Copper Wires Are Worthless

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.

Markets have a way of figuring these things out, and adjusting accordingly. The value of your stock is the last price paid for a share. The value of your house is based on the price of the last house around you that sold. Location, location, location.

Copper, in terms of telecommunications, is not a place you want to be now. It's Detroit. The only value it has is as a monopoly connection between captive customers and fast Internet resources, and even that value is disappearing. My family has had only wireless phones for several years, and the only reason we have cable is for the fast Internet. But if our wireless carrier could offer a competitive price....

Now, what happens to the value of companies like AT&T ( T), CenturyLink ( CTL), and even Time Warner Cable ( TWC), as this realization that "copper is worthless" hits home, as the dust settles from Verizon-Vodafone?

Copper has been regulated by the federal government as a monopoly -- guaranteeing a return on capital -- for more than a century. It costs money to maintain a neighborhood's copper phone lines, and the need for "universal service" keeps copper alive, through subsidies.

What happens to those policies once copper is deemed obsolete?

Ever since I became a reporter, and for many decades before, our telecommunications has been based on the dance between Washington and New York, an assumption of scarcity and a need for capital investment, to keep our wired networks going.

There are billions of dollars to be made in engineering the government transition away from copper, and in dealing with the obsolete copper infrastructure. That game is now afoot.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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