MUSICAL CHAIRS; WALL STREET CHEERS AT&T'S NEW CHIEF.

Byline: David E. Kalish Associated Press 

AT&T Corp., its leadership fading and image tarnished, Monday finally picked a chief who is given decent odds at reviving Ma Bell: Turnaround specialist C. Michael Armstrong.

Armstrong, who eliminated thousands of jobs while head of Hughes Electronics Corp., will replace AT&T chief executive and chairman Robert E. Allen, starting Nov. 1.

After transforming Hughes from a stodgy defense company into a fast-growing satellite business, Armstrong now must attack AT&T's problems with similar zeal. His challenge is to protect AT&T's core long-distance markets and slash billions in expenses to help pay for expansions into local, overseas and other markets.

Armstrong said fresh investments are key.

``When you're in the midst of a growth industry, you've got to invest or walk,'' he told reporters. But he declined to say acquisitions are part of that strategy.

In a possible suggestion of fresh cost cuts, Armstrong said the largest company in any industry also should have the lowest proportionate expenses.

Judging by Wall Street's reaction, Armstrong, who is 59, may be up to the task.

AT&T's stock, the nation's most widely held, soared more than 5 percent, adding to a nearly 4 percent gain Friday triggered by reports of Armstrong's pending leadership. AT&T rose $2.31-1/4 to close at $47.50 a share on the New York Stock Exchange.

The response contrasted sharply with a year ago, when the stock lost about that much over two days after AT&T chose Yellow Page publishing executive John Walter as its future leader. Walter, who has since quit, was viewed as too inexperienced in telecommunications.

Armstrong's appointment ends an intense three-month search for a replacement to Allen, 62, who is resigning after a stormy nine-year tenure. Allen has been criticized for a disastrous foray into the computer business, which lost billions of dollars, and a decision to let go of the company's valuable research arm as part of a breakup of AT&T.

More recently, he helped oust his own chosen successor, Walter, this past July in an embarrassment to AT&T's board.

Asked how he felt, Allen denied that he had regrets. ``I think this is a day of celebration and joy,'' he told a news conference, referring to the new leadership. ``I'm relaxed.''

Armstrong, the first outside leader at AT&T in nearly eight decades, is viewed as dispassionate enough to upset the status quo at AT&T. The technological veteran played major roles in IBM's computer and telecommunications business, and slashed 20,000 jobs at Hughes to help shift its business.

He is paired with a respected AT&T insider to help navigate those changes. AT&T named its general counsel and vice chairman John D. Zeglis, 50, as president. Zeglis is expected to be groomed to succeed Armstrong as chairman and CEO, though AT&T executives said no decision has been made.

``I think the combination of Armstrong and Zeglis is a powerful one,'' said Stephanie Comfort, an analyst with Morgan Stanley & Co.

``Armstrong clearly brings proven leadership and turnaround expertise, and Zeglis has a great reputation in terms of understanding the long-distance business and what AT&T needs,'' she said.

Armstrong takes over AT&T at a stormy time in the telecommunications business. Since a law last year freed local and long-distance companies to enter each other's business, companies have been combining rapidly to drastically alter the industry's landscape.

But AT&T has largely sat on the sidelines while its rivals combine to become more competitive. MCI Communications Corp., the closest rival to AT&T in long-distance, is the target of a high-stakes takeover battle between local phone giant GTE Corp., upstart WorldCom Inc. and British Telecommunications Inc.

Armstrong, often smiling with seeming confidence at a news conference alongside Allen and Zeglis, said he would review AT&T for two to three months before making changes.

Armstrong and Zeglis also plan meetings with regulators and other government officials.

In addition to the management change, AT&T announced plans to sell off its credit-card and customer support units by the middle of next year in a move that analysts said could fetch more than $1 billion to help build a war chest for its investments. AT&T declined to say how much it was seeking.

AT&T also announced its third-quarter profit dropped 15 percent in the quarter. Profit was hurt by higher expenses and a drop in revenue from its long-distance business amid stiff competition for customers. But the results still were better than expected, helped by increased volume of phone calls.

