Armstrong, C. Michael

(1938-)
AT&T Corporation

Overview

C. Michael Armstrong is the chief executive officer (CEO) and chair of the board of the AT&T Corporation. Since joining AT&T in 1997, he has invested over $10 billion in developing technology and expanding the company's infrastructure. His goal is to remake the company, which had been floundering in the declining long distance business, into a state–of–the–art high tech communications provider.

Personal Life

Armstrong was born on October 18, 1938, in Detroit, Michigan. He graduated from the University of Miami of Ohio in 1961 with a Bachelor of Science degree in business and economics. Fifteen years later, in 1976, he completed coursework in advanced management at Dartmouth Institute. He received honorary Doctor of Law degrees from Pepperdine University and Loyola Marymount in 1997 and 1998, respectively.

Actively involved in numerous organizations, Armstrong serves as a trustee of Johns Hopkins University and is a member of the advisory board of Yale's School of Management. He is a director of Citicorp, Inc., a member of the board of directors of Travelers Corporation, and a supervisory board member of the Thyssen–Bormemisza Group and the National Cable Television Association. He is chairman of the President's Export Council, which serves in an advisory capacity to the President and Secretary of Commerce on matters of international trade. He also chairs the Federal Communications Commission's Network Reliability and Interoperability Council. Other positions include a seat on the Council on Foreign Relations, the National Security Telecommunications Advisory Committee, and the Defense Policy Advisory Committee on Trade.

Known for his energetic optimism, his hands–on approach to management, and his courage to take on risks, the 6–foot 2–inch, 210–pound Armstrong has built a strong reputation in the business community for his accomplishments. Armstrong enjoys riding his collection of Harley Davidson motorcycles, skiing, and spending as much time with his family as possible. Ranking 29th on Worth.com's 1999 list of top corporate leaders and moving up to 25th place in 2000, Armstrong told Worth.com that his mother is his personal hero because she "believed in my brothers and me, and gave us the confidence to believe we could do anything we set our minds to—if we worked at it hard and long enough."

Career Details

Armstrong spent the first 30 years of his career with IBM. Starting out as a systems engineer, over the next three decades he moved his way up the corporate ladder to attain the position of senior vice president and chairman of the board of IBM World Trade Corporation. In 1991, having decided that he had reached a plateau within IBM, Armstrong resigned to become chairman of the board and chief executive officer of General Motors–owned Hughes Electronics. During his six–year tenure at Hughes, Armstrong moved the giant aerospace company away from primarily defense, specializing in governmental contract in space and communications technology, to become a diversified enterprise that refocused on the public sector, including development of DirecTV, the company's notable entry into the satellite television business.

However, Armstrong stirred controversy in 1993 when, as Hughes's CEO, he aggressively lobbied Congress and President Clinton to ease restrictions on the exportation of technology to China so that he could complete a $240 million deal with Beijing involving two Hughes–made satellites. The State Department had banned sales of all satellites to China for two years upon learning that China had been selling the technology to Pakistan and was strongly opposed to easing the sanctions. As a Republican, Armstrong held little personal sway with the Democratic White House, so he hired two high–powered Democratic lobbyists to pitch his case. The results were swift; within weeks the regulation of satellites was transferred from the Department of State to the Department of Commerce, creating a loophole that allowed Armstrong to deal with China. In 1997 Armstrong was called before a Senate investigation panel to testify, at which time he strongly maintained the legality of his actions, noting that no sensitive technology that could be useful to hostile militaries was attached to the satellites involved in the transactions.

In 1996 Armstrong met with an AT&T executive recruiter; however, when he discovered that he was being approached for the position of chief operations officer rather than CEO, he politely declined any interest in the position. AT&T hired John Walter to fill the company's top spot, but to the company's embarrassment, the relationship failed quickly, and Walters tendered his resignation soon after he was appointed. With the chairmanship of the company open once again, this time AT&T called Armstrong back to the table to offer him the job he wanted. In November 1997, AT&T named Armstrong the new chairman of the board and CEO; Armstrong received nearly $15 million in restricted stock awards for accepting the position.

Chronology: C. Michael Armstrong

1938: Born.

1961: Began 30–year career with IBM.

