IT and Telecom Sector Analysis
1
Overall Project Objectives
Adopt a baseline of NYC economic forecasts prior to September 11
Assess economic impact of September 11 attack on all key industries and sectors of city economy in
short- and long-term
•
Specific focus on lower Manhattan and New York City
Identify priorities to accelerate New York’s recovery
A.T. Kearney, Bain & Company, Booz-Allen & Hamilton, The Boston Consulting Group, KPMG,
McKinsey & Company, and PricewaterhouseCoopers are collaborating in this unprecedented effort
by addressing the Energy, Financial Services, Healthcare/Biotech, Insurance, IT/Telecom,
Manufacturing, Media/Entertainment, Non-profit, Professional Services, Real Estate, Retail, Small
Businesses, and Transport/Tourism sectors
2
Table of Contents

Executive Summary

NYC Snapshot

Pre-9/11 Baseline

Impact Assessment

Actions

Methodology and Assumptions

Appendices
3
Executive Summary
4
The events of 9/11 modestly impacted the technology sector–
recommended actions can help the sector support an overall
economic turnaround

The impact of the attacks on the sector was small--the expected return to growth for the technology
sector is delayed by 6-12 months
• Pre 9/11, slowing revenue growth was expected to reverse by early 2002 – new estimates show
a return in 2003
• Traditional IT and telecom heavy spenders (e.g., Financial Services, Media) expect to continue
spending reductions in 2002

Infrastructure rebuilding and repair help the sector turn around as companies replace damaged
equipment with upgraded technology standards where possible
• Carriers (e.g., Verizon, Sprint, AT&T) suffered capital losses, and should seek to hasten the
recovery through advanced technology rollout and increased capacity for redundancy in the New
York area
• IT infrastructure providers can use rebuilding/repair activities as an opportunity to help clients
upgrade the capabilities of their pre 9/11 infrastructure

In the short term, the sector can work together with the business community to address critical post9/11 concerns including data and system security, redundancy, and survivability
• Companies have become more cognizant of system and data backup/redundancy issues and
expect to spend more on these services in the future
• Products and services provided by the technology sector companies can address many of these
concerns

For the long term, the sector needs to work together to build a truly redundant and distributed
5
Understanding the nature of the impact, we developed four
imperatives and associated actions to mitigate the effects
Imperatives
Rebuild World-Class
Infrastructure
Key Actions


Accelerate restoration of communications infrastructure
• Reimburse/finance rebuilding of damaged infrastructure
• Leverage opportunities to deploy “leapfrogging” technologies
Build the broadband infrastructure to support multiple centers of business around New
York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan)
Collaborate for the
Future

Create industry-specific demand-side and supply-side consortia (e.g., Financial
Services, Communications Services)
• Develop current and future industry-wide infrastructure requirements (e.g.,
redundancy, availability, capacity) and the plans to implement
• Establish clear communication of priorities to suppliers (equipment and services)
• Coordinate new technology implementation efforts (e.g., mesh networks, 3G, etc)
among multiple service providers
• Leverage existing industry consortia to extent possible (e.g., SIAC)
Make NYC Better for
Small Business

Establish new business development zone(s) throughout NYC
• Identify and prioritize prospective areas for development
• Deploy advanced technology infrastructure, targeted toward small-business
requirements
Nurture Innovation and
Foster Competition

