Q&A: A Frank Talk with Mike Armstrong

Comcast's unsolicited $41 billion bid for AT&T's cable TV business put that unit--and perhaps the whole company--in play. It's an unwelcome turn for CEO C. Michael Armstrong, who attempted a bold but risky strategy to reinvent AT&T (T ) for the Internet Age. He discussed these issues on July 11 with Telecommunications Editor Steve Rosenbush and Senior Writer Peter Elstrom.

Q: What's your response to the Comcast offer?

A: This thing is 48 hours old. I got it on my fax machine Sunday night. At this time, for sure, Broadband is not up for sale. On the other hand, we have got a two-page unsolicited offer. We'll take it as a serious offer, and we'll discuss it with the board.

Q: Would you be willing to sell Broadband under the right circumstances?

A: I would consider a number of factors. The price-value equation, of course, would have to be one. We would also take strategic fit of the two companies into consideration. AT&T is a large public company. We have to make an assessment about moving control from public governance to private family, and what the implications of that are. I'm not judging it good or bad.

Q: What do you say to investors who clearly believe Broadband would be better managed in other hands?

A: You don't sell your company if you need better management. I believe that our current plan for Broadband will create tremendous shareholder value. We have invested heavily in the company. Of course that has affected our margins. But AT&T Broadband is the fastest-growing new services provider of any cable company. Also the biggest. Boston is a leading edge example of what we are trying to do throughout AT&T Broadband. Ninety percent of the network and region are upgraded. Year-over-year growth is 40%, and the margins are 40%.

Q: Investors are skeptical that you can make good on your promises, in part because the company has had execution problems in the past. Why is that?

A: We haven't had flawless execution, but we executed very well in wireless. We executed our network transformation well over a 30-month period, and we fixed execution in the data side of the business over a period of quarters--just as we said we would.

Q: Why are AT&T Broadband's margins so much lower than those of Comcast and other cable operators?

A: Comparing our margins, during a period of integration and investment, to something that is 20 years old is a little mischievous. Our margins are going to improve over time because we have most of our [investment] under our belt.

Q: Won't AT&T emerge from the current breakup looking very much like the old long-distance company? Can it survive?

A: The company that is going to be Consumer Services and Business Services is far different--$46 billion of investment is far more than a few more facilities. It is going to have a state-of-the-art network and millions of local [business] lines. It is going to have an intelligent network. It is going to have global presence in 859 cities in 60 countries. It is the leader in [communications] solutions outsourcing. This is not the AT&T communications company we started with. This is a powerful, state-of-the-art, global communications company.

Q: Why has AT&T had such a hard time for so long?

A: When we set out on this journey with AT&T, what we were in 1997 was going away. The middle of the phone call was created by a judge. We had to transform against time. Eight-four percent of the revenues and 100% of the profit came from long distance. That's like saying to Lou Gerstner, "I want you to transform IBM. But there's a little problem--computers are going away in seven years." What we've attempted to do is make an AT&T for the next century.

Q: What sort of legacy will you leave?

A: I would like to leave behind four AT&T companies that are strong, competitive, well-managed, that are well-respected both by our customers and our competitors. [But] legacy is about what you've done. I'm so consumed with doing. Being a baseball fan, I think we're in the fourth inning.

Q: Is this the end of AT&T?

A: Let's talk about the end of AT&T. You're not going to end something that has a strong and growing business. It's going to survive and grow. Will it combine with someone in the future? I don't know. But the business, and I believe, the brand, will survive. Brian Roberts sent a two-page letter and now the AT&T company is going to go away? I guess you can sell a few newspapers that way.

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