Did an Understanding of Moore's Law "Save" the 1980s Cable TV Business?

Did an understanding of Moore's Law "save" the U.S. cable TV industry in the mid-1980s, in the same way Moore's Law enabled Microsoft and Netflix?

Maybe so.

Most will agree that it matters greatly whether Moore’s Law continues at historic rates or whether bandwidth advances continue at historic rates. 

The reason is that so many businesses implicitly or explicitly embed such assumptions into business models and expected or potential rates of growth.

And the continuation of that trend has been highly contestable. For three decades, observers have predicted that the rate of improvement simply could not continue, as we would reach the limits of our ability to etch smaller pathways onto silicon substrates. Optimists have countered that we would begin working with different substrates.

Stubbornly, Moore’s Law has, so far, defied projections. Over the past three decades, big businesses, and big bets, have been contingent on Moore’s Law.

Perhaps the biggest early bet was made by a few in the U.S. cable TV industry.

Way back in the 1980s, proposed high definition TV standards threatened to choke off growth of the U.S. cable TV industry, for example.

Still a smallish industry of possibly $30 billion annual revenues, initial standards proposed by Japanese electronics interests and over-the-air broadcasters would have severely disrupted the cable industry’s business model.

At that time, Japanese suppliers dominated and lead the TV set business, and cable operators were struggling with the cost of supporting complicated in home installs of cable, plus TVs, plus off-air antenna service, plus videocassette records and multiple remotes.

All that complexity generated consumer unhappiness.

At the time, the proposed HDTV standards were partly analog, partly digital and might have required about 45 Mbps of bandwidth per channel, at a time when cable access networks were set up to use 6-MHz channels.

In addition to requiring completely new electronics across the network, some also suggested the initial standard would not last more than five to 10 years, requiring yet another “rip and replace” investment cycle at the end of that period.

Astute cable TV industry executives knew they could not easily afford to make major upgrades twice within 15 years. Consumer electronics suppliers would win, because they could expect two waves of device replacement (consumer and industrial) within 15 years.

Broadcasters might also have reasonably assumed they would gain strategic advantages over cable TV, then seen as a direct competitor. Also, given the growing trend to greater realism in TV image quality, the quality of the existing product would be enhanced, at less cost per TV station than a cable operation would face.

Enter Moore’s Law. Few experts at the time believed it was possible to move directly to an “all-digital” form of HDTV, in one step, and yet retain the standard channelization. The reason was simple enough.

Decoding such a signal, massively compressed and processed, would require the equivalent of a mainframe computer in the home.

The issue, though, was whether Moore’s Law actually would continue to improve at historic rates, and therefore provide affordable mainframe computing capabilities. Most believed that unlikely. But a few did bet on Moore’s Law continuing, which would make possible a consumer decoder at a price that, while significant, would still allow cable operators to support HDTV.

To make a longish story short, Moore’s Law remained intact, and it indeed was possible to compress a 50-Mbps “raw” data stream into 6 MHz of bandwidth.

Some would say, in that instance, Moore’s Law “saved” the economics of the whole U.S. cable TV industry.

Some also would note that Reed Hastings of Netflix made a bet on Moore’s Law as well. Earlier, some would argue Microsoft was built on an understanding of the implications of Moore’s Law. What a business could like like if computing or bandwidth were free is the key question.

For Gates, the key assumption was that Moore’s Law would make the cost of computing hardware a non-problem for a software supplier, and also would create huge new markets for computers.

For Hastings, Moore’s Law, as embedded in Internet access prices, would make possible streaming services even lower in cost than mailing DVDs using the postal service.

The point is that, sometimes, a big forecast on a key trend can enable a whole new industry or business, or perhaps save a whole industry or business.

Most other attempts to quantify the future also are subject to uncertainty. So forecasting errors always are possible. In fact, they might be the normal state of affairs.

Philip Tetlock's Expert Political Judgment: How Good Is It? How Can We Know? found that “specialists are not significantly more reliable than non-specialists in guessing what is going to happen in the region they study.”

Sam L. Savage’s The Flaw of Averages points out that plans based on average assumptions are wrong on average, because uncertainty in life is much more pronounced than people generally assume to be the case.

Nassim Talib’s The Black Swan likewise deals with the powerful impact of unpredictable and unexpected developments.

In fact, some would go so far as to say that forecasts always are wrong, to some degree. That isn’t necessarily a bad thing, as minor fluctuations along a predicted trend line nearly always happen. That is true of most economic forecasting, some argue.