Establish industry-wide commitment to develop innovative technologies
• Channel greater investment to new technologies enabling new business platforms
• Provide public sector support where possible to encourage development and
deployment of new technologies (e.g., 3G, 802.11b, mesh networks)
6
Pre-attack, the IT and Telecom sector generated $37.8B* and
employed nearly 97,000 people throughout New York City
Information Technology
Revenue, Jobs, and Companies (2000)
$11.6B
52,867
Telecommunications
Revenue, Jobs, and Companies (2000)
1,174
$26.2B*
100%
100%
90%
90%
80%
80%
70%
6.7
35,694
731
60%
50%
50%
29
0.6
524
70%
60%
40%
43,922
21.8
42,406
488
40%
1,506
30%
20%
30%
4.2
15,667
414
20%
10%
10%
0%
0%
Revenue
Software
Jobs
Hardware
Companies
Services
4.4
1,516
Revenue*
Jobs
Hardware
36
Companies
Services
*Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City
Source: Dunn & Bradstreet, BAH Analysis
7
On an annual basis, the IT and Telecom sectors generally showed
declining growth prior to 9/11
IT Industry
Pre-9/11 Projected Annual Growth
Telecom Industry
Pre-9/11 Projected Annual Growth
40%
Annual Telecom Revenue Growth (%)
Annual IT Revenue Growth
30%
20%
10%
0%
-10%
2000
2001
Software
2002
2003
Services
2004
2005
30%
20%
10%
0%
-10%
-20%
2000
Hardware
2001
2002
2003
2004
Telecom Hardware
Voice
Data
Wireless
2005
Source: IDC, Gartner Group, Economy.com, BAH Analysis

New technology purchases drive the IT Hardware market,
creating greater sensitivity to slowing corporate IT spend
and a general economic downturn

Outsourcing, maintenance, and other short-term fixed IT
spend areas support the service sector, limiting its
exposure to economic downturns

Emphasis on security systems (e.g., virus protection,
intruder detection) drove any software growth in 2000-2001

Decreased growth in wireless and data was
expected as penetration increased

Local voice maket expected to remain flat, with long
distance services seeing declines due to price
competition

Hardware will experience a rebound with the roll out
of new technologies such as 3G and 802.11b
8
In addition, industries that are historically large consumers of IT
and Telecom (e.g., Financial Services) were reducing their
spending levels
US IT and Telecom Spend
as Avg % of Firm Revenue by Industry
Observations
15%
US IT Spend by
Industry (2000)

Technology has become an
integral part of business operations
and firms have to spend on
technology upgrade and
maintenance every year

Reduction in spending as
percentage of revenue is offset by
overall increasing corporate
revenues

Slower growth is driving down
stock prices, however long-term
forecasts indicate double-digit
growth

Potential risk in New York City
market as key local industries plan
to reduce technology spend
Technology Spend as a % of Revenue
$ 59 B
10%
$ 112 B
$ 151 B
5%
$ 379 B
$ 67 B
0%
2000
Government
Retail/Wholesale
2001 (E)
Communications
(1)
Others
2002 (E)
Financial Services
(1)
Other industries include Agriculture, Mining, Construction, Transportation, Utilities, IT, Petroleum, Services, Healthcare, Manufacturing, Transportation and
Education
Note: IT spend includes corporate expenditure on hardware, software and services expenses and telecom spend includes voice and data communication expenses.
Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis
9
The 9/11 events caused major infrastructure damage of ~$2B to
the IT and Telecom sector…
Estimated One-time Capital Losses from Event
Estimated $2B in
communication and
utility
cable/equipment
repair -- $70%
attributed to
communications
$2,500
Estimated Lossed ($MM)
50
$2,000
$1,500
$1,000
2170
$500
1400
Includes
replacement of
cellular towers
and other small
replacement
requirements
Based on
$600/sq. ft.
value estimate
for 140 West
Street property
(Verizon)
720
$0
Total Capital Losses
Other Capital Losses
Netw ork, Communication,
Hardw are and Equipment
Losses
Facilities Losses
Cost Categories
Source: Morgan Stanley estimates, NYC Comptroller Report, news articles, BAH Analysis
… other sectors lost ~$10B of technology infrastructure
10
Lower Manhattan saw a direct loss of 16 sector companies and
1,123 sector jobs
Pre 9/11 Lower
Manhattan
IT and Telecom
Sector
Sub-Sector
# Co.’s
Jobs
IT Hardware
3
49
IT Services
159
8,525
IT Software
107
5,122
Telecom Hardware
2
468

