A furious selloff in telecom stocks gained momentum on Tuesday, as AT&T shares sank to their lowest point in 30 years.
The reason: Earlier this month, the Wall Street Journal published an investigation that faults companies including Verizon and AT&T with leaving thousands of lead-coated cables from the Bell System's telephone network in various locations around the US.
The WSJ report prompted a flurry of downgrades from analysts. Since its publication on July 9, AT&T shares have tumbled roughly 14%, Verizon fell 10%, and Frontier is down 33%, my colleague Krystal Hur writes.
In downgrading AT&T late last week, JPMorgan analysts said they see the "potential liability as an unquantifiable, longterm overhang for the stock."
More downgrades followed Monday, fueling the selloff.
- AT&T shares on Tuesday fell to $13.45, its lowest closing price since 1993.
- Verizon shares fell 7.5% to $31.46 on Monday to their lowest closing level since 2010 before paring back their losses slightly on Tuesday.
An AT&T spokesperson told CNN that the company is conducting additional testing, including at locations mentioned in the Journal's articles. AT&T has also disputed the paper's reporting, claiming its testing methodologies were flawed.
"The scientific literature and reliable studies ... give no reason to believe that these cables pose a public health issue or a risk to workers when appropriate safety measures are in place," the company said.
Verizon did not immediately respond to a request for comment.
Here are some excerpts from the Journal's report:
AT&T, Verizon and other telecom giants have left behind a sprawling network of cables covered in toxic lead that stretches across the U.S., under the water, in the soil and on poles overhead ...
For many years, telecom companies have known about the lead-covered cables and the potential risks of exposure to their workers, according to documents and interviews with former employees. They were also aware that lead was potentially leaching into the environment, but haven't meaningfully acted on potential health risks to the surrounding communities or made efforts to monitor the cables.
...Roughly 330 of the total number of underwater cable locations identified by the Journal are in a "source water protection area," designated by federal regulators as contributing to the drinking-water supply, according to an EPA review performed for the Journal.
...Aerial lead cabling runs alongside more than 100 schools with about 48,000 students in total.
Those findings are scary, and lawmakers have demanded action to further investigate the network of toxic cables. That could lead to a litigation nightmare for the companies.
"There will be clear financial and reputational risks," said Neil Mack, vice president for Moody's Investors Service. "Akin to the experience of environmental and litigation impacts of historical asbestos and lead paint scenarios on industry participants, this will likely play out over the months and years to follow and mark a credit negative for many in the industry."
Estimates by New Street Research put the potential cost of remediating the lead-sheathed wires at a whopping $60 billion. And AT&T would likely be on the hook for roughly half of that.
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