That doesn't mean people will stop listening to forecasts, or that experts will fail to make them. Occasionally, though, big bets are made based on such forecasts, no matter how inaccurate forecasts might be.

Home Broadband Improvements Now Come at Twice Moore's Law Rates

In one sense, we should not be so worried that internet access providers will be able to keep increasing capacity to match end user demand. Consider the rates of improvement for computing and storage, using Moore’s Law, rates of improvement for fixed network internet access and mobile internet access. 

The computing baseline would be a doubling of capability every two years. Using that standard, communication networks lagged Moore’s Law rates of improvement in the 1980s. Fixed networks reached parity in the decade of the 2000s, while mobile networks reached parity in the 2020s. 

Decade	Moore's Law (doubling time)	Home Broadband Speed (doubling time)	Mobile Internet Speed (doubling time)
1980s	2 years	4 years	10 years
1990s	2 years	3 years	6 years
2000s	2 years	2 years	4 years
2010s	2 years	1.5 years	3 years
2020s	2 years	1 year	2 years

In fact, the rate of fixed network capacity increases now exceeds that of Moore’s Law. In other words, fixed network capacities are  improving twice as fast as computing capabilities. And while mobile networks have generally been more bandwidth challenged than the fixed networks, mobile capacity gains now equal Moore’s Law rates of improvement. 

Over time, that results in exponential rates of change. Home broadband speeds, in fact, do correspond with Edholn's Law or Nielsen's Law\ of bandwidth increase. 

Edholm’s Law states that internet access bandwidth at the top end increases at about the same rate as Moore’s Law suggests computing power will increase. Nielsen's Law essentially is the same as Edholm’s Law, predicting an increase in the headline speed of about 50 percent per year. 

Nielsen's Law, like Edholm’s Law, suggests a headline speed of 10 Gbps will be commercially available by about 2025, so the commercial offering of 2-Gbps and 5-Gbps is right on the path to 10 Gbps. 

source: NCTA  

To be sure, some access providers worry about capital investment costs. But, historically, internet service provider revenues and higher speeds have moved largely in tandem, even if cost per bit metrics show a steady trend towards lower per-unit cost. 

The overall trend for internet access is higher consumption at lower unit costs. In other words, we use more data, consumed at higher speeds, but also at more-affordable costs over time, adjusting for inflation and hedonic improvements. 

It is hard to answer the question “have home broadband prices risen since 2009?” without using hedonic adjustment and also adjusting for inflation. The Bureau of Labor Statistics uses hedonic adjustment to track producer prices for home broadband, for example, since speed and other attributes change over time. 

The rationale is that a dial-up internet connection is not a  comparable service to home broadband at various speeds (10 Mbps, 100 Mbps, 1 Gbps, for example). Since prices tend to stay about the same over time while speeds have increased for the “most bought” tiers of service, BLS adjusts prices to account for quality improvements. 

source: Bureau of Labor Statistics 

The bottom line is that ISPs do not seem to be faced with business scenarios where consumer demand cannot be supplied.

Internet Access Speed Growth is Linear, but in a Moore's Law Way

You might not know it from the stream of quarterly updates on “average” Internet connection speeds around the world, but a long history of speed advances confirms that consumer Internet access grows about as fast as Moore’s Law would suggest.

So even if it seems very little is happening, quite a lot is happening, all the time. You couldn’t tell that from quarterly or even annual changes in typical access speeds.

In the third quarter of 2014, for example, global average mobile Internet connection speeds dropped 2.8 percent to 4.5 Mbps, and the global average peak connection speed fell 2.3 percent to 24.8 Mbps in the third quarter of 2014, according to Akamai.  

On an annual basis, average mobile Internet connection speeds globally were up 25 percent from the third quarter of 2013, though. That implies a doubling of speed about every four years.

Most people would likely agree that usage grows faster than that.  Based on traffic data collected by Ericsson, the volume of mobile data traffic grew by approximately 10 percent between the second and third quarters of 2014, implying annual growth of more than 40 percent. But that’s usage, not average speed.

The global average fixed Internet connection speed saw a slight decline in the third quarter of 2014, dropping 2.8 percent to 4.5 Mbps. Global average peak connection speeds declined slightly in the third quarter, dropping 2.3 percent to 24.8 Mbps.

Those sorts of figures are hard to square with the notion that typical speed doubles about every 18 months to two years.