AT&T said it earned $1.15 billion, or 71 cents a share, for the third quarter compared with profits of $1.36 billion, or 84 cents a share, for the year-ago quarter. Those results were adjusted to reflect the sale of AT&T's underwater cable business earlier this year.

Revenue from continuing operations rose 1 percent to $13.38 billion from $13.23 billion.

AN AT&T TIMELINE

1876 - Alexander Graham Bell invents the telephone.

1885 - American Telephone & Telegraph Co. is incorporated as subsidiary of American Bell Telephone Co. to provide long-distance service.

1893-94 - Bell patents expire and independent phone companies spring up.

1900 - AT&T becomes parent company of American Bell.

1910 - AT&T gains effective control of Western Union, its biggest telephone competitor.

1913 - Under threat of antitrust suit, AT&T agrees to dispose of Western Union stock and not to buy more independent phone companies without government approval.

1956 - In a controversial decision, Eisenhower administration ends a seven-year antitrust suit against AT&T. By consent decree, AT&T is allowed to keep its Western Electric manufacturing subsidiary in return for staying out of computer business.

1969 - FCC grants application of Microwave Communications Inc., later to become MCI Communications Corp., to sell private long-distance lines between Chicago and St. Louis.

1980 - Federal jury in Chicago awards MCI $1.8 billion in antitrust damages from AT&T.

1982 - Justice Department and AT&T sign landmark agreement breaking up the AT&T monopoly by allowing long-distance competition and creating seven independent regional phone companies dubbed ``Baby Bells.''

1984 - AT&T enters general-purpose computer business with line of medium-range computers.

1985 - In retrial, MCI gets $113 million in antitrust damages from AT&T instead of $1.8 billion.

1988 - Robert E. Allen becomes chairman and chief executive. A $6.7 billion write-down of old equipment causes AT&T's first-ever annual loss.

1990 - AT&T introduces the Universal Card, a combination calling card and credit card.

1991 - AT&T signs a deal to buy computer maker NCR Corp., the former National Cash Register Corp. for $7.4 billion.

1991 - Annual profits fall 83 percent.

1992 - Revenues fall from computer operations, which begin losing money.

1993 - Agrees to by McCaw Cellular Communications, the nation's largest cellular phone company, for $12.6 billion.

1995 - AT&T announces it will voluntarily break into three separate companies: a telecommunications services provider, a communications equipment maker and a computer maker.

Jan. 2, 1996 - AT&T says it will eliminate at least 40,000 jobs.

Feb. 26, 1996 - Discloses that Allen received stock options worth $9.7 million in 1995, on top of $3.3 million salary, as job cuts were being planned.

Feb. 8, 1996 - President Clinton signs new telecommunications law that frees local and long-distance companies to enter each other's business, opening a new threat to AT&T's core business.

Aug. 19, 1996 - Alex J. Mandl, widely seen as heir apparent to Allen, resigns as AT&T's president and operating chief to run wireless startup Associated Communications.

Sept. 30, 1996 - AT&T completes spinoff of communications equipment arm, Lucent Technologies Inc., which becomes one of the hottest stocks on Wall Street.

Oct. 23, 1996 - Picks John R. Walter, head of Yellow Pages printer R.R. Donnelley & Sons, as its president and successor to Allen.

July 16 - Walter resigns after company backs out of promise to make him Allen's successor.

Oct. 20 - Names C. Michael Armstrong, head of Hughes Electronics Corp., chief executive and chairman effective Nov. 1. Also announces plans to sell off its credit-card and customer support units by the middle of next year.

CAPTION(S):

4 Photos, Box

Photo: (1--Color) AT&T's new CEO, Michael Armstrong, left, shakes hands with outgoing CEO Robert E. Allen.

(2--Color) MOVING IN

Michael Armstrong

AT&T's new chiefexecutive and chairman. Was head of Hughes Electronics Corp.

(3--Color) MOVING UP

John D. Zeglis

AT&T's new president. Was general counsel and vice chairman at AT&T.

(4--Color) MOVING OUT

Robert E. Allen

Resigning as AT&T chairman and CEO after a stormy nine-year tenure.

Associated Press

Box: AN AT&T TIMELINE (See text)