' DirecTV satellite television unit.

The moves paid off. By 1996, Armstrong had trimmed revenue from aerospace and defense to 39 percent of the total, down from 80 percent in the late 1980s.

Armstrong's experience in building new businesses, combined with his background as head of International Business Machines Corp.'s international operations, will help him build AT&T's new wireless and local phone operations, analysts and investors said.

The combination of Armstrong's outside experience and Zeglis' knowledge about AT&T, its competitors and the regulatory landscape, will bolster the New York-based, No. 1 long-distance company, analysts said.

"They're starting with a clean slate," said Jeffrey Kagan, president of Kagan Telecom Associates. "Armstrong needs to stand up today and every day and tell the world AT&T is back."

Armstrong faces a challenge. AT&T has yet to define how it will break into the $100 billion-a-year local phone market, analysts said. It also will face unprecedented competition in its consumer long-distance business from the deep-pocketed Baby Bells within a year.

AT&T said it plans to sell two operations, based in Jacksonville, Fla., by mid-1998.

Smith Barney Inc. is advising the company on the sale of the credit-card division, which had 1996 sales of $1.7 billion and more than 4,000 employees. There are about 18 million Universal card holders.

BT Wolfensohn will advise the company on the sale of AT&T Solutions customer-care operations, which provides telemarketing services, primarily for AT&T. It has about 2,100 full-time employees and 7,700 agency employees.

AT&T has sold more than $2 billion in businesses in the past year, on top of a sweeping three-way split last year. AT&T spun off its former equipment unit, Lucent Technologies Inc., and automated-teller machine maker NCR Corp.

Allen led AT&T for almost 10 years and has spent virtually his entire career in the Bell system. He took over AT&T in April 1988, after Chairman and CEO James Olson died.

Pub Date: 10/21/97

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