Logic seemingly would suggest that is unlikely. Communications networks--especially those of the fixed variety--are expensive construction projects. Such networks also are subject to local, state and national regulations, interest rates, economic conditions, changes in tax laws and changes in demand curves, all of which should slow rates of change, compared to rates of change for semiconductor products that follow Moore’s Law.

Shockingly, then, some studies have shown that even on twisted-pair copper telephone networks, speed doubled about every 1.9 years.

Other studies show similar results: some say an Edholm's Law shows that Internet access bandwidth does increase as Moore’s Law would predict.

Of course, experts have argued for decades about whether Moore’s Law would end. That debate still hasn’t been settled. But some argue that communications bandwidth would continue to improve on a Moore’s Law pattern, even if classic Moore’s Law slowed or flattened.

That’s a foundational assumption. If access bandwidth really does grow at Moore’s Law rates, then gigabit access networks are inevitable, no matter how crazy that seems.

But that is going to obvious first in the developed regions that have been at it the longest, in North America, some portions of Asia (Japan, Korea, Taiwan, Singapore) and parts of Europe.

Other regions with tougher economics might still be on the curve, but will start at slower speeds, as did Internet access in the more-developed regions.

The global broadband adoption rate (at least 4 Mbps) edged up slightly in the third quarter, gaining one percent and growing to 60 percent.

The global adoption rate of access at speeds of at least 10 Mbps was up 22 percent in the third quarter, following 65 percent increases seen in both the first and second quarters of 2014.

South Korea had the highest average connection speed at 25.3 Mbps but Hong Kong

again had the highest average peak connection speed at 84.6 Mbps.

Demand is going to grow as well, given both streaming popularity and new video formats including 4K video. With 4k adaptive bitrate streams generally requiring between 10 Mbps to 20 Mbps of bandwidth, markets where 4K streaming is widespread will face new investment requirements.

Though it seems improbable, and even when quarterly or annual statistics do not fully show the progress, Internet access speeds do grow about as fast as Moore’s Law would suggest. It’s astounding, really.

Government Broadband Policy Too Often Ignores Moore's Law

Government planners often are too optimistic about what their proposed programs can achieve. In the case of broadband, they have tended to be too modest. The U.K. government launched in 2010 an effort to enable superfast internet access across the country. Keep in mind that a year earlier, the government said it wanted a 2 Mbps minimum speed across the country. 

In 2011 the goal goal was bumped up 24 Mbps per household by about 2015. To be sure, there is a difference between a minimum floor and a maximum aspiration. But past experience with speed increases--even in 2010--should have prompted lawmakers and policymakers to aim higher. 

Speeds increase at Moore's Law rates, one can argue, at least for some suppliers, such as the cable companies. 

Comcast has doubled speed every 18 months, for example. In 2010, typical Comcast speeds already were up to 100 Mbps. Few customers bought the fastest-available service, of course. But the minimum speed of about 12 Mbps grew to about 50 Mbps by 2015. Using the Moore’s Law doubling in 18 months would have produced speeds in excess of 100 Mbps by 2015, which is what happened. 

source: Comcast

This example from the Australian National Broadband Network actually is too conservative. Extrapolating from 1985, it suggests typical internet access speeds “should” have grown from about 10 Mbps in 2009 to perhaps 100 Mbps by 2015. 

source: NBN

When at least some suppliers are doubling speeds every 18 months, most targets and goals set by government are going to be eclipsed very quickly, no matter how ambitious the goals seem at the moment.

The point is that although government goals will tend to focus on minimums, as for universal service, aspirational targets need to incorporate what we know about Moore’s Law and its application to internet access bandwidth. 

With or without any specific government policies (other than staying out of the way), typical and minimum speeds would double about every 18 months to 24 months. So, one might argue, the U.K. government goal quickly was surpassed by commercial supply that did, in fact, increase at Moore’s Law rates, as did computing.

Most rational observers would have argued that physical networks could not improve speed so fast, as labor intensive and capital intensive as outside plant remains. Perhaps few thought Moore’s Law  rates of progress were possible for outside plant. On the other hand, few probably believed Moore’s Law would apply to computing hardware, either. 

The most-startling strategic assumption ever made by Bill Gates was his belief that horrendously-expensive computing hardware would eventually be so low cost that he could build his own business on software for ubiquitous devices. .