Telecom Services
92
3,944

Total
363
18,108
Listing of Sector Businesses
Lost in Lower Manhattan*







Sub-Sector
# Co.’s
Jobs
IT Hardware
0
0
IT Services
8
800
IT Software
5
238
Telecom Hardware
0
0
Telecom Services
3
85
Total
16
1,123


Business Loss in
Lower Manhattan
IT and Telecom
Sector





Avesta Computer Svcs
Bridge Fixed Income Svcs
Careerengine Network
Espeed
Lindatech
Metiom
SRA America
Thor Technologies
Financial Technologies
Lava Trading
Optech Systems
Temenos USA
Thebeast.com
Ati Telecom
Ingress Net
Interoute Telcommunications
*Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head office
Source: Dun & Bradstreet, BAH Analysis
11
Looking forward, planned technology spending has been
postponed by six to twelve months
STAGE 1
STAGE 2
STAGE 3
Reinstate Service
Rationalize
Installation
Upgrade to New
Standards
•
Incur large tactical
emergency spend to
restore basic
services
•
Address emergency
needs via “patches”
to systems
•
Replace stopgap
measures with more
permanent solutions
•
Install new equipment
and systems to match
(or surpass) original
upgrade plans
IT Spending
Original Planned Spend
Revised Spend
Emergency Spend
11-Sep
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
5th Qtr
6th Qtr +
12
The current downward trend in revenue growth will likely be
extended for 2-3 quarters
Quarterly NYC IT Revenue
10.0
Quarterly NYC Telecom Revenue
3.5%
10.0
3.5%
3.0%
8.0
2.5%
6.0
2.0%
4.0
1.5%
1.0%
2.0
0.5%
0.0
0.0%
4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03
Post 9/11 Revenue
Post 9/11 Growth
Pre 9/11 Growth
Revenues ($ BN)
Revenues ($ BN)
3.0%
8.0
2.5%
6.0
2.0%
4.0
1.5%
1.0%
2.0
0.5%
0.0
0.0%
4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03
Post 9/11 Revenue
Post 9/11 Growth
Pre 9/11 Growth

Replacement of $12B technology infrastructure will be a source of revenue for the national technology sector

New York City will see 2.3% (of $12B) over 6-8 quarters
Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis
13
The employment downturn will also be extended and a
turnaround will lag revenue recovery
Quarterly NYC Telecom Employment
60,000
60,000
50,000
50,000
Employees
Employees
Quarterly NYC IT Employment
40,000
30,000
0
4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03
Pre 9/11
40,000
30,000
0
New Forecast
4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q- 1Q- 2Q- 3Q- 4Q99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03
Pre 9/11
New Forecast

Rebuild efforts and temporary outsourcing service
requirements limit additional layoffs

Service reconnection efforts and new service
connections limit additional layoffs

As economy recovers, greater perceived need for
decentralized IT operations and enhanced business
continuity plans (particularly for FS firms) drives
increased IT service and equipment demand and
needed employment

As economy recovers, enduring security and travel
concerns cause incremental increases in data and
voice service usage as well as new network technology
(e.g., VPN) deployment -- driving longer term
employment increases

New employment recovery expected in late 2002,
approximately three quarters later than originally
forecasted

