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.

Non-Linear Development and Even Near-Zero Pricing are Normal for Chip-Based Products

It is clear enough that Moore’s Law played a foundational role in the founding of Netflix, indirectly led to Microsoft and underpins the development of all things related to use of the internet and its lead applications. 

All consumer electronics, including smartphones, automotive features, GPS, location services; all leading apps, including  social media, search, shopping, video and audio entertainment; cloud computing, artificial intelligence and the internet of things are built on the foundation of ever-more-capable and cheaper computing, communications and storage costs. 

For connectivity service providers, the implications are similar to the questions others have asked. Reed Hastings asked whether enough home broadband speed would exist, and when, to allow Netflix to build a video streaming business. 

Microsoft essentially asked itself whether dramatically-lower hardware costs would create a new software business that did not formerly exist. 

In each case, the question is what business is possible if a key constraint is removed. For software, assume hardware is nearly free, or so affordable it poses no barrier to software use. For applications or computing instances, remove the cost of wide area network connections. For artificial intelligence, remove the cost of computing cycles.

In almost every case, Moore’s Law removes barriers to commercial use of technology and different business models. The fact that we now use millimeter wave radio spectrum to support 5G is precisely because cheap signal processing allows us to do so. We could not previously make use of radio signals that dropped to almost nothing after traveling less than a hundred feet. 

Reed Hastings, Netflix founder, based the viability of video streaming on Moore’s Law. 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.

The point is that Moore’s Law enabled a product and a business model  that was not possible earlier, simply because computation and communications capabilities had not developed. 

Likewise, Microsoft was founded with an indirect reliance on what Moore’s Law meant for computing power. 

“As early as 1971, Paul (Allen) and I had talked about the microprocessor,” Bill Gates said in a 1993 interview for the Smithsonian Institution, in terms of what it would mean for the cost of computing. "Oh, exponential phenomena are pretty rare, pretty dramatic,” Gates recalls saying. 

“Are you serious about this? Because this means, in effect, we can think of computing as free," Gates recalled. 

That would have been an otherwise ludicrous assumption upon which to build a business. Back in 1970 a “computer” would have cost millions of dollars. 

source: AEI 

The original insight for Microsoft was essentially the answer to the question "What if computing were free?". Recall that Micro-Soft (later changed to MicroSoft before becoming today’s Microsoft) was founded in 1975, not long after Gates apparently began to ponder the question. 

Whether that was a formal acknowledgement about Moore’s Law or not is a question I’ve never been able to firmly pin down, but the salient point is that the microprocessor meant “personal” computing and computers were possible. 

A computer “in every house” meant appliances costing not millions of dollars but only thousands. So three orders of magnitude price improvements were required, in less than half a decade to a decade. 

“Paul had talked about the microprocessor and where that would go and so we had formulated this idea that everybody would have kind of a computer as a tool somehow,” said Gates.

Exponential change dramatically extends the possible pace of development of any technology trend. 

Each deployed use case, capability or function creates a greater surface for additional innovations. Futurist Ray Kurzweil called this the law of accelerating returns. Rates of change are not linear because positive feedback loops exist.

source: Ray Kurzweil  

Each innovation leads to further innovations and the cumulative effect is exponential. 

Think about ecosystems and network effects. Each new applied innovation becomes a new participant in an ecosystem. And as the number of participants grows, so do the possible interconnections between the discrete nodes.  

source: Linked Stars Blog 

 

So network effects underpin the difference in growth rates or cost reduction we tend to see in technology products over time, and make linear projections unreliable.

Comcast Boosts Home Broadband Speeds, Has Been Doing So at Moore's Law Rates for Two Decades

It should come as no surprise that Comcast is activating home broadband speed increases this week across its entire footprint. Comcast has increased home broadband speeds at Moore’s Law rates--doubling about every 18 months--for two decades.  

“Comcast has increased speeds 17 times in 17 years and has doubled the capacity of its broadband network every 18 to 24 months,” Comcast says. 

