Verizon Communications and AT&T have experienced a significant drop in stock value this week due to worries surrounding potential litigation and cleanup costs related to lead-sheathed cables. Investors are now looking ahead to the companies’ earnings while analysts continue to assess the outlook.

Sharp Decline in Stock Value

Analysts Weigh In on Cleanup Costs

The decline in stock value continued throughout the week as J.P. Morgan, Raymond James, and other firms published research estimating the potential cost of cleanup. However, there still remains much uncertainty regarding cable ownership and liability.

Fresh Projections on Verizon’s Cleanup Costs

New Street Research, one of the first firms to provide projections on telcos’ liabilities last week, has released updated estimates regarding the potential cost for Verizon to clean up the lead cables. In a worst-case scenario, Verizon might have to pay $5.2 billion, but the costs could also be as low as $500 million depending on whether all lead-sheathed cables or only those in the air or underwater need replacement. Initially, New Street Research had estimated an $8 billion cost for Verizon.

Decision Pending on Cable Removal

USTelecom, a telecommunications trade association, has stated that the decision to remove or leave the cables in place will depend on factors such as their age, composition, environmental impact, and worker safety.

AT&T Faces Uncertainty as Legal and Financial Exposure Could Reach Billions

Oppenheimer analyst Timothy Horan predicts that AT&T’s legal and financial exposure will likely be under $5 billion, according to a note released on Thursday. However, Horan also notes that the exact cost is difficult to quantify and may remain uncertain for an extended period. New Street, on the other hand, estimates that AT&T could face a cost of $6.5 billion.

This potential financial burden has already had an impact on AT&T’s market value, surpassing what analysts initially estimated. As New Street’s Jonathan Chaplin points out in a note on Friday, until there is concrete evidence to the contrary, equity markets tend to lean towards worst-case scenarios.

Investors fear that AT&T may not only have to bear the cost of removing lead-sheathed cables but also deal with lawsuits from workers who handled the lead, property owners affected by these cables, and environmental activists. In January 2021, the California Sportfishing Protection Alliance filed a lawsuit against AT&T’s subsidiary Pac Bell, demanding the removal of two lead-clad cables abandoned at the bottom of Lake Tahoe decades ago. Although AT&T had previously agreed to remove the cables at an estimated cost of up to $1.5 million, a recent court filing suggests that they are temporarily halting their plans until further data is collected.

The negative sentiment surrounding AT&T and Verizon has been further compounded by public letters from Democratic Party Congressman Pat Ryan and Sen. Edward Markey. These letters demand answers from both companies and exacerbate concerns among investors.

While Verizon assures the public that it takes these concerns seriously, AT&T maintains that it has diligently followed government guidelines to protect its workers.

Given the ongoing uncertainty surrounding the potential costs, any remarks from management will undoubtedly receive intense scrutiny. Verizon is set to disclose its earnings on July 25, while AT&T will report theirs on July 26.

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