How startling was the assumption? Consider that, In constant dollar terms, the computing power of an Apple iPad 2, when Microsoft was founded in 1975, would have cost between US$100 million and $10 billion.

source: Hamilton Project

The point is that the assumption by Gates that computing operations would be so cheap was an astounding leap. But my guess is that Gates understood Moore’s Law in a way that the rest of us did not.

Reed Hastings, Netflix founder, apparently made a similar decision. For Bill Gates, the insight that free computing would be a reality meant he should build his business on software used by computers.

Reed Hastings came to the same conclusion as he looked at bandwidth trends in terms both of capacity and prices. At a time when dial-up modems were running at 56 kbps, Hastings extrapolated from Moore's Law to understand where bandwidth would be in the future, not where it was “right now.”

“We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get,” says Reed Hastings, Netflix CEO. “If you drag it out to 2021, we will all have a gigabit to the home." So far, internet access speeds have increased at just about those rates.

Intel Says Moore's Law Not Dead

Intel insists it can keep innovating in ways that keep rates of progress based on Moore's Law a relevant assumption. Intel’s success or failure will have direct implications for the cost of many products requiring computing.  If other industries experienced innovation at the rate of Moore’s Law, car owners could drive a distance equivalent to traveling between the earth and the sun on a single gallon of gas, according to tacy Smith, Intel SVP.

Agriculture productivity would be so high we could feed the planet on a square kilometer of land, said Smith. As for the speed of travel, humans would be traveling at 300 times the speed of light.

So yes, Moore’s Law matters. But Intel is making some shifts in the way it measures progress, focusing less on the number of transistors and more on the cost of computing. Intel now will emphasize such matters as the manufacturing cost per transistor, which Intel expects to cut by about half with each new manufacturing process, which is in line with Moore's Law.

Moore's Law continues to face physical constraints, as the packing of more transistors into a finite space reaches physical limits, at least using silicon technology. So Intel now focuses more on output metrics, rather than input measures, such as transistor count. In fact, some might argue that Moore's Law is broken.

With the new measurements, Intel will be able to boast that its manufacturing improvements are surpassing Moore's Law. The company also said it would cut the manufacturing cost per transistor by half with each new manufacturing process, which is in line with Moore's Law.

Moore's Law Explains a Lot

We will likely never know for certain how much an understanding of Moore’s Law has played a vital role in the fortunes of firms whose business models rely on internet access, but there are tantalizing examples. 

At a time when Netflix was still mailing out DVDs to its customers, internet access was still generally running at about 56 kbps, not fast enough to support video streaming. 

The problem, says Hastings in an interview today at the Wired business conference, was that back then they couldn’t stream movies over 56 kbps modems.

But there was Moore’s Law and improvements in bandwidth which could be plotted, and that is exactly what Hastings did. “We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get.”

And Hastings arguably is not the only person whose knowledge of Moore's Law has led to surprising business conclusions. 

Perhaps the most-startling strategic assumption ever made by Bill Gates was his belief that horrendously-expensive computing hardware would eventually be so low cost that he could build his own business on software for ubiquitous devices. 

How startling was the assumption? Consider that, In constant dollar terms, the computing power of an Apple iPad 2, when Microsoft was founded in 1975, would have cost between US$100 million and $10 billion.

Optical fiber communications in the local loop does progress, in terms of bandwidth, about as fast as Moore's Law, even if the progress of optical fiber in the local access network does not necessarily progress at that rate. 

In other words, Hastings and his team understood there would come a moment when video streaming was feasible, based in large part on internet access trends propelled by Moore’s Law improvements in semiconductor technology. 

A perhaps-related insight might be inferred. Moore’s Law contributes to a trend of ever-lower costs for computation and communications. 

Over time, what that means, as a practical matter, is that applications can be created, and use cases created, that assume the cost of computing and communications is no barrier to widespread use. Some of us might point to the development of high-definition TV as an example. 

At a time when analog versions of HDTV required 40 Mbps per channel, some believed HDTV could be done in six Mbps per channel. As ait turns out, we can do so using less bandwidth than that. 

We might argue that a wide range of businesses, use cases and applications now are possible precisely because of Moore’s Law impact on the costs of computation and communication, ranging from financial technology including mobile payments to fraud detection; cloud computing; social media; e-commerce; the sharing economy; affordable artificial intelligence or the internet of things. 

Navigation apps; all forms of on-demand services; video streaming and every form of recommendation and personalization features, plus speed-to-text or text-to-speech are enabled by radically-lower costs of computation.