That is one reason why cable operators continue to hold between 65 percent and 70 percent share of the installed base of home broadband accounts in the United States. Telcos have simply not been able to increase bandwidth at Moore’s Law rates, though that should change as more of the network is converted to optical fiber access. 

The original insight for Microsoft was the answer to the question "What if computing were free?" Keep in mind the audacious assumption Gates made. In 1970 a computer cost about $4.6 million each. Recall that Micro-Soft (later changed to Microsoft) was founded in 1975. 

source: AEI 

The assumption that computing hardware was going to be “free” would have appeared insane to most observers. In 1982 Gates did not seem to go out of his way to argue that hardware would be free, but he did argue it would be cheaper and far less interesting than software. 

 Gates made the argument in 1994. Gates was still saying it in 2004.  

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.

Both supply and demand are part of the equation, however. Perhaps the driver of supply is Moore’s Law. 

But the fundamental driver of bandwidth demand  is multiple users and multiple devices, more than the bandwidth required by any single app, any single user or device, even if some apps--such as video--increase bandwidth demand by at least two or three orders of magnitude compared to narrowband apps. 

The point is that home broadband bandwidth now is shared by multiple users, apps and devices. And that is why bandwidth demand keeps growing, aside from the use of more bandwidth-intensive apps and devices. 

“The number of devices connected in Xfinity households has skyrocketed 12 times since 2018, and the need for fast, reliable, and secure Internet will continue to grow,” said Bill Connors, President of Xfinity, Comcast Cable. 

The net effect is that every household now acts as a “multi-user” location. And that matters because any amount of bandwidth X is divided by the number of users, connected devices and apps in simultaneous use. In principle, that means Comcast customers require an amount of bandwidth that is X/12. 

source: Comcast 

We should look for continued increases in capacity, at about a Moore’s Law pace, for the indefinite future.

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.

Gates and Hastings were Right: Near-Zero Pricing Matters

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.

As frightening as it might be for executives and shareholders in the telecommunications industry, a bedrock assumption of mine about dynamics in the industry is that, over time, retail prices for connectivity services also will trend towards zero.

“Near-zero pricing” does not mean absolute zero (free), but only prices so low there is no practical constraint to using the services, just as prices of computing appliances trend towards lower prices over time, without reaching actual “zero.”

source. DrPeering

Communications capacity might not be driven directly by Moore’s Law, but it is affected, as chipsets power optical transmitters, receivers, power antenna arrays, switches, routers and all other active elements used by communications networks.

Also, at least some internet access providers--especially Comcast--have been increasing internet access bandwidth  in recent years almost directly in line with what Moore’s Law would predict.

If that is the case, the long-term trend should be that speed doubles about every 18 months. Service providers have choices about what to do, but generally try and hold prices the same while doubling the speed at that same price (much as PC manufacturers have done).

In that case, what changes is cost-per-bit, rather than posted price. But an argument can be made that actual retail prices actually have dropped, as well. According to the U.S. Bureau of Labor Statistics, prices for internet services and electronic information providers were 22 percent lower in 2018 versus 2000.

That is not always so obvious for any number of reasons. Disguised discounting happens when customers buy service bundles. In such cases, posted prices for stand-alone services are one thing; the effective prices people pay something else.

Also, it matters which packages people actually buy, not simply what suppliers advertise. Customers do have the ability to buy faster or slower services, with varying prices. So even when posted prices rise, most people do not buy those tiers of service.

And promotional pricing also plays a role. It is quite routine to find discounted prices offered for as much as a year.

The point is that, taking into account all discounting methods and buyer habits, what people pay for internet access has arguably declined, even when they are buying more usage.

source: ITU

To be sure, the near-zero pricing trend applies most directly to the cost per bit, rather than the effective retail price. But the point is that use of internet bandwidth keeps moving towards the point where using the resource is not a constraint on user behavior.

And that is the sense in which near-zero pricing matters: it does not constrain the use of computing hardware or communications networks for internet access.

