New Street Research issued another revision to its telecom lead remediation cost estimate today. It follows an initial estimate of $60 billion prepared two weeks ago and a more recent one estimating costs at between $12 billion and $15 billion. The firm’s latest estimate is $15 billion for a “base-case” scenario in which all lead-encased cable plant is removed but not replaced.
On a call with investors and media today, New Street Research Lead Analyst Jonathan Chaplin said he doesn’t expect any further revisions to his estimates. He also reiterated the view that telecom stock values have decreased disproportionately to the financial risk involved for the telcos.
Concerns that the lead casing on old telecom cables could degrade over time and post a public health risk were first reported by the Wall Street Journal earlier this month. It’s worth noting that no determination has been made yet as to whether lead remediation will be required.
A separate estimate from Evercore ISI estimated costs for AT&T and Verizon to remove and replace cables at $6.9 billion.
Comparing the New Street Research and Evercore ISI estimates isn’t an apples-to-apples comparison for three reasons. New Street Research’s base case estimate includes other publicly held telecom providers besides AT&T and Verizon, it assumes replacement of the existing cabling is not required and it assumes 100% removal of lead cabling is required, while Evercore ISI’s base case assumes only about 58% of cabling must be removed. Evercore ISI also assumes the removed cable must be replaced.
But even when a direct comparison is made, New Street Research’s estimate is close to $9 billion – which is considerably higher than Evercore ISI’s estimate. (See more details about how cost estimates were calculated below.)
While the most recent of the two previous New Street Research estimates said that the researchers expect the telecom companies to cover remediation costs, New Street said today that it believes costs will be born, in large part, by taxpayers.
New Street Research Policy Advisor Blair Levin suggested that some states also may have surplus BEAD rural broadband deployment funding that could be directed to lead remediation.
Evercore ISI had a different take about the impact on BEAD.
“Lead-related woes could . . . limit, to a certain extent, the ILECs’ involvement or success” in the BEAD program, Evercore wrote.
Both analyst firms hedged their analyses and offered alternative cost estimates based on different assumptions about the extent of remediation required.
New Street Research
New Street Research’s base case assumes:
- All lead-encased cabling must be removed at a cost of $5 per foot for AT&T for aerial cable (less for Verizon), $5 per foot for cabling installed underground in conduit for AT&T (less for Verizon), $15 per foot for buried cabling that isn’t in conduit and $7-$13 per foot for cabling installed under water.
- Cabling does not need to be replaced because telecom industry sources told the researchers that typically the providers have spare cabling in place that can be used.
- Based on this, New Street Research estimates base case costs of $11 billion for AT&T and Verizon or $15 billion including those and other telcos with lead cabling.
In New Street Research’s best-case scenario, only aerial cabling and underwater cabling must be removed for total costs to AT&T and Verizon of $4.8 billion or $10 billion industrywide.
New Street Research’s worst-case scenario assumes all lead cabling must be removed and must be replaced for a cost of $15.3 billion for AT&T and Verizon or $26 billion for all telcos. Replacement costs are estimated at $7 per foot for aerial cabling, and $12 per foot for buried and underwater deployments.
Evercore ISI
Evercore ISI based its telecom lead remediation estimate on an analysis of AT&T and then extrapolated that to include Verizon.
The Evercore base case for AT&T assumes:
- Costs to remove cabling is $30K-$40K per mile for cable buried or in conduit, $20K-$30K per mile for aerial cable and $34K-$69K per mile for underwater cabling. Three quarters of aerial and underwater cabling is replaced and 50% of underground cabling is removed.
- Replacement costs were estimated at 75% of cable removal costs for the baseline scenario.
- This yielded a base cost lead remediation estimate for AT&T of $5.6 billion, extrapolated to $6.9 billion for both AT&T and Verizon.
Evercore ISI’s worst-case scenario assumes 100% of cables must be replaced and cable replacement costs are 150% of the best-case estimate, yielding a worst-case estimate of $14.4 billion for AT&T.
Evercore’s best-case scenario assumes only 18% of cabling would need to be replaced. It also assumes replacement costs are 50% of removal costs. This yields a best-case estimate for AT&T of $1.5 billion.
Both New Street Research and Evercore ISI expect regulators to prioritize any telecom lead remediation that may be required based on the potential risks involved.
Updated several minutes after publication to correct several numbers and to change two references to “replacement” to instead say “removal”
