AT&T, Other Telecom Stocks Sink After WSJ Investigation on Toxic Lead Cables

AT&T shares sank as a research analyst downgraded the stock following a Wall Street Journal investigation that revealed that U.S. phone companies have left behind a network of cables covered in toxic lead.

AT&T shares are down more than 7% this week, trading at levels not seen in nearly three decades, as Wall Street analysts raised questions about liabilities related to the cables. One analyst estimated it could cost $59 billion for the telecom industry to remove all the lead cables nationwide.

“Potential copper lead sheathing liability is unquantifiable at this time, but will be a substantial long-term overhang on AT&T and the industry,” wrote JPMorgan analyst Philip Cusick in a note to investors that downgraded his recommendation on AT&T to “neutral” from “overweight.”

The Journal investigation showed how phone companies have left behind more than 2,000 old lead-encased phone cables, hung up on poles, under waterways and in the soil around the U.S. Journal testing found numerous cables leaching lead into soil and water, at levels exceeding regulatory safety guidelines. 

AT&T shares closed down 62 cents, or 4.1%, to $14.50, its lowest close since Feb. 23, 1994, when it closed at $14.16, according to data compiled by Dow Jones Market Data.

Shares of Verizon Communications were down 63 cents Friday, or 1.8%, at $34.01, marking its lowest close since Aug. 10, 2011. Verizon shares are down 5.2% this week. Frontier Communications Parent, which owns networks acquired from legacy Bell companies, are down 21% for the week. Lumen Technologies, another telecom company with Bell assets, dropped more than 15% this week. The Journal investigation first published Sunday.

AT&T, Verizon and the other companies declined to comment on their stock movement Friday.

AT&T previously said the Journal’s reporting on potential harm connected to lead cables “conflicts not only with what independent experts and long-standing science have stated about the safety of lead-clad telecom cables but also our own testing.”

AT&T provided the Journal a single test report on a lead-cable location in Lake Tahoe that said it found “very low” levels of lead in the water and that the lake wasn’t “adversely impacted” by the cables. Journal testing found high levels of lead in Lake Tahoe. 

AT&T and USTelecom, an industry group, have created webpages disputing the environmental and public health impacts of the lead cables. They have claimed that the safety of such cables is backed by studies and science. They declined to provide any such studies to the Journal and didn’t include them on their websites. They also declined to provide a full accounting of the number of lead cables in their networks to the Journal.

Cusick wrote that AT&T is the most exposed of the telecom companies because it has the largest legacy network footprint, projected at 60 million to 70 million homes, as well as the original Ma Bell long-distance network. 

“The uncertainty around how many cables remain, population exposed/at risk, and liability of legacy telecom companies is substantial and could take years to determine,” Cusick wrote. 

JPMorgan analysts discussed the lead cable issue with industry contacts and have been “unable to find a reasonable way to calculate any potential liability.”

Removing all lead-cased copper wires across the country could cost as much as $59 billion, New Street Research analyst Jonathan Chaplin estimated in a report this week. That is based partly on industry estimates of labor costs to install fiber optic cables across networks. 

AT&T would have the most lead-covered cables to remove, Chaplin wrote, followed by Verizon and Lumen. The report cautioned that individual company figures are more difficult to cite, due to a lack of disclosure by the telecom companies about their lead-cable networks.

“To be clear, the [companies] aren’t giving any guidance and very little context on the issue,” Chaplin wrote.

While the issue may take years to resolve, Cusick suggested that telecom companies get ahead of the issue by announcing intentions to remedy the problems where needed, but to do so without admitting responsibility or liability. 

AT&T and rival Verizon have spent the past year struggling with an industrywide slowdown in new cellular subscriptions, expensive network upgrade obligations and stubborn debt. In the past 12 months, AT&T shares are down 29% and Verizon is down 33%.

Citigroup analyst Michael Rollins cited the Journal’s findings in a note to investors earlier this week, warning that stocks with exposure to wirelines networks could trade lower in the near-term because of uncertainty and risk related to the lead-cable concerns. 

—Shalini Ramachandran and Drew FitzGerald contributed to this article.

Write to Thomas Gryta at [email protected] and Coulter Jones at [email protected]