AT&T and Verizon: We Don’t Expect Major Liability Tied to Lead in Telecom Cable Sheathing

AT&T Stock at a Glance

• Fair Value Estimate: $25
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow

Verizon Stock at a Glance

• Fair Value Estimate: $57
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow

A series of articles in The Wall Street Journal concerning lead in cable sheathing dealt yet another blow to investor sentiment around telecom stocks. An analyst downgrade of AT&T T which cited potential legal liability (along with other issues) further punished stocks across the industry Friday morning.

While this situation warrants watching, we don’t expect the telecom industry will bear substantial legal liability. We believe AT&T and Verizon VZ shares are very attractive at current prices.

In more than two decades covering the telecom industry, we’ve never heard mention of an issue related to lead in cable sheathing. The WSJ cites a 2010 presentation to AT&T employees as proof the firm has been aware of the issue, but that is not in dispute. Both the Centers for Disease Control and National Institutes of Health websites house research conducted in the 1990s around complaints to OSHA from wire strippers that reported elevated blood lead levels, with steps to ensure worker safety.

The Environmental Protection Agency has also studied cable sheathing materials, including through a partnership with the University of Massachusetts’ Toxic Use Reduction Institute. Nothing suggests telecom firms failed to follow proper procedures to protect employees when dealing with these cables, which were last deployed in the 1960s. We also suspect that if lead from legacy telecom cables were a major threat, a government agency would have addressed it by now.

Lead was, of course, used in hundreds of products over the past century. Tulane University’s Lead’s Urban Legacy project lists dozens of major and minor sources but does not mention cable sheathing. Average blood lead concentration has declined precipitously in the U.S. since the 1970s, primarily thanks to the elimination of lead in gasoline. The Tulane project cites past auto emissions as the source of heavy contamination along roadways, which we suspect pose a greater health risk and far more formidable clean-up challenges than old telecom cables.