Gates and Hastings have built big businesses on the assumption that Moore’s Law changes the realm of possibility. For communications services providers, there are lessons.

As Gates rightly assumed big businesses could be built on a widespread base of computers, and Hastings assumed a big streaming business could be based on low-cost and plentiful bandwidth, so service providers have to assume their future fortunes likewise hinge on owning assets in the app, device or platform roles within the ecosystem, not simply connectivity services.

Near-zero pricing matters.

What Does Your Business Look Like if the Key Constraint is Removed? You Get Microsoft, Netflix, Google, Facebook, Amazon

What does your business look like if the key constraint is removed? It is a question so challenging--and often so seemingly impossible--that most of us never ask it. As a much younger profit center manager, I was once asked “what would it take to destroy our competition.” Truth is, I had no immediate answer. 

There was a most-likely answer. But I also knew that one thing would “never happen,” as the stakeholders who could authorize the change were--and remained--steadfastly unshakeable in supporting our only competitor. 

But young Bill Gates, before Microsoft was a household name--in fact when the company name actually was Micro-Soft, and was based in Albuquerque, N.M.-- did ask the question. So did Reed Hastings, founder of Netflix. 

If you are a user of computing or communications, what is your behavior if both are nearly free? 

If you are a supplier of computing or communications, what are the implications for your business? What business are you in, and what business should you be in?

Those remain the key strategic questions for connectivity providers.

“The original insight for Microsoft was this: What if computing was free? ” Bill Gates, former Microsoft CEO and chairman, once said. He has said similar things several times, more recently about price trends in communications. 

In 2004, then Microsoft Chairman Bill Gates argued that "ten years out, in terms of actual hardware costs, you can almost think of hardware as being free--I'm not saying it will be absolutely free--but in terms of the power of the servers, the power of the network will not be a limiting factor," Gates said. 

About a decade before, in 1994, Gates mused that  “we’ll have infinite bandwidth in a decade’s time.” In 1995, Gates said “And for this new era, communications is what’s becoming cheap.  So you get to thinking, well, what if communications was free, what could people do?” 

My own analysis is that Gates believed in Moore’s Law and its impact. That analysis would lead you to believe that computing costs would in fact decline substantially, every 18 months, upending assumptions about the use of computing.

Reed Hastings was very clear about the application of Moore’s Law to the foundation of Netflix. 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,”  Reed Hastings, Netflix CEO, said.  “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.

So as crazy as it might seem, what Moore’s Law has enabled, in computing, communications, applications, hardware and business opportunities, is precisely a clear understanding of what is possible if the key constraint in any business is removed. 

Near zero pricing is the term I use to describe the larger framework of connectivity provider pressures towards ever-lower prices. Others might prefer to emphasize marginal cost pricing. The point is that there is a reason the phrase dumb pipe exists. What we need to remember is that dumb pipe now is the foundation of the whole connectivity business. 

A caveat is that what people usually mean by “dumb pipe” is that a product is sold at low prices and generates low profit margins. But think about it: industry revenue growth now is lead by broadband services (internet access), which is, by definition, a dumb pipe service. It is a way to get access to applications, not an actual application itself. 

You might call that trend another example of the impact of Moore's Law on business and economics. And near zero pricing is a big industry issue. It might be the single-biggest issue. 

In a recent survey by Telecoms.com, the number-one threat to long-term business success was “increased pressure to lower prices” and “lower profit margins,” for example. 

source: Telecoms.com 

Agility or “speed” was also a major concern. Third on the list was competition from webscale firms including Google, Amazon or Microsoft. 

But there are good reasons why “lower prices” and “lower profit margins” are the top issues. Simply, they are the most-important result of other industry threats causing the price compression and lower profit margins: competition, the shift to internet protocol as the next-generation platform and the embedding of the whole connectivity function within the larger internet ecosystem.

Aside from deregulation of the telecom industry, which lead to competition and price competition, technology is among the root causes of price pressures. Near zero pricing is a scary thought for a connectivity provider, but it is reality.