Long term recovery now planned for late 2002, early
2003, approximately three quarters later than originally
forecasted
14
Overall, the incremental impact on IT and Telecom from the 9/11
attacks is minimal relative to other sectors
Key Drivers
 Companies replacing damaged and/or destroyed
equipment will drive a temporary increase in
spending in certain technology subsectors
Net Incremental Impact
 In addition, somewhat more persistent factors (e.g.,
increased concerns over security, redundancy, and
disaster recovery) will drive longer-term increased
spending
 Spending on smaller, more forward-looking projects
Nearly zero incremental
impact -- overall economic
trends continue to drive the
NYC IT and Telecom sector
may increase as management time is redirected
from enterprisewide application
upgrades/installations
 However, the increasingly uncertain environment
created by the events will translate into a
deceleration of new growth
 The expected recovery from slowing growth trends
will be delayed 6-12 months and is widely expected
to occur in late 2002
15
The IT and Telecom sector provides critical capabilities that can
help support a recovery in overall NYC business
Areas of Potential
Contribution
Provide robust levels of
redundancy and survivability
Develop and deploy new
technologies to drive business
forward
Provide enhanced capacity and
service levels
Deploy infrastructure to enable
distributed business operations
Examples
• Increase availability of mobile cellular banks, mobile
switches, and other “quick-fix” equipment
• Establish new precedents in cooperation for disaster
recovery planning (e.g., system sharing, wiring blueprints,
and other operational knowledge)
• Work as an industry to roll out 3G and 802.11b wireless
technologies in high-impact areas for business network
infrastructures
• Accelerate optical switching rollout to speed new
business/location deployment time
• Leverage new and existing network infrastructures to
provide greater data transport capacity
• Incorporate lessons learned from recovery efforts to set new
targets/thresholds for service provisioning and repair cycle
times
• Install state of the art broadband infrastructure allowing
distributed business operations within New York City (e.g.,
16
Limits on the IT and Telecom sector’s ability to drive these
innovations and improvements could impair the remainder of the
NYC economy
Investors are reluctant to fund
high-risk ventures
Newly uncertain environment restricts access to
new venture capital
Dangers for the remainder of
the economy
Available funds have been used for
recovery
Communications companies in particular are short
of cash for new projects
Customers feel insecure and
vulnerable …
Sense of vulnerability (on both individual and
corporate levels) heightens concerns about
redundancy, security
… so they are reluctant to spend
on new technologies …
Customers are less focused on expanding
offerings vs. protecting/preserving core operations
… and any spend is for traditional
services

Technology
companies
cannot support
cutting edge
efforts
• The development of new
technology-dependent
products/services (e.g., online
brokerages) is hindered
• Competition in the space is
diminished potentially
increasing costs and limiting
innovative approaches to
business
• The natural redundancy of
multi-carrier networks is
reduced, increasing risk for all
businesses
Customers exhibit greater reliance on/gravitation
towards proven service offerings of established
players
17
To address any potential issues we developed eleven joint public
and private sector actions
Action
Impact on NYC
Primary Support
1.)
Reimburse/finance the efforts of key players to rebuild while
upgrading
4
2.)
Help companies with capacity find customers with needs
1
Private sector
3.)
Upgrade capacity and capability of communications infrastructure
4
Combined public and private sector
4.)
Improve customer service, satisfaction, and customer options for
communications service options
2
5.)
Establish demand-side and supply-side consortia to address key
infrastructure requirements
4
6.)
Establish new business development region with advanced
technology infrastructure
2
7.)
Provide mechanisms to help small technology sector companies
take advantage of rebuilding spend
2
8.)
Enable small companies to refocus and/or diversify to
accommodate shifts in company priorities
1
9.)
Support competition in communications services by educating
businesses on available service alternatives
1
10.) Channel investments to technologies critical to native NYC
industries
3
11.) Establish NYC as center of technology R&D by fostering climate for
new technology venturing
2
0
Low Impact
Combined public and private sector
Combined public and private sector
Private sector
Combined public and private sector
Combined public and private sector
Private sector
Combined public and private sector
Private sector
Public sector
4
High Impact
18
SAMPLE ACTION: Establish business and service-provider
consortia to address infrastructure requirements
Establish business and service-provider consortia to address infrastructure requirements
Action



