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. Last Updated: 07/27/2016

Tasty Morsels, Digestive Challenges for AT&T

NEW YORK -- Following the AT&T Corp. under C. Michael Armstrong has become an experience akin to watching one film sequel after another in the "Jaws" series.

Just when you thought Armstrong, AT&T's chairman of 18 months, couldn't possibly bite off another big deal, he does just that, and the communications industry masses are sent fleeing to find ways to cope.

Last week's casualty may have been the Comcast Corp., the big cable television operator. Just when it looked as if AT&T had settled down to manage its own $31.8 billion acquisition of Tele-Communications Inc., the No. 2 U.S. cable carrier, Armstrong swam into the middle of Comcast's pending $53 billion deal for the Mediaone Group and roiled the waters with an unsolicited bid for AT&T to buy Mediaone for $58 billion.

Mediaone executives have not yet publicly responded, but many analysts say that AT&T, with its superior financial power, will scare off Comcast and win Mediaone - if regulators allow it. That would make AT&T the nation's No. 1 cable television company, in addition to the No. 1 long-distance telephone carrier.

But like a voracious shark that ends up with a bunch of old license plates in its belly, AT&T may have a tough time digesting everything it has tried to swallow. The main question for AT&T now is whether its appetite has exceeded its ability to integrate its businesses into the lean yet powerful communications machine that Armstrong wants AT&T to become.

As Armstrong propels AT&T headlong into the future he has envisioned, the company faces mounting challenges - not only of management and strategy, but also of regulation and technology.

Perhaps the most daunting management challenge for AT&T is the sheer breadth of Armstrong's strategic ambition. Several analysts wondered why John Zeglis, AT&T's president, was conspicuously absent during the company's Mediaone announcement last Thursday. It turned out he was in Japan. There, over the weekend, AT&T and British Tele-communications, AT&T's new international partner, announced a joint investment of more than $1.8 billion to acquire a 30 percent stake in Japan Telecom, a communications carrier backed by the main Japanese railroad company.

The announcement's near simultaneity with the Mediaone bid was either impressive or unnerving, because it demonstrated Armstrong's comfort with juggling multiple deals.

Despite AT&T's common goal of controlling its own architecture, or electronic infrastructure, there is a big difference between the two deals. AT&T's overseas ventures are aimed at serving big-ticket multinational corporate clients, while the company's cable television expansion is aimed at serving everyday residential consumers. It is AT&T's hunger for residential customers that best explains its seeming feeding frenzy.

It is clear by now that AT&T is terrified of the prospect of at least one of the local Bell phone companies being poised to win regulatory approval to enter AT&T's core long-distance business this year.

Armstrong has decided that the solution is to counterattack the Bells by taking the war to a new front - cable TV systems. Through those cable lines, AT&T intends to offer local and long-distance calling, as well as Internet services.

The stakes for Armstrong, not to mention AT&T, are high. If the cable strategy works well, he will become known as one of the most visionary and dynamic executives of his day. If it does not, history might recall him as an IBM executive who was passed over for the top job at that company and when given the chance to run AT&T, tried to prove too much.

For now, at least, dynamic seems to be winning. Armstrong, presumably, is looking for his next "Jaws" sequel.