The implications of continued rapid technological change

My posts last week about Obsolete technology and how Everything's changing started some interesting conversations.  Some argued against our prediction that anything that can be digitized will be digitized.  Others seemed to think I was stating the obvious or hadn't taken this line of thinking far enough.

What does the world look like if key technology trends continue?  How do businesses and consumers respond to dramatically increased (and continually increasing) computing power, memory, and bandwidth?

Here are a few graphs showing progress so far.  Processors are now so powerful and so cheap that handheld devices like an iPhone or a Droid perform like PCs of not too long ago.

The relentless march of Moore's LawThe cost of hard drives (and by extension server space and cloud storage) are falling so fast that we keep needing new terms ending in "-byte" to describe what is for sale or we will be talking about pennies:  Megabyte, Gigabyte, Terabyte, Petabyte, etc.

Data storage costs continue to plummet (Hard drive pricing as a proxy)Meanwhile, broadband Internet access is widely available and download speeds are getting faster and faster.  In 1999, the typical cable modem offer was $50/month for 600 Kbps.  Today, $50 will get you 20-30 Mbps in many areas on fiber or cable's DOCSIS 3.0, and leading players are beginning to roll out 100 Mbps offers.

The fastest available download speeds are becoming ever fasterThese trends do not appear to be slowing.  In fact, over the next few decades, these changes will fundamentally reshape the business landscape, our economy and our culture.  This was the topic of a fascinating conversation earlier tonight, captured here by my friend Ariel Diaz.

Will ever greater computing power and ubiquitous broadband connectivity really enable us to transition from the "digitization of everything" to augmented reality to parallel virtual worlds?  I don't know.  It sounds far-fetched today, but so does $50/month for 600 Kbps.

Fierce debate continues broadly

Over at FierceBroadbandWireless, there's a good overview of the broadband stimulus program by Lynette Luna, drawing on some of our analysis.

She also has some interesting commentary from Robert Anderson of WindTalk; one of the applicants that's focused on loans rather than grants.

Worth reading.

(Posted from the back seat of a taxi in Chicago, using a MacBook Air and Verizon Wireless MiFi)

The other underwater bridge to nowhere - $125,000 per household

Moe's update of his insightful analysis of the applications for broadband stimulus funding motivated me to take a look at the numbers for the other underwater bridge to nowhere, the ADAK Eagle project, serving the Aleutian Islands. This seeks ~98% grant-funding of $242m, rather than the 50% of the Kodiak-Kenai project

While we recognize the value of bringing broadband to rural communities, those areas of the United States that are unserved and underserved, we have to ask what is the right technology? How do we balance the costs and benefits?

The Aleutian Islands illustrate this dilemma perfectly. Confronted with the challenge of providing physical connections amongst these far-flung communities, the answer was not to build an interstate highway, it was the Alaska Marine Highway System, choosing an appropriate technology:

The mission of the Alaska Marine Highway System is to provide safe, reliable, and efficient transportation of people, goods, and vehicles among Alaska communities, Canada, and the "Lower 48," while providing opportunities to develop and maintain a reasonable standard of living and high quality of life, including social, education, and health needs.

The Alaska Marine Highway System has been operating year-round since 1963, with regularly scheduled passenger and vehicle service to 30 communities in Alaska, plus Bellingham, Washington, and Prince Rupert, British Columbia. There are currently eleven vessels in the AMHS fleet, additional ferries have been planned.

During the past ten years the Alaska Marine Highway System has carried an average of 400,000 passengers and 100,000 vehicles per year.

Alaska Marine Highway

It is part of the National Highway System and receives federal highway funding; it has been named as an 'All American Road' by the Federal Highway Administration:

The Alaska Marine Highway makes up a large part of our 'highway system' and is a route so special it has earned the title of All American Road, the only Byway of its kind

The fiber-based bridge to nowhere seeks $242m in funding to serve <9,000 people, of who about half live in Unalaska. Using the same calculation basis as before:

• a population of ~8,200 people


• an average household size of 2.59


• = about 3,200 households


• assume that about the same proportion of these households will subscribe to broadband as the US average, that is 60%


• = about 1,920 households subscribing to broadband service


• @ $242 million, that's about $125,000 per household


• even if we take people, it's still ~$30,000 per person

The state of the art in broadband satellite terminals is the Thrane and Thrane EXPLORER® 700, which retails for ~$6,500. At these prices, we could give every household in Alaska one of these and a voucher for $50,000 in services, and we'd still be way ahead; this would cost about half as much.

Thrane and Thrane EXPLORER® 700

Broadband Stimulus Update: Over $21 billion in grant requests; 67% of applications are grant only

Our post last week on applications for broadband stimulus funds received a lot of attention.  While some people disagreed with our conclusions, most found our analysis surprising and interesting:  Roughly 4x the total program funding applied for in the first round, and much of this associated with only a handful of applications.  The distribution of dollars among states was also uneven, and probably not allocated in the way you would do it to maximize the impact while minimizing the cost.

On Friday, I had the opportunity to speak with Robert Anderson, CEO of WindTalk, which sits at #7 in our ranking of top applications by size of funding request.  Mr. Anderson pointed me in the direction of an interesting new piece of analysis.  Many of the other large applications, he pointed out, are “grant only” requests while WindTalk is a pure loan application.  His belief is that loan applications will receive favorable treatment in the awards process.

