Industry risk report: telecommunications

Risk & Insurance, Sept 15, 2004

D&O and E&O coverage in this sector is NOT just a phone call away. When insurance buyers finally get through, their concerns seem to fall on deaf ears. Beyond the frustrations of people like Denise Archer at BellSouth, who says she can't find D&O and E&O coverage at a fair price, the nation's telecommunications companies have expanded beyond offering local and long-distance services. It's not unusual for many companies to offer cable, Internet and wireless service, for example. This adds value, the companies say. But underwriters also maintain that it means adding risk, and adding risk also means raising premiums.

VERIZON COMMUNICATIONS New York, NY

Verizon Communication is one of the world's leading providers of communications services, with approximately $68 billion in annual revenues, Verizon companies are the largest providers of wireline and wireless communications in the United States. Verizon is also the largest directory publisher in the world, as measured by directory titles and circulation. Verizon's international presence includes wireline and wireless communications operations and investments, primarily in the Americas and Europe.

Chief risk executive: Philip Baumeister, Corporate Risk Manager

CEO: Ivan G. Seidenberg

CFO: Doreen A. Toben

Board audit chair: Thomas H O'Brien

Net revenue: $67,752 million

Net income: $3,077 million

Number of employees: 205,100

Primary broker: Marsh

Captive: Exchange Indemnity Co (Vermont): GTE Life Insurance Co., Ltd. (Bermuda)

Risk exposures include: The duration and extent of the current economic downturn: materially adverse changes in economic and industry conditions and labor matters, including workforce levels and labor negotiations, and any resulting financial and/or operational impact, in the markets served by us or by companies In which we have substantial investments; material changes in available technology; technology substitution: an adverse change in the ratings afforded our debt securities by nationally accredited ratings organizations; the final results of federal and state regulatory proceedings concerning our provision of retail and wholesale services and judicial review of those results; the effects of competition in our markets

Risk strategies: Verizon employs risk management strategies using a variety of derivatives, including interest rate swap agreements, interest rate locks, foreign currency forwards, equity options and basis swap agreements. Objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters and to protect against earnings and cash flow volatility resulting from changes in market conditions

SBC COMMUNICATIONS San Antonio, Texas

SBC Communications Inc. is a diversified communications company, owning several of the world's leading data, voice and Internet services providers Through world class networks, SBC companies provide a full range of voice, data, networking and e-business services, as well as directory advertising and publishing. SBC companies currently serve 55 million access lines nationwide In addition, SBC companies own 60 percent of America's second-largest wireless company, Cingular Wireless, which serves more than 24 million wireless customers Internationally, SBC companies have telecommunications investments in 26 countries.

Chief risk executive: Julie Long. Director, Risk Management

CEO: Edward E, Whitacre, Jr

CFO: Richard G. Lindner

Board audit chair: Clarence C. Barksdale

Net revenue: $40,813 million

Net income: $8,505 million

Number of employees: 168,000

Primary broker: Aon

Captive: Gateway Rivers Insurance Co. (Vermont)

Risk exposures include: Adverse economic changes in the markets served by us or in countries in which we have significant investments; Changes in available technology and the effects of such changes including product substitutions and deployment costs: Uncertainty in the U.S. securities market and adverse medical cost trends; The final outcome of Federal Communications Commission proceedings and re-openings or such proceedings, including the Triennial Review and other rulemakings, and judicial review, if any, of such proceedings, including issues relating to access charges, availability and pricing of, unbundled network elements and platforms and unbundled loop and transport elements

Risk strategies: Interest rate swap contracts (to control expenses associated with interest rates); SBC makes no use of derivatives for trading purposes or to generate income; The company uses certain derivative financial instruments, including interest rate swaps, foreign exchange contracts, combined interest rate foreign currency contracts, options, forwards and equity hedges to manage market risks such as interest rate and foreign currency risks

AT&T Bedminster, NJ

Backed by the research and development capabilities of AT&T Labs, AT&T is a global leader in local, long-distance, internet and transaction-based voice and data services The company's primary business segments are AT&T Business Services and AT&T Consumer Services. The company provides an array of services and customized solutions in 60 countries and 850 cities worldwide.