Deconstructing AT&T

Chuck Noski is leaving AT&T -- but not before he takes it apart.

Like many people, Charles H. Noski has tired of his commute. That’s understandable, since the vice chairman and CFO of AT&T Corp. hops on a corporate jet in New Jersey at the end of each week and flies to southern California, where his family lives. Having logged those 6,000-mile round trips since coming over from Hughes Electronics in December 1999, he’s now decided it’s time for a change.

But the desire for more time with his wife and two daughters isn’t the only reason Noski announced on May 23 that he will leave AT&T once the sale of its cable TV unit, AT&T Broadband, to Comcast Broadband, is completed late this year. After two and a half years in one of Corporate America’s toughest CFO jobs, Noski has done just about everything that chairman and CEO C. Michael Armstrong and the board of directors asked him to do.

That’s quite a lot, from conducting the auction of AT&T Broadband–which Comcast Corp. won for $47 billion over rivals AOL Time Warner and Cox Communications–to overseeing AT&T’s restructuring into four publicly held businesses. That monumental task began in October 2000, after Armstrong’s dream of building a communications superpower dissipated in the messy reality of cable operations and the nightmarish meltdown of the telecom industry.

AT&T Wireless became an independent company in 2001. And when Broadband goes, taking Armstrong with it as chairman of the new AT&T Comcast, the “T” ticker symbol will ultimately cover just AT&T Business Services (a tracking stock is planned for Consumer Services). The new AT&T will be even more exposed to the alarmingly rapid decline of the long-distance voice business, which currently accounts for about half of the company’s revenues. With more competition ahead from the regional Bells and more substitution of wireless and E-mail for long distance, AT&T is betting the future on providing communications services for businesses, a market that could be worth $60 billion in the United States alone.

Financially, AT&T will tower over such heavily leveraged rivals as WorldCom and Qwest, thanks to Chuck Noski’s overhaul of the balance sheet. Via a series of outsized transactions, the CFO and his staff have reduced a staggering debt load of $65 billion to $34 billion in total net debt. The sale of the cable unit will leave AT&T with around $15 billion in debt and one of the lowest debt-to-EBITDA ratios in the telecom industry.

Not that AT&T will have an easy time of it. Citing the erosion of long-distance revenues, Moody’s Investors Service recently downgraded the company’s credit rating two notches to Baa2 (Standard & Poor’s rating is BBB+). Some speculate that once Broadband is sold, a Baby Bell like Verizon or SBC will move to take over its former parent. One thing is sure: by then AT&T will be on relatively firm financial ground, an achievement that wins kudos for Noski from Wall Street. “What he’s done, I would argue, is basically save the company,” declares Adam Quinton, a telecom analyst at Merrill Lynch & Co. Without Noski’s shrewd management, “AT&T as we see it today might have taken a very different course,” says Quinton, who, tongue firmly in cheek, faults the CFO only for “his rather bad timing in terms of when he joined the company.”

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