Implementation
Actions



Key Costs



Key Benefits




Feasibility

Solicit participants, from key businesses, service providers, and equipment manufacturers (e.g., Large Financial Services
companies, Verizon, AT&T, Lucent, AOL) to ensure buy-iin from all key consituents
Business and service provider consortia should operate jointly and independently to determine constituents specific needs
Suggested agenda items:
•
Disaster recover and survivability planning
•
Capacity requirements and constraints
•
New technology requirements and implementation methods
Suggested action-item categories:
•
Methods for funding potentially non-economically beneficial activities (e.g., redundancy creation) by individual
members
•
Required / Suggested policy changes
•
Specific responsibilities for implementation by member companies (e.g., client corporations required to upgrade so
service provider investments in new technologies will have a market)
Establishment of consortia and coordination costs should incur minimal costs
~1 management-level FTE to help coordinate key players
Overall Cost Estimate: $4-6MM
Source of funds: Private consortia/key individual company members
Enables greater infrastructure redundancy and advanced capabilities without placing undue burden on supply-side sector
companies to invest capital with no expectation of reasonable return
Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side
industries for future issues
Provide forum to develop future disaster recovery plans
High
Cost to establish consortia is minimal, and cost to deploy redundancy should be matched as best as possible with
potential for increased revenue/earnings to supply-side companies
Allows greater redundancy to be built without public-sector intervention
19
SAMPLE ACTION (continued): Establish business and service
provider consortia to address infrastructure requirements
Sample Agenda
Items


Kickoff
Timing
Business Continuity
Requirements
• Infrastructure Redundancy
• Data Backup
• Equipment/Space
Availability

Advanced/Alternative
Technology Capability
Requirements

Immediate
Key Players
Business

Representatives from key
NYC industries (e.g.,
Financial Services,
Media)
Service Providers



12-24 months

Representatives from key
NYC industries (e.g.,
Financial Services,
Media)





Disaster Recovery
Requirements for Small
Businesses
Infrastructure Capacity
Requirements


Immediate
6-12 months


Representatives from key
NYC industries (e.g.,
Financial Services,
Media) -- with
representation from small
players within each

Representatives from key
NYC industries (e.g.,
Financial Services,
Media)




Infrastructure providers (e.g.,
Verizon, AT&T)
Business continuity service
providers (e.g., SunGard)
Equipment providers (e.g., IBM,
EMC)
Infrastructure providers (e.g.,
Verizon, AT&T)
Equipment providers (e.g., IBM,
EMC)
Key new technology players
(e.g., Level3)
Infrastructure providers (e.g.,
Verizon, AT&T)
Business continuity service
providers (e.g., SunGard)
Equipment providers (e.g., IBM,
EMC)
Infrastructure providers (e.g.,
Verizon, AT&T)
Ley new technology players
(e.g., Level3)
20
NYC Snapshot
21
The New York IT and Telecom sector includes a number of
familiar names, along with plenty of smaller players
Sector
Sub-Sector
SIC Code - Description
357 - Computers, Peripherals,
Office Equipment

