BellSouth Faces Potential $400 Million to $1 Billion Hit from Hurricane Katrina

Strategic Insights -

Hurricane Katrina's destruction is causing significant financial losses for BellSouth, with the company's chief financial officer, Ron Dykes, estimating $400 million to $600 million in damages. However, some securities analysts believe the hit could be even worse, with estimates ranging from $1 billion to several billion dollars. The flooding in New Orleans, which may not subside for two months, is making it challenging for BellSouth to assess the full extent of the damage.

Key Takeaways:

  • BellSouth is facing potential losses of $400 million to $600 million due to Hurricane Katrina, with some analysts estimating the damage could be as high as $1 billion or more.
  • The company's chief financial officer, Ron Dykes, acknowledged that the flooding in New Orleans is complicating the assessment of the damage.
  • The majority of the affected area, including New Orleans, is one of BellSouth's biggest markets, with over 900,000 lines out of service.
  • Insurance will not cover the costs of damages from outside plant, which includes copper and fiber phone lines that run directly to homes and businesses, as insurers stopped offering coverage for this after Hurricane Andrew in 1992.
  • The corrugitive effects of water on copper phone lines and electronics are major concerns, with analysts predicting network damage and lost opportunity costs.
  • BellSouth is expected to bear the costs of the damage itself, as insurance policies do not cover the majority of the losses.

Statistics:

  • $400 million to $600 million: BellSouth's estimated losses from Hurricane Katrina (Dykes)
  • $1 billion: Estimated damages from Hurricane Katrina by some securities analysts (Bray)
  • 900,000: Number of lines out of service in New Orleans, one of BellSouth's biggest markets (Dykes)
  • 2 months: Estimated duration of overflowing in New Orleans (Dykes)
  • Over 1 million: Number of lines out of service in the affected area (Dykes)

Sources:

  • Leslie Cauley, NEW YORK -
  • Ron Dykes, Chief Financial Officer, BellSouth -
  • Jeff Bray, Managing Director, Babson Capital Management -
  • Roger Entner, Analyst, Ovum -