AT&T and Verizon’s Lead Cable Problem Raises 5 Big Questions. Their Answers.

Still, much is unknown at this point, including whether AT&T, Verizon, and other telecoms would be liable for cleanup and how much it would cost. Here are some answers to the most vexing questions. 

Why Is This Issue Suddenly Coming Up Now?

The issue isn’t new—but sometimes things aren’t brought to the surface unless someone calls them out. The California Sportfishing Protection Alliance, an environmental group, in January 2021 sued AT&T’s subsidiary Pac Bell to remove two lead-clad cables abandoned on the bottom of Lake Tahoe decades ago. AT&T agreed to remove the cables but admitted to no wrongdoing, the WSJ says. The Journal’s article brought considerable attention to the issue, one that had been ignored by investors up until last week. 

Why Are AT&T and Verizon Liable for Decades-Old Cables?

The U.S. telecom industry phased out the use of new lead-clad telecom cables in the 1950s when plastic sheathing was developed. That, however, still leaves the lead cables installed before then, at least those that haven’t been replaced years ago. AT&T and Verizon, formed from the breakup of Bell System, have never denied the presence of these cables, but say that the legacy lead-clad telecom cables pose no danger based on their testing of the soil and water around it. AT&T argues that removing them could do more harm than good. The issue of liability could be difficult to disentangle. AT&T broke up in 1984, creating seven new companies that have since gone through mergers and breakups of their own. 

What Could Be the Potential Cost of Cleaning Up?

A handful of Wall Street analysts have taken a stab at sizing up the potential liability. The figures vary but the consensus is that AT&T likely has the highest exposure overall to lead-cased copper cables. On Wednesday, New Street Research’s Philip Burnett and Vikash Harlalka updated their estimates to suggest that AT&T would incur a $6.5 billion cost to remove its aboveground, buried, underwater, and other lead-sheathed cables. That’s far below the firm’s initial $34 billion projection for AT&T made last week. J.P. Morgan’s Philip Cusick estimated a $2 billion to $4 billion hit to remove the aerial and underwater lead cables and another up to $9 billion for buried ones. However, removing buried ones seem unnecessary and very unlikely, he wrote in a note Tuesday. Analyst estimates are based on a series of assumptions—and unknowns—including the number of wires that have to come out. What helps them is AT&T’s offered estimate that lead-clad cables are less than 10% of its two million miles of network. 

How Long Could Litigation, if Any, Go On?

Litigation on cases can vary based on the severity of the charge, the entities involved, and other aspects of the case. It took 19 years of litigation for Sherwin-Williams (SHW), Conagra Brands (CAG), and NL Industries (NL) to agree to pay $305 million to settle a lead-paint lawsuit. Home Depot (HD) was ordered to pay $20.75 million for violating lead-safety work practices during home renovations after nearly four years of investigation. Post-it Note manufacturer 3M, last month, agreed to pay about $10 billion to settle a case on so-called “forever chemicals” with public water providers across the country. It did not admit liability, but still faces other potential lawsuits. That, along with a separate lawsuit over faulty hearing protection gear for the military, has kept the stock under pressure.

What Do the Telecom Companies Have to Say? 

Verizon is testing the various sites mentioned in the Journal story for lead contamination, the firm said in an email to Barron’s this week. “We are taking these concerns regarding lead-sheathed cables very seriously,” the company said. AT&T, on Tuesday night in a filing, questioned the Journal’s reporting methods and said it would halt plans to remove two lead-clad cables in Lake Tahoe. It’s also opting for additional testing and discussions with regulators.

Write to Karishma Vanjani at [email protected]