Human Scale Corporation

Dot Hill Systems Corporation
7371/2 - Computer related
software

Nutech Integrated Systems

Aegis Software
7373 to 7379 - Computer
related services

AMC Computer Corporation

Netik Inc.
366 - Communications
Equipment

L3 Communications

Loral Space Communications

4812 - Wireless Telecom
Services

Verizon

RSL Communications

4813 - Telecom Services

Arbinet-thexchange

4822 - Telegraph and other
Communications

4899 - Telecom services, not
elsewhere classified

Hardware
IT

Software

Services

Hardware
Telecom
Voice
(Local &
LD)
Wireless
Data
Examples
22
The technology sector generated $37.8B* and employed nearly
97,000 people throughout New York City
Information Technology
Revenue, Jobs, and Companies (2000)
$11.6B
52,867
Telecommunications
Revenue, Jobs, and Companies (2000)
1,174
$26.2B*
100%
100%
90%
90%
80%
80%
70%
6.7
35,694
731
60%
50%
50%
29
0.6
524
70%
60%
40%
43,922
21.8
42,406
488
40%
1,506
30%
20%
30%
4.2
15,667
414
20%
10%
10%
0%
0%
Revenue
Software
Jobs
Hardware
Companies
Services
4.4
1,516
Revenue*
Jobs
Hardware
36
Companies
Services
*Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City
Source: Dunn & Bradstreet, BAH Analysis
23
Small companies provide nearly 40% of the employment and
approximately 15% of revenues
NYC IT & Telecom Industry by Firm Size
$100B
$37.8B*
96,789
1,698
1%
100%
90%
17%
24%
80%
55%
70%
60%
83%
37%
50%
82%
40%
30%
34%
20%
39%
10%
13%
0%
4%
Revenue
11%
NYC-generated Revenue*
Small
Medium
Jobs
Companies
Large
*Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City
Source: Dunn & Bradstreet, BAH Analysis
24
Most sector companies reside within Manhattan -- Lower
Manhattan hosts approximately 20% of the employment
Overall Distribution of IT/Telecom Firms,
Jobs, and Revenue by NYC Region
New York City IT and Telecom Employment (2000)
$30.9B
1,131
IT
60,554
Lower
Manhattan
Other
Manhattan
Other
Boroughs
Hardware
49
501
956
Software
8,525
24,626
2,543
Services
5,122
10,025
520
Hardware
468
432
616
Services
3,944
24,970
13,492
18,108
60,554
18,127
Telecom
Total
Firms
Jobs Revenue
Other Manhattan
New York City IT and Telecom Revenues (2000)
363
Firms
18,108
$4.0B
Jobs Revenue
Lower
Manhattan
206
Firms
18,127
$3.0B
Jobs
IT
Revenue
Lower
Manhattan
Other
Manhattan
Other
Boroughs
Hardware
$0.02
$0.5
$0.1
Software
$1.1
$3.1
$0.07
Services
$1.1
$5.4
$0.2
Hardware
$0.3
$3.9
$0.2
Services
$1.4
$18.0
$2.4
$4.0
$30.9
$3.0
Telecom
Other Boroughs
Total
25
Pre 9/11 Baseline
26
Pre-attack trends for IT and telecom showed slowing growth
rates, with an anticipated rebound in Q4 2002
IT Industry
Pre-9/11 Projected Annual Growth
Telecom Industry
Pre-9/11 Projected Annual Growth
40%
Annual Telecom Revenue Growth (%)
Annual IT Revenue Growth
30%
20%
10%
0%
-10%
2000
2001
Software
2002
2003
Services
2004
2005
Expect steady
8-10% longterm growth for
wireless
30%
20%
10%
0%
-10%
-20%
2000
Hardware
2001
2002
2003
2004
Telecom Hardware
Voice
Data
Wireless
2005
Source: IDC, Gartner Group, Economy.com, BAH Analysis



New technology purchases drive the IT Hardware market,
creating greater sensitivity to slowing corporate IT spend
and a general economic downturn
Outsourcing, maintenance, and other short-term fixed IT
spend areas support the service sector, limiting its
exposure to economic downturns
Emphasis on security systems (e.g., virus protection,
intruder detection) drove any software growth in 2000-2001

Decreased growth in wireless and data was
expected as penetration increased

Local voice maket expected to remain flat, with long
distance services seeing declines due to price
competition

Hardware will experience a rebound with the roll out
of new technologies such as 3G and 802.11b
27
Prior to the 9/11 attacks, the IT hardware subsector was on a
downward trend, with software and services experiencing slowed
growth
Subsector
Trend
Drivers


Hardware




Software


Services
Company Size
Trend


Large
Shift in spending was away from discretionary software
Security was already a priority for many companies
Spending levels are maintained by long-term contracts and need to
upgrade
Outsourcing services benefited as companied sought to reduce costs
Companies delivering discretionary services (e.g. customer software
development) saw the greatest slowdown
Drivers

Small
Corporate IT spending trends play a major role
Key consumers of technology were slowing overall capital expenditures
Slowdown in consumer spending affects PC market