1991: Appointed chairman and chief executive officer (CEO) of Hughes Electronics.

1993: Controversy arose over Hughes' lobbying practices.

1995: AT&T announced plans to restructure.

1997: Selected as chairman and CEO of AT&T.

1998: Purchased Tele–Communications, Inc. and MediaOne Group.

1999: AT&T stock prices rose 60 percent in value during first 18 months as CEO.

2000: Announced second restructuring of company; stock prices plummeted.

2001: AT&T Wireless completed split with parent company.

When Armstrong came on board AT&T, the giant communications company was struggling to come to terms with its future. In September 1995, the company announced it was restructuring into three separate, publicly traded entities. The systems and equipment division became Lucent Technologies; the computer segment split off as NCR; and all the communication services remained as AT&T. It constituted the largest voluntary break–up of a private company in American history. The problem faced by Armstrong when he came to AT&T—which maintains over 80 million customers, 163,000 employees, and in excess of $62 billion in revenues—was simple to understand, but more challenging to solve. In 1997 over 80 percent of AT&T's business was long distance; however, the consumer long distance market and profitability was disappearing rapidly. Armstrong felt it was imperative to act quickly and decisively. To remake the corporation into a viable business for the next century, Armstrong took aggressive, sometimes risky, steps to set AT&T on a new path. "We are transforming AT&T," he wrote in the company's 1998 Annual Report, "from a long distance company to an 'any–distance' company. From a company that handles mostly voice calls to a company that connects you to information in any form that is useful to you—voice, data, and video. From a primarily domestic company to a truly global company." Armstrong wanted to move AT&T from simply a long–distance provider to a company equipped to provide full–scale communication services.

Within the first two years, Armstrong shelled out over $100 billion for expansion. In June 1998 he purchased Tele–Communications, Inc. (TCI) for $48 billion, followed by the purchase of cable provider MediaOne Group, a $58 billion acquisition. He also formed a $10 billion venture with British Telecom, called Global Ventures, to move into the international markets. Other purchases included TCG, a provider of local telephone service to businesses and IBM Global Network, a data networking service. Armstrong's vision was to provide a complete line of communications produced from one place, so–called "one–stop shopping." If the future evolved as Armstrong planned, customers would be able to make local and long distance calls, access the Internet, get cable and pay–per–view television, plus wireless and data communication services—all from AT&T.

Armstrong's bold vision ignited new energy within the company, among shareholders, and on Wall Street. In May 1999, Newsweek's Allan Sloan called Armstrong "AT&T's Golden Boy," noting, "he's earned a glittering reputation on Wall Street, which loves his dramatic multi–billion–dollar deals, the huge fees they generate and the attention he devotes to the care and feeding of the investment bankers and analysts." Armstrong's popularity extended to shareholders, too; stocks rose 60 percent in the first 18 months after his appointment as head of the company. By mid–2000 AT&T was working to expand three networks—broadband, wireless, and data—and the company operated four quasi–independent businesses: cable, wireless, business, and consumer.

The only problem with Armstrong's grand plan was that life very rarely comes out the way it is planned. The hope was that AT&T's expanded cable services would boost profits enough to make up for the downfall of its consumer (i.e., long distance) division, thus providing Armstrong enough time to grow his other new ventures. However, AT&T Broadband, its cable division, proved to be the least profitable of its four segments, posting a loss of $5.4 billion dollars in 2000, primarily because broadband Internet access and cable–network local telephone service did not grow as fast as expected. Also, the necessary time and expense to expand the infrastructure to realize Armstrong's vision cost much more in time and financial resources than first assumed. Shortly after the announced AT&T–TCI merger, Business Week's Peter Elstrom noted, "Think of it this way: AT&T has bought the dirt road that leads to American homes. Now it must grade it and pave it to carry all the new traffic." Early excitement turned into concern as AT&T failed to show the quick results expected by investors. As a result, shareholders began dumping their stock en masse, causing the price to plummet.

