The fear of facing massive liabilities related to lead remediation has taken a toll on the shares of Verizon Communications and AT&T, leading to a decline in their stock prices. However, recent analysis suggests that the estimated cost of addressing this issue may have been exaggerated.
The main contributing factor to this decline in stock prices is the prevailing uncertainty regarding the extent of potential liabilities faced by these companies. The financial impact could range from billions to tens of billions of dollars, leaving Wall Street investors unsure of the real magnitude.
While these figures are undoubtedly substantial, it is worth noting that Verizon and AT&T are projected to generate an average of $35 billion in free cash flow annually over the next few years, collectively.
In conclusion, despite the initial setback caused by fears of overwhelming liabilities due to lead remediation, Verizon Communications and AT&T are expected to weather the storm successfully. Their robust cash flow and ability to adapt to changing circumstances should help them overcome this challenge. Nonetheless, investors remain cautious as uncertainties regarding the potential financial impact persist.
Telecom Companies Provide Updated Details on Lead Remediation Costs
In the aftermath of the initial shock, telecom companies have been releasing more information about the costs of lead remediation. Analyst Chaplin, who had previously estimated higher figures, has now refined his calculations based on new data points.
AT&T’s Estimations
AT&T states that less than 10% of its extensive 2 million miles of copper cabling is sheathed in lead. The majority of this cabling is buried in conduits, with only a fraction being overhead.
Verizon’s Network Overview
Verizon, on the other hand, reveals that approximately 540,000 miles of copper are present in its network, with only a small percentage sheathed in lead. According to Chaplin, half of Verizon’s network is overhead, which should alleviate some health concerns for Americans.
Revised Cost Estimates
Chaplin’s new estimate for lead remediation at AT&T now stands at around $7 billion, down from the original estimate of $35 billion. For Verizon, the revised estimation is approximately $1 billion, significantly down from the previous estimate of $8 billion.
Impact on Industry and Market Capitalization
Chaplin noted that the equities have already experienced losses surpassing their worst-case scenario for the total cost of remediation in the industry. AT&T’s market capitalization has decreased by over $6 billion, while Verizon has seen a loss of more than $8 billion. Chaplin believes that the sell-off should have reached its conclusion.
Differentiating Risks: Cabling vs. Lead Pipes
It is important to highlight that Chaplin’s estimations solely pertain to remediation costs and not personal liability claims. He suggests that aerial cables and cables buried in conduits present less of a health risk compared to lead pipes used for drinking water. However, this assertion remains speculative.
Comparison with Legal Settlements in Flint, Mich.
For reference, the legal settlements regarding lead pipes in the water supply of Flint, Mich., amounted to approximately $600 million.
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