Just What the Telecom Companies Didn't Want to Hear.

Thus far it's been a rough year for telecommunications companies like Verizon (VZ), Sprint Nextel (S) and AT&T (T). As of July 23rd they have all seen their share prices plummet by greater than 20%. Recently it looked like that trend may have been coming to an end and the share prices of their were set to recover. They still may recover, but if so, it won't be thanks to a warning from the University of Pittsburgh Cancer Institute.

According to a story written by the Associated Press on July 23, 2008, Dr. Ronald B. Herberman, who is the director of the University of Pittsburgh's Cancer Institute, issued a warning to faculty and staff: "limit cell phone use because of the possible risk of cancer." Herberman goes on to note that he perceives cell phone usage to be most dangerous in children because their brains are still developing and he even warns that using a cell phone in public places could be dangerous because of the risk of exposing others to the cell phone's electromagnetic radiation.

While there are a handful of scientists who believe that the electromagnetic radiation emitted by cell phones cause brain tumors, that thought is disputed by the majority of scientists because of a lack of evidence. However, this latest report comes from a well regarded cancer institute at the University of Pittsburgh which could possibly start to frighten people away from cell phone usage and will certainly spur other studies.

This decree by Dr. Herberman in and of itself will likely not affect the telecom companies, but it does raise the possibility that future academics will support Dr. Herberman. Worse yet for the telecoms is the possibility that newly conducted studies may support a possible link between cell phone usage and brain tumors. If this were to happen then it may be the beginnings of total disaster for companies who rely on cell phones as such a significant source of revenue.

The possible disaster scenario could look much like the disaster scenario that the tobacco companies faced after studies proved the link between lung cancer and smoking. While this is obviously highly speculative and representative of an absolute worst case scenario at this point in time, if a link to brain cancer and cell phone usage were to be found then the telecom companies would probably find themselves being sued into oblivion.

That is obviously a situation that the telecom companies would rather not think about, but as I see it, this thought already has crossed their minds. In fact, much like the tobacco companies of the last few decades, today's telecom companies are commissioning their own studies into the matter. To date all of these studies have concluded that there is no link between cell phone usage and cancer.

Dr. Herberman does admit that no definitive study has come out to support his theory yet, but he claims that he is advocating that people "err on the side of being safe rather than being sorry later".

The biggest problem that Dr. Herberman's statements may cause for telecom companies right now is to put the thought in people's minds that cell phone usage may be dangerous. I don't see the usage of cell phones curving any time soon, but I do see people following this issue more attentively now, which could lead to problems for the telecoms if any more negative news or studies were released.

Perhaps this issue will just go away or perhaps further study will definitively reveal that there is no link between cancer and cell phones, but on the other hand this could potentially be the first step in a potentially devastating chain of future events for the telecom companies. It's enough to make me think twice about adding these companies to my long term portfolio and I think that's a shame because I do like what I see fundamentally in AT&T and Verizon right now.

So perhaps I'm taking Dr. Herberman's advice right now and I will "err on the safe side" not by cutting my cell phone usage, but by cutting my exposure to the telecom providers.

Note: the full AP article referenced above can be found at http://hosted.ap.org/dynamic/stories/C/CELL_PHONE_WARNING?SITE=WIMAR&SECTION=HOME&TEMPLATE=DEFAULT

Happy Investing

InglefoX