November 1, 2012 / 11:14 PM / 8 years ago

Sandy seen costing telco, cable hundreds of millions of dollars

NEW YORK (Reuters) - Hurricane Sandy will likely cost telephone and cable service providers hundreds of millions of dollars, with companies such as Verizon Communications (VZ.N) and Cablevision Systems Corp CVC.N hit hardest, according to analysts.

The storm could end up costing cable and telephone network operators $550 million to $600 million in clean-up and repair costs, according to Barclays analyst James Ratcliffe.

Along with Cablevision and Verizon, Ratcliffe also included costs at Time Warner Cable TWC.N and the wireless operations of AT&T Inc (T.N) and Sprint Nextel (S.N) in his estimate.

New York-based Verizon has been struggling to restart its services in parts of New York due to flooding and power outages in Lower Manhattan, Queens and Long Island after Sandy hit the U.S. Northeast on Monday night.

Verizon was still trying to pump out water from its central offices in lower Manhattan on Thursday. An executive said it could take Verizon two weeks to restore services to all its customers.

The company is using tens of thousands of gallons of fuel per day to power repair trucks and backup generators in areas where electricity is out. And with reports of fuel shortages in the hurricane zone, “there’s a decent amount of competition” to procure diesel for the generators, he said.

Many Verizon employees involved in the recovery are scheduled to work 12-hour days seven days a week to fix the network, up from their typical 40 hour week, he said.

Ratcliffe estimated that Sandy would cost Verizon about $306 million, compared with his estimate for $180 million in costs from Hurricane Irene, which hit the New York region in 2011.

“The damage is worse and downtown Manhattan is a huge hub of network infrastructure,” Ratcliffe said.

In the third quarter of 2011, Verizon booked a charge of $250 million or 5 cents per share as a result of Hurricane Irene and a two-week strike by about half its wireline workers.

Evercore analyst Jonathan Schildkraut estimated that most of that charge was related to Irene.

“I’d imagine this is significantly worse,” he said referring to costs from Sandy.

Verizon reported a profit of $1.59 billion, or 56 cents per share in the third quarter of 2012.

Barclay’s Ratcliffe estimated that Cablevision would be set back about $36 million by Sandy. This would represent more than 6 percent of his expectation for fourth-quarter earnings before interest, tax, depreciation and amortization (EBITDA). Damage from Irene cost Cablevision about $16 million.

In comparison the costs will represent just 3 percent of Verizon’s EBITDA, Ratcliffe said.

Cablevision will have “the biggest impact relative to its size” according to the analyst.

Cablevision said on Thursday that roughly half its 3.3 million customers were without power and some customers who had electric power still had no cable service.

After the outage, analysts including Michael McCormack at Nomura worried whether Cablevision would be able to raise its prices for customers this year, as is expected by many analysts.

Wireless operators are also struggling to restore services to their customers as cellphone towers were knocked off line by power outages and flooding.

The U.S. Federal Communications Commission said on Thursday that about 19 percent of towers were still offline that morning down from 25 percent the day after the storm.

Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc (VOD.L), said on Thursday that about 96 percent of their cellsite were up an running, up from 94 percent the day before.

Sprint, the No. 3 U.S. operator said that more than 80 percent of its network was operating by Thursday evening.

T-Mobile USA, a unit of Deutsche Telekom (DTEGn.DE), said it had completed 85 percent of its restoration in New York by Thursday evening. However it is only 80 percent complete in Staten Island, a borough of New York.

AT&T and T-Mobile USA on Wednesday agreed to open their networks to each other’s customers in a roaming deal to help provide their customers service more quickly after the storm.

Nomura’s McCormack said that operator costs from Sandy could be twice or three times the costs from Irene, but even then he said the telecom and cable companies are big enough to absorb the extra expenses without hurting valuations.

“Right now the only concerns I’ve heard from investors is whether this will be a distraction from the ongoing business,” McCormack said.

Reporting By Sinead Carew; Editing by David Gregorio

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