Key Exec Leaves MSO At a Critical Time

AT&T Broadband & Internet Services CEO Leo J.Hindery Jr. had been hinting for months that his time with the telecommunications giantwouldn't be long.

Last week -- perhaps a little ahead of his own schedule --the man who was a key architect of the current cable-ownership landscape left AT&T to"pursue other interests."

Hindery will stay on as a strategic adviser to AT&TCorp. chairman C. Michael Armstrong, focusing on acquisitions, clustering and industryrelations.

As AT&T looks to wrap up its acquisition of MediaOneGroup Inc. and struggles to implement a telephony strategy that requires cuttingaffiliation deals with other MSOs, Hindery's departure has left operators apprehensiveabout his possible successor.

Even with a "cable guy" like Hindery in place,there had already been signs that AT&T's approach is to do whatever benefits AT&Twithout necessarily checking with others in the cable fraternity first.

Although longtime cable executive and AT&T Broadbandnonexecutive chairman Amos Hostetter has agreed to spend more time in Denver -- focusingon broadband strategy, staffing and industry relations -- industry analysts said Hinderyleaves without a clear successor.

In an interview last Wednesday, Hindery said the move wasArmstrong's idea. "Mike is the CEO," Hindery said. "What was appropriateyesterday is maybe different than what is appropriate today. I work for him. I believethis is the right thing to do, or I wouldn't be having this conversation -- I'd just begone."

Hostetter said last Friday that Hindery's move "wasinevitable and certainly mutual. It was probably the right outcome for both sides. Therewas just a fundamental difference in styles. To anybody who has been close to this, it wasnot a question of whether -- it was a question of when."

Hindery's troubles may have begun after a report late lastmonth in The Wall Street Journal outlined a pending billion-dollar purchaseof modems and set-top boxes from General Instrument Corp. and Motorola Inc.

AT&T executives were said to be furious to learn aboutthe deal after it was leaked to the Journal and, according to sources, they blamedHindery for keeping them out of the loop. AT&T has not publicly acknowledged the deal,and it is still not clear if it will ever get done.

Shortly after that, reports surfaced that Excite@Home Corp.-- the data-over-cable company that Tele-Communications Inc. cofounded and that AT&Tpartly owns -- was negotiating a sale to America Online Inc.

Hindery publicly dismissed the reports as"absurd." Less than 24 hours later, AT&T fired off a press release thatappeared to contradict Hindery's statement.

AT&T executives, according to sources, were also nothappy about Hindery's attempt to cut a content deal with Internet portal Yahoo! Inc. --which conflicted with @Home's partner, Excite Inc. -- and about public comments he hasmade criticizing AT&T's hidebound culture.

Then in the days leading up to his departure, AT&T,according to sources, approached the Federal Communications Commission with a plan thatwould allow independent Internet-service providers to gain access to data-over-cablecustomers, without running the plan by other operators or the National Cable TelevisionAssociation first.

The NCTA and operators have insisted that cable has theright to cut its own business deals with other ISPs on its own terms.

AT&T's motive, the sources said, was to score pointswith the FCC at a time when the commission was reconsidering subscriber-concentrationrules that could put a crimp on the MediaOne acquisition.

Industry executives tossing out names of possiblesuccessors mentioned Bill Fitzgerald, the mergers-and-acquisitions wizard under Hinderywho became TCI's chief operating officer; MediaOne cable CEO Jan Peters; and Carl Vogel,the longtime cable executive who recently became COO of AT&T Broadband's dataoperations.

AT&T senior executive vice president and chieffinancial officer Daniel Somers will run AT&T Broadband's day-to-day operations in theinterim. But Somers said the company was conducting a search for a permanent replacement.

Although Hindery was well regarded, analysts didn't see hisdeparture as a crushing blow to AT&T. The company's stock actually ticked up $1.37 pershare after the news came out last Wednesday, closing at $46.50 -- still well below its52-week high of $64.13.

"It's a disappointment," SG Cowen SecuritiesCorp. cable analyst Gary Farber said of Hindery's departure. "He was 'Mr. Cable Guy'to some extent in the industry. To the extent that he's not going to be that anymore, itdoesn't create a vacuum: It creates an opportunity for somebody in the group to assume themantle. Maybe it's an AT&T guy, but it's probably an operations guy -- anuts-and-bolts cable/new services guy."

The Yankee Group telecommunications analyst Brian Adamikexpected Hindery's successor to come from outside. "They need a broadband guy, andright now, they don't have one," he said. "Amos [Hostetter] is more of a companybuilder. The question I have is: Does Malone come in and be the interim head? It boilsdown to protecting a major investment he has. It's certainly a possibility."

In a telephone interview, Somers said there was no chancethat Malone would assume a more active role in the day-to-day operations of AT&TBroadband.

"I think he's enjoying his media business," hesaid. "We're happy to have him on the board. I don't think there is any desire onJohn's part to do anything different than what he's doing now."

Malone did not return phone calls seeking comment.

In a Forbes article, however, AT&T's biggestshareholder indicated a distinct displeasure with the company's stock's performance andjawboned for a tracking stock tied to the cable and Internet assets.

AT&T has been rumored to be considering a trackingstock for its cable assets -- a strategy it abandoned shortly before it closed itsacquisition of TCI in March, but one that it may be reconsidering.

A tracking stock could also help to attract top candidatesfor Hindery's job. "If you make it a tracking stock, maybe you're also able to treatthe company almost as a separate entity and make decisions without having to worry aboutthe ripple effect throughout the rest of the corporation," Adamik said.

Hindery would be a hard act to upstage. A bootstrapmillionaire who got started in the mining industry after graduating from StanfordUniversity Business School, Hindery built his first cable company, InterMedia Partners,into a top MSO before Malone brought him in to run TCI in December 1997.

His task was to transform the company from a sprawlingbehemoth with outdated plant and serious customer-service problems into a tightlyclustered, attractive takeover target.

Hindery made a big impact. As he noted during a recentpublic appearance in Hartford, Conn., he swiftly fired about two-dozen senior TCIexecutives in order to build his own team.

With the help of M&A specialists like Fitzgerald, heswung dozens of system sales, swaps, buys and joint ventures that reshaped the industry bycreating large regional clusters with the needed scale to support new services.

But the dealmaking pace has slowed down since AT&T tookover, with the notable exception of the MediaOne acquisition and related systems sales toComcast Corp., which AT&T outbid for MediaOne.

Hindery said about one-dozen side deals are pending. But asthe number of deals began to dwindle, the personality conflicts began to grow.

Hindery downplayed speculation that he and Armstrong hadlocked horns over certain issues.

"I'm not unopinionated," he said. "If Ididn't have as much affection and respect for Mike Armstrong as I did yesterday, again,I'd just go. He really is an exceptionally gifted CEO who has a brilliant strategy thatdeserves everybody's support to be successful. This is the conclusion that he's come to. Isupport it. I'm happy to go down this route if that's what he wants done."