By October 2000, stocks had fallen to $24 a share, some 20 percent less than when Armstrong was hired three years before. In another bold attempt to salvage the value of stock, Armstrong announced on October 25, 2000, that AT&T would once again undergo restructuring. By breaking up the company into four separate businesses—wireless, cable television, consumer, and business services—each with separate management organizations and shareholders, Armstrong hoped to isolate the weaker divisions from those with the most growth potential. Business Week reported that Armstrong noted, 'The creation of these four companies is the foundation for a path to value creation. The journey hasn't been simple, but I believe it will be successful." Despite Armstrong's optimism, investors were not completely convinced, and some were outright hostile to the idea, believing that Armstrong had abandoned his foundational concept of "one–stop" communications shopping.

Armstrong maintained his optimism and defended his actions. Expanding at the price of bottom–line profits for the first three years, Armstrong decided that the new separated structure would best serve the needs of the customers and the shareholders as well as providing new motivation for employees. In a February 2001 interview with Business Week's Steve Rosenbush, Armstrong explained, "Shareowners had been very patient while we made those investments....And would shareholders have the patience to wait much longer [to see a return on their investments]? I judged not. It was time for the currencies, the equities, and the shareholder value to come through. I couldn't make it happen any other way." Rejecting the idea that the devaluation of AT&T stock was due to the restructuring plan, Armstrong asserted that the drop in value was a result of the industry–wide destabilization of the basic long distance service. He also reminded his critics that in three years, AT&T had come a long way, from simply being a long distance provider to a company prepared to meet the challenges of the next century of high tech global communication demands.

Social and Economic Impact

The final verdict is still out on what the total impact of Armstrong's aggressive strategies will be on AT&T in particular and the communications industry in general. To no one's surprise AT&T Consumer is expected to continue to operate with a negative profit margin. Some analysts speculate that this weak link in the AT&T structure may likely be sold off in the future. Although Business AT&T was negatively affected by a restructuring of the sales force early in 2000 that resulted in poor customer service and the loss of several large accounts, some analysts believe it has the potential eventually to show significant revenue growth. AT&T Wireless is the hands–down favorite to be the most successful product line offered by the AT&T family. With over 11 million customers, it is the third largest wireless provider in the United States. By selling stock in 2000, the company raised $10 billion, which can be used to purchase technology and upgrade its services. With strong investor support of some $42 billion, in July 2001 AT&T Wireless completed its split with AT&T. Armstrong began to come under pressure from investors in 2001 to merge AT&T Broadband with an outside company. Armstrong is unwilling to consider selling unless an ideal offer comes his way. Instead, he continues to preach patience to shareholders who have yet to see a return on their investments.

"What I started out to do was to re–create AT&T and in doing that, I set out against time, which was my enemy," Armstrong told the Wall Street Journal in July 2001. "Certainly some wonder whether we'll deliver the value of this strategy. The first legacy of that strategy is wireless. Business services, consumer and broadband will fulfill the same potential." Armstrong has hinted that he may retire in 2004 when he turns 65. Until then, he continues working to ensure that he leaves behind a healthier, more productive, and more profitable AT&T.

Sources of Information

Contact at: AT&T Corporation
32 Avenue of the Americas
New York, NY 10013–2412
Business Phone: (212)387–5400
URL: http://www.att.com

Bibliography

"Armstrong on the Record." Business Week Online, 5 February 2001. Available at http://www.businessweek.com.

"AT&T–TCI: Telecom Unbound." Business Week, 6 July 1998. Available at http://www.businessweek.com.

"Biography of Michael Armstrong." International Trade Administration, U.S. Department of Commerce, 2001. Available at http://www.ita.doc.gov/td/pec/bioarmst.html.

Elstrom, Peter. "AT&T: Breaking Up is Still Hard to Do." Business Week, 6 November 2000.

"50 Best CEOs." Worth, 2000. Available at http://www.worth.com.

Hochheiser, Sheldon. "History of AT&T." AT&T, Inc., May 2001. Available at http://www.att.com.

"Q & A: A Frank Talk with Mike Armstrong." Business Week, 23 July 2001.

Sloan, Allan. "AT&T's Golden Boy." Newsweek, 10 May 1999.

Solomon, Deborah, and Nikhil Deogun. "For AT&T's Armstrong, Comcast Bid Validates His Vision—Sort Of." Wall Street Journal, 13 July 2001.

"Webcast With C. Michael Armstrong." National Press Club, National Public adio, 7 February 2001. Available at http://www.npr.org.