Telecom In the Wake of Sandy

Gautam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Over a month has passed since the ‘Frankenstorm’ raged through the east coast, devastating all in its path. It's been a month since the US economy put up a brave stand. Initially it was estimated to have caused only moderate economic damage, but now slowly the blow to the economy is coming to light.

Hurricane Sandy raged through the United States in October taking a large chunk of the US infrastructure with it. Homes were devastated, telephone poles ripped apart, communication lost. Boston, New York and New Jersey were amongst the worst affected, so much so, that the NYSE was forced to shut down. $62 million in losses has already been attributed to the storm, with more to come…

What Happened
Sandy’s spur destroyed many homes, buildings, uprooted roots and shut down ports. But the worst hit sector, still appears to be telecommunication.

Several telecom offices were flooded, with Verizon Mobile’s (NYSE: VZ) being one of them. According to Reuters, Verizon Communications appears to have suffered some of the worst damage from the storm. The office had lost power during the storm. The tremendous pressure made its copper telecom cables lose the pressurized air that is normally pumped into them to keep water out. When the storm struck, the water most likely seeped into the depressurized cables, damaging the copper wires. The damage is probably in the billions. Many cell towers had no power, even two weeks after the storm ended. Their back up batteries had run out days ago.

In such a case, Verizon warns its customers of a serious hit in the future. The whole territory affected is predominantly Verizon’s, so it really is a no brainer that the cellular giant was the worst hit. With 96% of its cell towers out of commission, clean up and repair will be no easy matter. Verizon expects a sizable chunk to be cut off from its fourth quarter profits.

SJames Ratcliffe, Capital analyst at Barclays, estimates that Verizon may have costs totaling $306 million in storm damage. The real figure is likely to be higher. 

Reorts Elsewhere
Verizon, however, wasn't the only one to be crippled by the storm. The Federal Communications Commission (FCC) reported that 19% of cellular sites in nearly 160 counties across 10 states, from Virginia to Massachusetts, were out of use. 

Sprint Nextel (NYSE: S), another major carrier, was severely affected, though mostly in the New York tri-state area, in Pennsylvania and parts of New England. Flood, debris from the storm, power outages and failure of commercial power grids appear to be the main cause of the damage. Although the company is about 90% operational in , New Hampshire, Massachusetts and Pennsylvania, according to company officials, the harder-hit areas are only around 80% functional, and just 75% of its New York City towers are online.

Ken Rehbehn, wireless infrastructure analyst with Yankee Group, notes that Sandy’s damage on infrastructure is second only to Hurricane Katrina’s. Cablevision, T-Mobile and others have also been severely affected.

Elsewhere, however, AT&T (NYSE: T) reported more upbeat findings. According to AT&T’s blog, the network is now fully operational in most areas and nearly 90% working in the harder hit sectors. Cell services are non-disruptive, payment options have been customized to help customers in worst hit areas and late fees have been waived.

With more than 6.4 million phones sold through November, AT&T upgraded its sales forecast to 26 million. As reported by a company spokesperson, most subscribers are now adhering to the 10-gigabyte plan, which is the third costliest plan AT&T offers.

What it means
Although Sandy has delivered a crushing blow to the industry, the companies, it seems, are on the road to recovery. As already evidenced by AT&T, there is no reason to lose faith as yet. Some, like Cablevision or Sprint-Nextel may be reporting heavy losses, but it is unlikely to be long term. As far as profits affected due to the storm go, the damage is unlikely to go beyond the next quarter.

Now, Verizon is another matter. As the worst hit, its losses far exceed that of its competitors. In a way, it bore the brunt of the ordeal. But, even in this case, there is hope. The company is still flying on the high of its stellar Q3, when 1.54 million customers were added to its database, far exceeding predictions. Also finalization of contracts with Union workers is expected to bring yearly deals of $250 to $500 million.

Yes, Verizon was hit bad, and yes, the impact may stretch past even the next quarter and into the next fiscal year. But it is unlikely to cause damage past that.

To sum it up, the industry was dealt a heavy blow, some more than others. But I would be extremely surprised if this caused any permanent damage. The losses are being dealt with. I would advise investors to keep a steady eye for at least the next quarter, but if they are in for the long haul, they are unlikely  to be the ones with the shorter stick.

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