December 6, 1999

AT&T´s Move May Provide Sharper View of Leadership

By SETH SCHIESEL

he early jockeying to succeed AT&T's chairman, Michael Armstrong, begins in earnest Monday.

At a meeting with hundreds of investors and financial analysts on Monday in New York, AT&T intends to announce the most sweeping management changes since Armstrong took over two years ago, according to executives close to the company.

Although Armstrong is only 61, his mandatory retirement at age 65 in four years may not seem so far away for any of the company's senior managers hoping to emerge as his successor. While it is not at all certain that the company will tap an insider to succeed Armstrong, the company's history suggests that Armstrong's lieutenants stand an excellent chance of rising to one of the most prominent executive jobs in the world.

With Monday's management announcements, the roster of internal hopefuls will include John Zeglis, Daniel Somers and Richard Roscitt. And it will very likely include Charles Noski.

Noski is president of General Motors' Hughes Electronics subsidiary, but is said to be Armstrong's favorite candidate to become AT&T's chief financial officer. Before joining AT&T, Armstrong was chairman of Hughes and knew Noski there. Late Sunday, AT&T was still negotiating with Noski, however, and it was unclear whether Noski and the company would come to terms in time for an announcement Monday.

Separately, in a move intended to mollify its regulatory critics, AT&T also plans to announce an agreement Monday with Mindspring, the big Internet service provider. The agreement will outline how Mindspring might eventually be able to offer Internet access over AT&T's cable television systems.

Until now, AT&T has been criticized for an arrangement that gives Excite@Home Corp. exclusive access to its cable systems through 2002. The Mindspring agreement lays the groundwork for outside companies to gain such access in the future.

In a third announcement, AT&T also intends to say Monday that it will split off its wireless business as a separately traded tracking stock. That move may include issuing billions of dollars in new shares of the wireless company.

A tracking stock is an investment vehicle that can allow big companies to highlight the financial value of a business unit, without relinquishing ownership of that business. Investors in a tracking stock can buy and sell it like regular shares, but the stock does not represent an actual separate ownership stake in the business it tracks.

Taken together, the three initiatives represent the latest part of Armstrong's continuing effort to change AT&T, the United States' No. 1 communications company, from the lumbering long-distance telephone behemoth he inherited to the nimble communications dynamo he envisions.

An AT&T spokeswoman declined to comment on the plans.

Of the executives involved in the shuffle, Zeglis, the former lawyer who is AT&T's president, will retain that title while also being named head of the newly separate wireless unit.

Zeglis' main challenges at the wireless unit will be to continue its robust growth and to mount a new initiative to offer Internet access and local phone service to as many as 10 million U.S. homes using an innovative wireless technology known within AT&T as Project Angel. One person close to the company said on Friday that if Zeglis succeeds, he could become a shoo-in to succeed Armstrong.

Somers, currently AT&T's chief financial officer, will be chosen to lead the company's far-flung cable television unit, succeeding Leo Hindery, the former Tele-Communications Inc. executive who recently resigned from AT&T.

In moving from a staff job as AT&T's chief financial officer to run the most critical unit for the company's future, the cable business, Somers could also be seen as trying to burnish his operational credentials. If AT&T's multibillion-dollar cable strategy fails to live up to its promise of offering interactive television, high-speed Internet access and local phone service across the nation, nothing else will be able to bail out the company.

Roscitt, chief executive of AT&T's fast-growing unit that runs networks for the company's largest corporate customers, will be named head of the unit that oversees all the needs of business customers.

When Armstrong arrived at AT&T in the fall of 1997, he did not bring any other senior executives with him. If the company and Noski come to terms, he would be AT&T's most significant executive hire from outside the company since the arrival of Armstrong himself.

While Zeglis will initially retain his title as president, his move to the wireless unit and Somers' move to AT&T's cable headquarters near Denver would seem to vacate duties that might prompt Armstrong to hire a chief operating officer, executives close to the company said.

Those who might be disappointed by Monday's management announcements would appear to include Daniel Hesse, currently chief executive of AT&T's wireless unit, and Michael Keith, president of AT&T's business services unit.

According to executives close to AT&T, Hesse will report to Zeglis and will run the wireless unit's consumer segment. Keith, who is essentially losing his job to Roscitt, is set to move to the wireless operation, where he will have responsibility for selling wireless services to business customers and for the new residential wireless initiative.

Hesse won praise for basically remaking the wireless business with AT&T's Digital One Rate plan, which eliminates roaming charges and long-distance fees. But his reputation suffered as AT&T consistently underestimated demand for its wireless services in big markets including New York City, leading to service problems.

Roscitt is a hard-charging executive who colleagues say was enraged last February when he was passed over in favor of Keith to run the company's business services unit after the departure of Robert Annunziata in February. According to executives close to the company, he has now won the job, at least in part because he put himself in the running for chief executive jobs at other companies, and AT&T did not want to lose him.

On a level just below these top management changes, Kathleen Earley is set to be announced as AT&T's new "Internet guru," according to an executive close to the company. Ms. Earley, currently president of AT&T's Internet division, will assume overall control of the company's diverse data communications operations.

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• AT&T

• Mindspring

• Excite@Home Corp.