WASHINGTON — Awarding an outsider the job for the first time in a century, AT&T Corp. formally announced its choice of telecommunications executive C. Michael Armstrong as chairman while also announcing plans to sell two units as part of a strategic about-face.
Armstrong, sought out by AT&T directors for his corporate turnaround expertise, will take over Nov. 1, replacing beleaguered Chairman Robert E. Allen. Allen--who led AT&T for nine years, during which time the company's market value dropped by about 30%--will become chairman of the AT&T board's executive committee until he retires in February. Vice Chairman John D. Zeglis, a 50-year-old lawyer who was a rival for the chairman job, will become president.
The 59-year-old Armstrong, chairman of Los Angeles-based Hughes Electronics Corp., will become the first outsider to lead the nation's largest long-distance carrier since AT&T's first president, Theodore N. Vail, who served from 1885 to 1887.
"He's a good choice," said Raghu Ram, a telecommunications analyst at Wheat First Butcher Singer Securities in Richmond, Va. "I think, clearly, AT&T wanted to get someone with a little bit more of shareholder focus, and Armstrong has the marketing and strategic background."
The appointments, which cap an exhaustive, three-month search, came as AT&T reported third-quarter profit of $1.15 billion. The figure, although 15% below year-ago earnings, exceeded analysts' expectations as AT&T long-distance calling volume rose a record 10.1%.
However, total revenue grew only 1.2%, to $13.4 billion, because of AT&T's agreement with the Federal Communications Commission to cut long-distance rates by 5% to 15% on July 1. That move brought about $900 million in savings to residential and business customers, company officials said.
On Wall Street, AT&T shares surged $2.31 to close at $47.50 on the New York Stock Exchange. General Motors Class H shares, representing Hughes Electronics, rose $1.75 to $67 on the NYSE.
Armstrong, who is credited with transforming Hughes from a defense contractor to an aggressive builder of commercial communications satellites, is expected to bolster AT&T's marketing efforts, cut costs and sharpen the company's business strategy.
In a key strategic move Monday, top AT&T executives announced plans to sell the AT&T Universal Card unit, the nation's No. 8 credit card issuer with more than 18 million customers, as well as the AT&T Solutions Customers Care unit, which provides sales management support to Fortune 500 companies.
Analysts said proceeds from the sale would not cover the vast amount of money AT&T will need to enter the local phone business.
"I don't think what they get will be enough to jump-start anything. But they obviously need to get out of businesses that have nothing to do with" the telephone business, said David Otto, an analyst at Edward D. Jones & Co. in St. Louis.
In an interview, Armstrong--who cut 13,000 jobs in his first 30 months at Hughes--said he is not averse to spending money to achieve growth.
"I don't know how to grow without investing," he said. "I am open to good ideas. . . . I have not seen a dumb [corporate] strategy, but I've seen a lot of poor executions."
Armstrong added that he was interested in looking at how AT&T might better capitalize on the burgeoning demand for computer data networks.
But David Goodtree, a senior telecommunications analyst at the Cambridge, Mass., consulting firm Forrester Research, said AT&T should spin off its research unit and computer systems integration operations in order to focus more intently on its core long-distance service.
Goodtree noted that AT&T rival Qwest Communications, headed by former AT&T executive Joseph P. Nacchio, is valued at $2 billion even though it has half the fiber-optic communications network AT&T does.
"As much as I'd like things to work out, I have reservations," said A. Michael Noll, a communications professor at USC. "There's a clock running here, and I don't think AT&T realizes that they don't have another six months to get their act together. But the company seems to be saying it may take that long to" get its plans in place.