At&Amp;T's Golden Boy

When you drive up to AT&T's headquarters building in exurban Basking Ridge, N.J., the first thing you see is the giant statue of Golden Boy, AT&T's corporate symbol, glinting in the sunlight. Golden Boy, whose formal name is "The Spirit of Communication," was created in 1916, stands 24 feet high, weighs 32,000 pounds and is gilded with 23-karat gold.

Inside the building is AT&T's modern-day golden boy: chairman C. Michael Armstrong. Born in 1938, Armstrong is 6 feet 2, weighs 210 pounds and has run AT&T since November 1997. In his 18 months at the helm, he's earned a glittering reputation on Wall Street, which loves his dramatic multibillion-dollar deals, the huge fees they generate and the attention he devotes to the care and feeding of investment bankers and analysts. And he's also golden with AT&T's shareholders, whose stock has risen 60 percent since his appointment was announced, 30 percent more than the market as a whole.

Armstrong's bold moves--which involve expensive takeovers and depend on new technologies that may or may not pan out--have put a gloss back onto AT&T. For years Ma Bell had been beset by plummeting market share in its core long-distance business and was being eaten alive by smarter, sharper competitors, who were taking advantage of the turmoil in the rapidly changing telecom business to chow down on the lumbering giant. Since Armstrong's arrival, AT&T has moved from defense to offense. It's been putting billions into megadeals the way people put quarters into pay phones: spending $70 billion in stock and cash on three big acquisitions, and bidding an additional $60 billion late last month for MediaOne, a large cable-TV company that had previously agreed to sell out to Comcast. AT&T is borrowing more long-term money in a single year than any other company in history. It expects to add at least $25 billion of long-term debt by the year-end--and more than $50 billion if it buys MediaOne.

Even if Armstrong's strategy of turning AT&T into a company that dominates phone, long distance, data, Internet and wireless communications doesn't work--and it could be years before we know--he's at least gotten AT&T a seat at the telecom-media-Internet poker game. And what a game that is, gambling for table stakes with the likes of Microsoft's Bill Gates, America Online's Steve Case, Comcast's Brian Roberts and Time Warner's Gerry Levin. Just being in the game is in itself quite an accomplishment, considering that AT&T had been one of the most sclerotic companies in the country, coming up with ideas late and then executing them badly. It seemed focused on the good old days, before the 1984 breakup that separated it from the Baby Bell local phone companies.

Given this sorry--and, many people thought, intractable--state of affairs, the most interesting question about Armstrong is why he took the job in the first place. Unlike your typical corporate-turnaround type, he doesn't seem afflicted by a massive ego or addicted to publicity. When AT&T approached him, he was the successful chairman of Hughes Electronics, which he had transformed by selling its lucrative but declining defense business and betting the company's future on direct broadcasting satellites. Having won the bet, he and his wife had just built a dream house near the water in southern California--"my wife took an unlimited budget and exceeded it," he says--and they had decided to pass the rest of his working life there. The time spent in his dream house: seven days. Given that Hughes would have paid him more to stay than AT&T paid him to leave, why take the job? "It was the ultimate challenge in what I've been trained to do: to lead and to change," he says. "I didn't leave Hughes for reason of Hughes. I left for the challenge. It's what life's all about."

Armstrong spent 32 years at IBM, many of them as a troubleshooter. That inspired a self-confidence that allows him to do the unconventional, as long as it makes sense. Raytheon chairman John Weaver, who worked with Armstrong at Hughes, recalls a project in Saudi Arabia in which Hughes had a $50 million incentive to finish three months ahead of schedule: "I went to him and said, 'Can we give the employees 10 percent of the $50 million to get them involved?' and he said, 'Nope, give them 40 percent.' They finished seven months ahead of schedule."

What's particularly striking about Armstrong's AT&T tenure is his rapid success in getting the company moving after years of ineffectual efforts by his predecessor, Robert Allen. Barely two months in the job, Armstrong did a $12 billion deal to buy Teleport, the nation's biggest non-phone-company local carrier. Four months later he launched the Digital One Rate plan, which changed the wireless-phone business, and two months after that he bought Tele-Communications Inc., the nation's No. 2 cable company. Although he goes out of his way not to badmouth Allen (who declines to comment), even Armstrong concedes that the company was messed up. "I couldn't figure out where decisions got made at AT&T," says Armstrong, who worked with Ma Bell frequently during his 32 years at IBM and five years at Hughes. "This place was impossible. We used to say there was one-stop shopping at AT&T--any one manager can stop anything."

Before taking the job, Armstrong says, he asked for the dossiers on AT&T's top 15 executives. He read them, checked out the people as best he could and decided that he didn't need wholesale changes. Had that been necessary, he says, he wouldn't have taken the job, because he would have needed two years to hire and break in new people. It's the same thing he did before taking the Hughes job in 1992.

When he got to Basking Ridge, Armstrong put the company's top managers in a windowless, unadorned room from 7:30 a.m. to 6 or 7 p.m. five days a week, and sometimes on weekends, too. It was like a big encounter group, designed to allow AT&T to decide what it wanted to do and how to get it done. "We spent night and day behind closed doors going into the challenges facing AT&T," he says, asking, "What does it take to become a great global-communications company?" The original idea was to spend 90 days at this--but that would have pushed the discussions into the Pebble Beach professional golf tournament, one of AT&T's signature events. So the schedule got accelerated, in time to unveil the overall strategy and announce 15,000 job cuts at a briefing for Wall Street analysts on Jan. 26, 1998.

