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AT&T heir apparent quits

John Walter, the man who would be CEO of the telecom giant, unexpectedly quit today after the board decided it was not ready to promote him.

The heir apparent to AT&T, John Walter, unexpectedly quit today after the board decided it was not ready to promote him to chief executive officer from president in January.

AT&T's board said it has named a committee of independent directors to conduct a CEO search and recommend a successor to current AT&T head Robert Allen, who is due to retire in January. Allen agreed to stay on possibly through next spring or until a successor is found.

"John Walter is an energetic leader who made important contributions to AT&T in a relatively short period," said AT&T director Walter Elisha, "but the board has decided it will not elect him CEO by next January, as originally foreseen."

In a press briefing, Elisha went on to say that the board "was concerned whether [Walters] could provide the intellectual leadership for this company." Elisha said the board may have erred in choosing Walters as heir apparent in the first place.

At a board meeting last night, Allen recommended that Walters not be promoted.

AT&T named John Zeglis, 50, to take on Walters's responsibilities. Elisha indicated that Zeglis would be one of five to ten finalists for the CEO slot. He said that both internal and external candidates would be considered for the job. Netscape chief executive Jim Barksdale was approached for the AT&T CEO job last year, but at the time, he said he wasn't interested. Elisha also praised the management abilities of Kodak chief executive George Fisher, but wouldn't confirm that he was a candidate.

Walter, 50, joined AT&T in November 1996, leaving his position as chief executive of R.R. Donnelley.

"I believe I am perfectly qualified to be CEO of AT&T right now," Walter said. "I have worked tirelessly on behalf of the shareholders of AT&T. I wish the company well and look forward to my next challenge."

Walter said his immediate plans are uncertain, but he will walk away with nearly $26 million. Under the terms of his employment contract, Walter will receive separation payments of about $3.8 million. This comes on top of a $22 million compensation package that AT&T offered him to replace his salary, pension, and bonuses when he left Donnelley.

The recent aborted buyout of SBC Communications by AT&T may have caused some friction in the AT&T executive suite, according to sources. The talks were engineered by Allen on AT&T's side and included debate about whether SBC chief executive Ed Whitacre or Walter would take the top spot at the merged companies, sources said. That may have been a source of frustration for Walter, who was recruited to lead AT&T into the next century, the sources speculated.

Neither AT&T nor SBC confirmed the buyout talks or any details surrounding it.

AT&T said it will report its second-quarter profits on Monday and that earnings will be in line with analysts' expectations.