The breakdown of loans vs. grants for the top ten applications (by size of funding request) is as follows:

Breakdown of top ten broadband stimulus applications by grant vs. loan amount requested

As Mr. Anderson suggested, the top ten applications are weighted toward grants, and WindTalk is the largest loan-only application.  The satellite players – EchoBlue, Satellite Broadband ARRA App LLC, and AtContact – all also have significant loan elements in their applications.  RADGOV, on the other hand, is asking for $1.3 billion in grants, while Hughes Network Systems has request $398M, and Adak Eagle has a $242M grant request representing ~98% of the cost of one of our two so-called “underwater bridges to nowhere.”  Kodak-Kenai, who we singled out in a prior post, is requesting over 50% loan funding.

The breakdown of the rest of the applicant pool is equally revealing:

Breakdown of broadband stimulus applications - grant vs. loan requests

Fully 2/3rd of applications are grant-only and nearly 60% of the requested funds are associated with these grant-only applications.  In total, 77% of the applied for dollars are for grants.

These totals stand in contrast to the government’s targets for the first round of applications, both in shear dollar amounts as well as the flavor of award (grant vs. loan).  The round one allocation was supposed to look like this:

• BIP program: $2.4 billion in loans and grants, with the application process encouraging the use of loans through self-scoring:

Extent of grant funding (Grant funds/loan funds):
(i) 0 points if this ratio equals 100%
(ii) 1 points if this ratio is between 100% and 75%
(iii) 3 points if this ratio is between 75% and 50%
(iv) 5 points if this ratio is lower than 50%
(v) 10 points if no grant funds are requested

• BTOP program: $1.6 billion in grants

Drilling deeper into the grant and loan combination applications is also interesting.  The following scatterplot shows grant requests on the x-axis and loan requests on the y-axis for each application incorporating some grant and some loan.

Most applications with both grant and loan elements fall near the 50/50 line

Here we see the BIP self-scoring guidelines having some impact as most applications fall along the 50% loan vs. grant threshold (387 out of 545 combination applications between 45% and 55% grant), and another small cluster sits around the 75% demarcation (34 applications with 70-80% grant).

As I said last week, there are a lot of applications chasing a lot more money than is available.  It will be interesting to see how it plays out.  Should loan-heavy requests be given priority over grant-heavy requests?  Or should the emphasis be on reaching the most unserved and underserved homes per dollar, regardless of type of award?

Comments appreciated.

Where $28 billion of broadband stimulus goes - the 'underwater bridge to nowhere' costs $50,000 per household

Our recent post on the broadband stimulus package has been attracting a lot of attention, and in particular some people seem concerned about our characterization of the Kodiak-Kenai proposal as an 'underwater bridge to nowhere'.

Kodiak Kenai's proposal costs "Kodiak Kenai's proposal costs $344 million (image from Fierce Broadband Wireless)"44 million (image from Fierce Broadband Wireless)

It motivated Scott Slater of the Personal Broadband Industry Association to comment that:

Your post seems to miss the large point and intent of the broadband funds in the Stimulus Act...

...At PBIA we give well thought out, well designed, and scalable projects in rural Alaska, just as in other remote and rural parts of the country, the benefit of the doubt as it appears they qualify as well as anyone, if not more, for the intended uses of the rural broadband funds in the Stimulus Act. It just so happens that after our review of total reach, total design, total scalability, and total shovel readiness of the proposed Alaska projects, we think the Kodiak Kenai Cable Company’s proposal should move forward and be funded under the Stimulus Act...

...It is important to know the facts. Your post did not demonstrate this understanding. There are larger federal policies at play here and the Kodiak Kenai Cable Company’s project appears to hit all of them.

Actually, we agree 100% with a couple of the key points that Scott makes:

The rural portions of Alaska are in, in fact, the most remote and unserved in America (see our earlier post on population density and broadband economics)

[T]he broadband funds in the Stimulus Act...were designed to deploy true broadband to locations that are ”unserved” and “underserved”

But the unfortunate reality is that these funds are finite, so that one of the key considerations here must be how much the service is improved, for how many people, and at what cost. There is a huge opportunity cost to very expensive projects that serve small numbers of people; the much larger number of people who could have benefited had that spending been allocated to its highest and best use.

As my colleague Moe Kelley (the author of the original post) put it in responding to Scott's comment:

I am struggling with how hundreds of millions of dollars for undersea fiber could possibly be the most cost effective solution to serve only thousands of customers. I am also struggling with how this investment will ever pay itself back or reap any meaningful benefit in terms of job growth, new business formation, or economic recovery.

Kodiak Kenai's 'underwater bridge to nowhere'

The question at hand is not: “How do we reach every man, woman, and child in the US with super fast broadband regardless of cost?”

The question is more like: “What is the best way to spend $7.2 billion to provide the greatest improvement in broadband service affordability and availability to unserved and underserved areas while also creating jobs and spurring economic growth?”

From that perspective, $344 million dollars to connect a few people in Western Alaska will deny the benefits of the broadband stimulus to much larger numbers of people elsewhere; rural communities somewhere else in the United States will lose out.

Here’s a quick calculation to provide some context:

• a quick search suggests that the population of Western Alaska is about 30,000 people (http://www.dced.state.ak.us/bsc/CDQ/cdq_handbook/9_cdq_chapt2.pdf)


• so with an average household size of 2.59 (http://factfinder.census.gov/servlet/SAFFFacts) there are about 11,000 households


• average US broadband penetration is about 60% (although the Broadband Stimulus will increase this)


• so we could anticipate that there would be about 7,000 or so households subscribing to broadband service

On that basis, $344 million dollars is about $50,000 per household subscribing to broadband service. That’s a very expensive underwater bridge to nowhere.