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Copper Wires Are Worthless

Stocks in this article: VZ VOD T TWC CTL

NEW YORK ( TheStreet) -- According to those who know, copper is currently trading at almost $3.22/pound. That spot price is trending downward -- the average price over the last six months has been about $3.30.

But, when applied to its most common use, as wires carrying electric signals between homes and offices, the Verizon (VZ) deal to acquire the rest of Verizon Wireless from Vodafone (VOD) for $130 billion shows a different truth.

Copper is worthless.

It's one of the ironies of the Moore's Law era that, even if a technology's efficiency improves dramatically with time, it can become obsolete as more reliable, and better, technologies supersede it.

Conventional hard drives are being replaced by memory chips because chips are faster and, in time, seem poised to become cheaper. Copper, despite advances like Digital Subscriber Line (DSL) and the cable industry's DOCSIS standards, is being replaced by wireless technologies.

You might call this Hedy Lamarr's revenge.

The 1940s Hollywood star gets co-credit, with composer George Anthiel, for creating the signal-hopping technology that now powers WiFi and most major wireless networks. The idea, designed to help win World War II, was to coordinate the equivalent of player piano rolls, to switch frequencies as you would notes, so those in the middle who didn't know the tune couldn't hear what was being said.

When this is applied using modern Digital Signal Processors (DSPs), you get a highly efficient scheme to pack tons of bits into a minimum of airborne frequency. As phones have become mobile Internet clients, it means that copper networks become obsolete, unless they have enough optical fiber behind them to handle long-haul traffic.

Even then they're not a profit center, because Wide Division Multiplexing -- replacing a single on-off white light signal with a range of colors -- means the carrying capacity of fiber has zoomed, making each line less valuable.

Verizon is paying the equivalent of its entire market cap, or $130 billion -- the equity in both its wireline and wireless network holdings -- to gain full control of its U.S. network from Vodafone. In other words, the equity value of its wire holdings is less than zero. A lot less.

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