Posted 11/9/2004 10:15 PM     Updated 11/10/2004 2:47 AM

Ex-telecom CEO clears out, starts fresh

Back then, AT&T Wireless had just reported a loss of 367,000 subscribers — the worst performance by a carrier in U.S. wireless history. In the same quarter, Verizon Wireless had added more than 1 million subscribers.

So what went wrong?

A better question, corrects Zeglis, is, what didn't go wrong?

"Was my oversight of the operations inadequate? Everything was inadequate," says Zeglis, who was widely blamed for the company's deteriorating service.

It's a startling statement from a man who spent his career parsing words in public, a habit he refined while serving as AT&T's general counsel for a dozen years.

Zeglis recently sat down with USA TODAY to discuss his time at AT&T Wireless. He also talked about its infamous service problems, his $25 million goodbye payday and the future of Cingular, which faces the daunting task of making the two companies function as one. Zeglis spoke, too, of his own future, which for the first time in 30 years isn't tethered to the world's most famous phone company.

Big changes are afoot. Zeglis, 57, and his wife, Carol, have sold their home in Madison, N.J., where they lived for 20 years, a few miles from AT&T's old Basking Ridge headquarters. The boxes and general disarray of moving are an apt symbol of Zeglis' life at the moment.

His rise to the top of the wireless world began in the most unlikely fashion. In 2000, AT&T set plans to spin off its wireless and cable-TV divisions. Zeglis, then AT&T's president, was named CEO of a new company, AT&T Wireless, whose core consisted of the old McCaw Cellular systems. (AT&T bought that business from Craig McCaw in 1994.) The appointment was a surprise because Zeglis had no wireless experience.

Dan Hesse, then running AT&T's wireless business, quit rather than work for Zeglis. Hesse's departure set off howls in the wireless industry, which was slow to embrace Zeglis as one of its own.

The company Zeglis inherited had a screaming technology problem. Its networks were based on an older technology known as "TDMA" — time-division multiple access — with limited capacity. McCaw had selected the TDMA standard. AT&T had considered replacing the technology for years but never had.

Another glaring problem: the scope of its network. It covered only about 100 million people. That was only about half the reach of Cingular, a joint venture of SBC Communications and BellSouth, and Verizon.

Given the crush of new data and multimedia services coming down the pike, AT&T Wireless faced the prospect of seeing its capacity exhausted within a few years. Zeglis says he saw no choice but to proceed with a costly technology overhaul.

The company chose to adopt an international standard known as "GSM" — global system for mobile communication. Over two years, AT&T Wireless spent $5 billion annually upgrading its systems for GSM. Cingular, also a TDMA house, reached the same conclusion.

By then, Zeglis was talking with potential merger partners. He says he initially wanted to be a buyer. With the wireless industry consolidating, Zeglis thought he might be able to expand just as AT&T had expanded its cable-TV business: by doing a couple of big acquisitions. But nobody was interested in selling. So he went to Plan B: selling AT&T Wireless.

Auction takes dramatic turn

That auction would turn into a colorful soap opera. By late 2003, Zeglis had managed to round up a half-dozen bidders. They included Nextel, Cingular and Vodafone. By mid-February, it looked as if Vodafone was the winner, with a bid of $14 a share, or $38 billion. Before the auction, AT&T Wireless shares had been trading around $7.

SBC chief Ed Whitacre, who was leading the talks for Cingular, refused to blink. He clinched the deal in the wee hours of the morning with a breathtaking offer of $41 billion — in cash. Whitacre literally gave Zeglis 60 seconds to accept Cingular's offer of $15 a share.

Reflecting on that dramatic moment, Zeglis says he didn't even need to take the full minute. "As they say down South, my mama didn't raise no dummy."

Yet the deal has not lacked critics. Some of Zeglis' former colleagues at AT&T thought the wireless company could have fetched an even fatter price if Zeglis had managed it better. In 2004, AT&T Wireless' churn —the monthly rate at which customers defect —skyrocketed to 3.7%, more than double Verizon's.

Zeglis doesn't dispute that his company's recent churn rate has been high. But he notes that from 2000 to 2003, the churn was only around 2.5%, in the median range. The problem in 2004, he insists, was a combination of factors — network, software and human. Even so, he says AT&T Wireless recovered nicely. After a loss of 367,000 subscribers in the first quarter, it added 15,000 in the second quarter and 170,000 in the third.

To be sure, the additions are slim compared with market leader Verizon, which added an eye-popping 1.7 million customers in the third quarter. Still, the trajectory is heading in the right direction, Zeglis notes.

"It's the best comeback story never written," he says.

Another seldom-mentioned aspect of his tenure is his company's success with text messaging, known as SMS — short message service.

Zeglis says he noticed early on that foreign wireless companies were doing well with SMS. One reason, he was told, was that the foreign carriers were working with sweepstakes, lotteries and polling groups to get people accustomed to using SMS. Zeglis and Andre Dahan, who led AT&T Wireless' data service, decided to try a version of the same thing in the USA.

Their solution: American Idol. The Fox TV show was seeking a sponsor. Zeglis and Dahan figured it was worth a shot. AT&T Wireless signed on as a sponsor in the second season of the show, which invited viewers to "vote" for their favorite Idol using SMS. The show went on to become one of TV's biggest hits.

"It really worked for us," says Zeglis, who notes that his company got 10 cents for every "vote." And the show helped spread the word about SMS.

So where does a big-city lawyer with a $41 billion deal under his belt — and $25 million for his troubles — go from here?

Back home. Zeglis and his wife just finished building a home on a spring-fed lake in Culver, Ind., in his home state. Zeglis says he plans to continue his work with a local boys' prep school and a local historical society. He also wouldn't mind teaching some business courses at a college. What area of business?

"Businesses in rapidly changing environments, of course."