"He wouldn't let us out of the room," says AT&T president John Zeglis, who had been the final inside candidate for the chief executive's job. "To mix a metaphor, he's a sponge for knowledge, and he's a drill. He absorbs all this information, and he drills down and down and down." In addition, Zeglis says, "he has the advantage of being a newcomer, without worrying about what's taboo and what's not."

AT&T's plan was to change itself from a long-distance and wireless company to a full-scale provider of communications, using facilities that it would own itself. Hence the decision to plunge into the cable-TV business--not to give people television, but to have wires into homes and businesses that can carry phone calls, data and Internet service. That is, assuming AT&T can get the technology to work. The point is to reduce AT&T's reliance on long distance, which, at the time Armstrong arrived, made up three quarters of its revenues and almost all its profits. That business is already vulnerable to price competition. And when the Baby Bells finally get sprung to do long distance, prices (and profit margins) will drop even further. Hence Armstrong's haste.

Armstrong, who left IBM for Hughes in 1992 when it became clear that he was unlikely to become chairman of Big Blue, exudes quiet confidence rather than swagger. Consider his story of how he was approached in 1996 by an executive recruiter about the AT&T chairmanship. When he got to New York City and met with chairman Allen at the Regency Hotel, Allen told him he was looking for a chief operating officer, not a chief executive officer. So, Armstrong recalls, he said, "There's been some mistake." He and Allen had a pleasant meeting drinking wine and discussing New Castle, Ind., where Allen grew up and Armstrong had once peddled equipment for IBM. "Then I got on the plane and came home." When AT&T came back in 1997, after the embarrassing resignation of recently hired president John Walter--who AT&T director Walter Elisha publicly said lacked the "intellectual capacity" to be chairman--Armstrong got the job he wanted.

The key thing now, as Armstrong readily concedes, is to tie AT&T's disparate pieces together and turn concepts into reality. Making deals is glamorous and fun. Making them work is much harder. Armstrong says he'll devote this year to working on operations. By the end of next year we may have an idea of how well--or badly--this all will work. In addition to working on the telecommunications business, Armstrong spends a lot of time working on Wall Street. AT&T's share price is vital to him, both because he and his executives are loaded with stock options and because combatants in the telecom wars use stock as currency to buy things. The higher your stock price, the more you can afford to bid. One of Armstrong's big advantages is that AT&T, at least until now, has had very little debt, and has immense borrowing capacity. Hence his ability to offer a cash-and-stock package in the takeover battle for MediaOne, which gives him an advantage over Comcast's all-stock offer. The cash part of AT&T's offer will increase by up to $5 or so per MediaOne share if AT&T's stock price falls below a certain value. Comcast, by contrast, is offering no price guarantee, and any decline in its stock price drives down the value of its deal.

The clean balance sheet that Armstrong inherited and is putting to use is a symbol of AT&T's past that Armstrong is happily exploiting. But AT&T's modern-day golden boy clearly has no use for Golden Boy, which symbolizes AT&T's glorious past. "It's too flashy," he says. He says that when he first saw the statue, "I had to ask someone what the hell it was." Armstrong adds that if he could find a taker, he'd love to get rid of Golden Boy. If his strategy comes even close to working, that's something no one's likely to say about Armstrong.

ARMSTRONG'S 18-MONTH MAKEOVERTHE NEW CHIEF EXECUTIVE TOOK OVER A BORING OLD-LINE COMPANY WITH LONGSTANDING AND SEEMINGLY INTRACTABLE BUSINESS PROBLEMS. IT'S TOO EARLY TO KNOW IF HIS STRATEGY WILL WORK, BUT HE'S SURE MAKING LIFE EXCITING FOR MA BELL.

October 1997 Mike Armstrong is introduced as the next chairman of AT&T by CEO Robert Allen (left), who doesn't seem to be having a very good day. Armstrong takes over on Nov. 1. Allen, under fire for many missteps, resigns from the board. Armstrong inherits a famous company that touches millions of customers but is plagued by problems.

January 1998 Barely two months on the job, Armstrong announces a $12 billion deal for Teleport, the nation's biggest competitive local-exchange carrier, which provides telecommunications services to businesses. The idea is to bypass wires of local phone companies.

June 1998 AT&T unveils a stunning $53 billion deal to buy Tele-Communications Inc., the nation's No. 2 cable-TV company, and to use its wires to offer local-telephone and Internet services. The move sets off fears that AT&T is trying to become a monopoly again.

July 1998 AT&T, which had fumbled one foreign venture after another for decades, makes a dramatic try to get it right this time, and signs a $10 billion joint venture, called Global Ventures, with British Telecom to cover foreign markets. Each company will contribute $5 billion of cash and facilities, and the two will join forces to compete with globalizing European and Asian companies, as well as with other combos of U.S. and non-U.S. companies. The idea: the joint venture can make better and quicker decisions operating independently of its parents.

April 22, 1999 AT&T announces a hostile-takeover bid for MediaOne, a huge cable company, trying to break up a previously announced deal between MediaOne and Comcast. AT&T is trying to dance around financial and regulatory questions with fancy footwork. This fight could pit it against not only Comcast but Microsoft and AOL as well.

April 25, 1999 AT&T president John Zeglis, who has been conspicuous by his absence at AT&T's big MediaOne announcement, finally surfaces. Turns out that he was in Tokyo, where he's been representing AT&T in talks with Japan Telecom, the nation's No. 3 long-distance company. This deal calls for AT&T and British Telecom to spend a total of $1.8 billion to buy a 30 percent Japan Telecom stake.