AT&T: Network Disclosure Starts to Frame the Lead Issue

AT&T Stock at a Glance

• Fair Value Estimate: $25.00
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow

AT&T Stock Update

AT&T T has disclosed that lead-clad cable constitutes less than 10% of its copper network based on strand miles. Two-thirds of this cable is buried or in conduit, and the vast majority of the remainder is strung on poles, with only a very small percentage underwater. The “overwhelming majority” of these cables remain in service. In a follow-up conversation, AT&T indicated that these figures encompass all of its potential exposure, including any abandoned cables.

While these details don’t put the issue to rest, AT&T believes they provide a frame of reference concerning its potential liability. We continue to believe the company’s shares are highly undervalued.

Aerial and underwater cable—which are most likely to need removal for environmental reasons—totals around 65,000 strand miles in the firm’s network. Using the Lake Tahoe case that pushed this issue to the forefront, we can estimate the potential total costs that AT&T faces. The cost to remove the Tahoe cabling was estimated at $275,000-$550,000 in 2021, equal to about $34,000-$69,000 per mile. Applying those figures across 65,000 strand miles yields a total replacement cost of $2.2 billion-$4.5 billion. Spread over several years, this cost wouldn’t be significant to AT&T, though any estimate at this point is extremely rough.

Importantly, AT&T is already working to upgrade most of its copper network with fiber, and we suspect it will choose to prioritize decommissioning lead-sheathed cables.

We still have questions about the number of actual network route miles (miles traversed rather than length of cabling). This figure is likely to be more relevant in determining total potential replacement costs, especially if portions of buried cable ultimately need removal. The scope of any required environmental remediation work and legal liability also remains unknown, though this question would probably take years to settle if an entity pushed for more than basic removal and cleanup.