SMOOTH SAILING FOR AT&T-TCI Armstrong Shuffles Deck as Shareholders Near Vote

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Less than one week before its shareholders are expected tovote on its merger with Tele-Communications Inc., AT&T Corp. is movingfull-speed-ahead, unveiling a plan to shift management responsibilities at the new companyand possibly closing the deal early.

AT&T chairman C. Michael Armstrong will head up thecable operation, and TCI president and chief operating officer Leo J. Hindery Jr. willreport directly to Armstrong, instead of to AT&T president John Zeglis.

Zeglis will gain responsibility for AT&T'sinternational operations and its wireless-telephone unit, and he will continue to overseethe company's long-distance division; its legal, governmental and public affairs; andits efforts to bundle services, including cable television.

That's not the only change in store for TCI: Thecompany is expected to move into a new facility in the Denver area in April, quashingspeculation that the cable unit would be relocated to Basking Ridge, N.J. --AT&T's headquarters -- after the merger is complete

Other potential roadblocks to closing the deal appear to befalling. Last week, Armstrong said he was satisfied with the pace of the FederalCommunications Commission's review of the merger.

The FCC had previously said that it would not hold up thedeal over the refusal by AT&T and TCI to open up At Home Corp.'s @Home Networkhigh-speed-data service to competing Internet-service providers.

Another problem is that a few municipalities -- which areangry over the ISP issue -- still haven't signed off on the franchise transfer. Justlast week, a King County, Wash., council committee rejected the transfer. And AT&T isalready suing Portland and Multnomah counties in Oregon.

Although the merger was expected to close in the secondquarter -- primarily because the company was waiting for franchise-transfer approvals fromthe various municipalities in which TCI operates -- it might happen sooner.

According to an article in TheWall StreetJournal, the long-distance giant is expected to close the deal soon after the specialmeetings that will be held Wednesday (Feb. 17), regardless of whether it has received allof the necessary local-franchise approvals.

Patricia Stortz, a spokeswoman for AT&T, would notspeculate on the Journal article, but she did say that most of the needed municipalapprovals are in hand.

"Our goal is to close as quickly as possible,"Stortz added.

So far, AT&T has received franchise-transfer permissionfrom about 97 percent of the more than 1,000 municipalities in which TCI operates. Some ofthe others that haven't cleared the transfer, such as Seattle, are expected to do soshortly.

AT&T shareholders are expected to vote on the merger ata special meeting in Secaucus, N.J., Wednesday (Feb. 17), while TCI shareholders do thesame in Denver.

AT&T will create a new unit called the "ExecutionCouncil," consisting of Armstrong; Hindery; Zeglis; Robert Annunziata, president,AT&T Business Services; Frank Ianna, executive vice president, AT&T NetworkServices; and Daniel Somers, AT&T's senior executive vice president and chieffinancial officer.

Stortz said the Execution Council is being created to dojust that -- execute AT&T's cable and telephony strategy in the newly combinedcompany.

She added that having Hindery report directly to Armstrongin no way diminishes the TCI executive's role.

"[Hindery] understands that the rollout is a massivetask, and that it is central to our strategy," Stortz said. "Mike [Armstrong] isan operations chairman. He has extensive experience in creating a 'cable system inthe sky' when he was at Hughes."

Before coming to AT&T in 1997, Armstrong helped tocreate Hughes Electronic Corp.'s DirecTV Inc. satellite-television business.

Although the shift seems to validate rumors that Hinderyand Zeglis weren't getting along, the two men said in published reports that thiswasn't the case. Instead, the shift is being made to reflect the increased importanceof the cable operations in AT&T's overall business.

Jeffery Kagan, president of Atlanta-based Kagan TelecomAssociates, believes that the management shuffle could be just the tip of the iceberg.

"As AT&T continues to reinvent itself -- andthanks to the dynamics of the industry -- I'd expect there to be a lot of chaos andongoing changes at all levels until they find their center," Kagan said. "Iwouldn't be surprised -- in fact, I'd be disappointed -- if Mike Armstrongdoesn't continue to shuffle the deck as AT&T evolves."

Ted Henderson, an analyst with Englewood, Colo.-based JancoPartners, said the shifting of management responsibility is an indication of theconstantly changing nature of the business.

"I'm not reading a bunch into this,"Henderson said. "AT&T recognizes what they've got in front of them. A lot ofthe challenge is going to be in broadband, and Armstrong is saying, 'I want Hinderyreporting directly to me.'"

Henderson added that the shift does not cast a bad light onZeglis, mainly because he remains in charge of the long-distance unit and takes on theinternational division -- huge portions of AT&T's business.

Kagan added that by giving Zeglis more responsibility inthe international sector, Armstrong could also be protecting the company's $10billion joint venture with British Telecommunications plc to provide global communicationsservices to multinational corporations and international calling services to individualsand businesses.

"International and BT will be a big part of theirfuture, if they play their cards right," Kagan said. "I guess Armstrongdidn't want to dilute the talent that he has at the top by having them focus on toomany competing interests."

Ted Hearn contributed to this article.

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