AT&T Chairman and CEO Michael Armstrong sounds like a man who wants to retain and command the $120 billion in cable systems he worked so hard to consolidate in recent years.
But the AT&T board and shareholders may have other ideas.
Last week, Mr. Armstrong found a replacement for Dan Somers, former AT&T chief financial officer, as head of the company’s broadband unit amid an improving but still strained financial performance.
Bill Schleyer, formerly president of MediaOne Cable and Continental Cablevision, two of the companies AT&T has acquired and absorbed, immediately takes over as AT&T Broadband president to “take the unit to the next operational phase,” Mr. Armstrong told Electronic Media.
Industry analysts said that likely will mean more cost cutting and perhaps some pullback on new service rollouts as broadband works to bring its revenue growth margins up to industry levels by late 2003.
Mr. Armstrong said that goal will continue to be achieved as it has: through cost cuts, price increases and the scaling of new services. “It’s all sustainable,” he said.
In an interview, Mr. Schleyer said there are no plans or orders to do anything but to maintain the “vision” already in place.
Mr. Somers said that he and Mr. Armstrong mutually agreed on his departure and that he is considering several other job options that would bring him back in the financial arena, but he declined to elaborate.
Mr. Somers leaves as the pressure is mounting for Mr. Armstrong to negotiate the sale of AT&T Broadband with the only clear suitor, Comcast Corp., which has signed a confidentiality agreement but has had no substantive discussions with AT&T officials, sources said. Comcast and AT&T officials declined comment. Comcast’s original, rejected $58 billion bid would be worth about $51 billion today due to a decline in stock prices.
AT&T’s stock fell to a new year low of $15.82 last week as Moody’s Investors Service lowered its rating on AT&T’s long-term debt and its broadband operations, reflecting concerns about the deterioration of the company’s telephony unit and the lack of certainty about its cable business. AT&T also has bid $307 million to acquire the broadcast network assets of Excite @Home from a bankruptcy court, while Mr. Armstrong and Mr. Somers and other top AT&T executives resigned from the Excite @Home board.
AT&T has given interested parties until late November to submit final bids with an eye toward resolving the sale of Broadband by year-end. But last week, Mr. Armstrong said flatly, “We’re not out to sell the Broadband unit.” They simply are reviewing proposals to buy it, he said. Although AOL Time Warner, The Walt Disney Co., Cox Communications and Microsoft have expressed interest in the cable operations, none are expected to formally bid.
Although he said new management changes “will neither deter nor defer that process,” Mr. Armstrong sounded as though he was digging in for the long haul.
The nation’s leading cable operator, with 15 million subscribers and a 30 percent penetration, reported a whopping 70 percent increase in cash flow to $602 million on a 15 percent increase in revenues to $2.4 billion in the third quarter, reflecting restructuring and layoffs and some new services growth. The growth of new telephony services continues to outpace high-speed data and to stay abreast of digital video services.
Although cash-flow margins have topped 25 percent, they are still short of the 40 percent level they had attained when Mr. Somers took command several years ago, although they fell to a low of 18 percent during his tenure. Overall, AT&T posted a third-quarter loss of $2.2 billion, or 69 cents a share, on a 7.7 percent drop in revenues to $13 billion.
Some industry analysts speculated that Mr. Schleyer could be sprucing up the Broadband unit for sale at a premium, or hoping that the AT&T board will allow him to maintain the unit under new, experienced management.
However, some analysts said Mr. Schleyer’s stay could be fleeting. The independently wealthy executive will continue to reside in New Jersey while overseeing the Denver-based Broadband unit and is said to have accepted the appointment out of deference to his former Continental Cablevision boss, Amos Hostetter, who sits on the AT&T board.
Mr. Schleyer brings with him former MediaOne and Continental Cablevision colleagues Ron Cooper as AT&T Broadband’s chief operating officer and David Fellows as chief technology officer.
As part of its ongoing restructuring, AT&T recently sold 19 million shares it owned in Cablevision Systems for $1.4 billion and is registering to sell its 24 percent stake in Time Warner Entertainment.#