Robert E. Allen spent the last few years disassembling the AT&T domain he had built at its helm during the late 1980s, spinning off Lucent and selling NCR. Now his newly named successor, C. Michael Armstrong, may have to devote most of his time and energy during his tenure to building up a new AT&T empire through canny acquisitions in the local telephony and Internet service business.
Given the ever-changing landscape of the telecom industry - suitors jostling for MCI's affection and the Federal Communications Commission weighing the Baby Bells' entrance into the long distance fray - a managerial makeover for Ma Bell was a small surprise. Under Allen, AT&T has had a tough time growing its way to success. Under Armstrong, industry insiders say, it will likely try to buy its way there.
"Acquisitions seem to be the coin of the realm today in telecom," says Rob Frieden, a professor of telecommunications law at Penn State University.
In his previous post as chairman and CEO of General Electric unit Hughes Electronics Corp., Armstrong was able to do something AT&T hasn't - expand successfully into adjacent industries.
"Hughes, on his watch, was able to vertically integrate into the manufacturing of satellites and the distribution of content over satellites, via DirecTV and Pan Am Sat. That is exactly what Allen's divestitures were designed to eliminate," Frieden said.
Back in the early 1990s, when Armstrong took over Los Angeles-based Hughes, after 31 years at IBM Corp., it too was troubled. Customers regarded Hughes as more interested in technology than their welfare. Armstrong assembled a new slew of units, and refocused the company on making its customers loyal, says Jon Kutler, an investment banker, and president of Quarterdeck Investment Partners Inc.
"They used to have this attitude of 'buy Hughes 'cause we're the best.' But that doesn't work anymore for them, nor will it work for AT&T," says Kutler. "They need someone to slash the organizational structure to make the company more customer-driven and marketing-oriented, like Armstrong did at Hughes."
Armstrong's new job starts 1 November and, as he said in a statement today, "I can't wait to get on with it." After getting his new company reorganized, plan on seeing the hunt for appropriate partners to begin in earnest. What are some logical possibilities for his pursuit? Tom Sullivan, head of the telecommunications practice at law firm McDermott, Will & Emery, Boston, said AT&T's first moves will likely be to "break the local bottleneck," a definite challenge with the GTE/World Com bidding war for MCI.
Some of the prime candidates for takeover, such as Metropolitan Fiber Services and Brooks Telecommunications, have already been absorbed by WorldCom. So what about a bid for GTE itself? "GTE seems to be a good prize, and maybe you build off that by acquiring a company like Teleport," which has competitive local exchange carrier connections in major markets, said Sullivan. "But if GTE swallows MCI, it is a poison pill that AT&T will struggle to survive."
Sullivan reckons that AT&T is also going to have to go into the small satellite business, perhaps even buying DirecTV from Hughes.
Buying a Baby Bell may offer too little given the obstacles it will need to face in the process. Regulatory strictures imposed by a new FCC chairman may create additional challenges for the company, which had its proposal to buy SBC Communications scuttled by the government, says Charles H. Kennedy, a professor of computing and communications at the Catholic University of America, in Washington, DC.
The tough task is not finding candidates but choosing the right one. "Armstrong has a very tall order of divining when vertical integration makes sense and when it is going to backfire and upset customers," said telecom prof Frieden.
But with more than 31 years in the technology business, Armstrong won't get rolled easily. He is well connected in Washington, where it counts in telecom. He serves as chairman of the President's Export Council, and advises President Clinton and the secretary of commerce on matters related to exports and international trade.
"AT&T is at the center of the world's most exciting, fastest growing, fastest changing industry - communications," Armstrong said in a statement. "Over the next five years, we're going to see a breath-taking transformation of this industry, and I'm delighted to join AT&T - the company I believe is going to lead that transformation."