Smaller firms felt disproportionately large impact from economic
slowdown
Funding for new ventures had become scarce
Many large firms had begun to lay off workers to maintain profitability
A return to growth was expected in 2002
Detailed subsector-specific trend data is included in Appendix A
28
In the telecom sector, well-capitalized incumbent wireless service
providers drove pre-9/11 growth while the hardware sector was in
a decline
Subsector
Trend
Drivers


Hardware


Wireless (voice)



Wireline voice
(LD&IXC)


Data
Company Size

Slowdowns in corporate spending limited once-high growth
Large providers that had planned for continued explosive growth faced an inventory glut
Failures/bankruptcies in several sectors (e.g., CLECs) placed strains on vendor financing activities
Trends from Europe and Japan indicated wireless services would weather the economic slowdown
well
Slowdown in growth was a consequence of increased penetration rather than economic conditions
Increasing ARPU offset slowdown in new subscribers
Markets were nearly 100% saturated and facing cutthroat price competition
Growth was extremely limited
Growth in high-bandwidth services was driven by constantly increasing data requiremens and
advanced internet applicaitons
CLEC and competitive player failures were becoming increasingly common, but incumbents
continued to perform well
Trend
Drivers

Small



Large


Smaller firms felt disproportionately large impact from economic slowdown
Funding for new ventures had become scarce
Large telecom firms (e.g., Verizon) experiencing increased profit margins
Medium size wireless carriers were having trouble accessing capital for growth
Voice continued to experience margin pressure
Data services were growing
Detailed subsector-specific trend data is included in Appendix A
29
Impact Assessment
30
Emphasis on infrastructure integrity and security will help lessen
the decline and hasten the rebound in the IT and Telecom sector

Overall, the IT and telecom sector in NYC is expected to see an immediate reduction in growth rates
for the next two quarters before recovering to pre-9/11 levels by the end of 2002
• Opportunity for stronger players to consolidate their position
• Challenge for small business to survive this slump

IT hardware will likely continue on a downward trend until the overall economy recovers
• Spending on subsector is driven by overall economic trends
• The impact on the NYC economy is small relative to other sectors

Multiyear contracts will help IT services firms avoid the impact of 9/11 in the near term
• Changes in spending priorities and habits will not be immediately felt as existing long-term
contracts must be “served out”
• Certain services provided are fundamental to business operations (e.g., data center operations)
and cannot be easily curtailed in the short term

Software manufacturers could begin to see negative growth in the short-term
• NYC based clients are likely to spend less on software
• Majority of the software companies are small firms and may not be able to absorb several
quarters of reduced revenues
31
The immediate capital loss from the 9/11 attack is estimated at
~$2B, comprised primarily of facilities & equipment
Estimated One-time Capital Losses from Event
Estimated $2B in
communication and
utility
cable/equipment
repair -- $70%
attributed to
communications
$2,500
Estimated Lossed ($MM)
50
$2,000
$1,500
$1,000
2170
$500
1400
Includes
replacement of
cellular towers
and other small
replacement
requirements
Based on
$600/sq. ft.
value estimate
for 140 West
Street property
(Verizon)
720
$0
Total Capital Losses
Other Capital Losses
Netw ork, Communication,
Hardw are and Equipment
Losses
Facilities Losses
Cost Categories
Source: Morgan Stanley estimates, NYC Comptroller Report, news articles, BAH Analysis
… Other sectors lost ~$10B of technology infrastructure
32
Overall, the incremental impact on IT and Telecom from the 9/11
attacks is minimal relative to other sectors…
Key Drivers
 Companies replacing damaged and/or destroyed
equipment will drive a temporary increase in
spending in certain technology subsectors
Net Incremental Impact
 In addition, somewhat more persistent factors (e.g.,
increased concerns over security, redundancy, and
disaster recovery) will drive longer-term increased
spending
 Spending on smaller, more forward-looking projects
may increase as management time is redirected
from enterprisewide application
upgrades/installations
Nearly zero short-term
incremental impact -- overall
economic trends continue to
drive the NYC IT and Telecom
sector, and could result in
slower long-term growth
 However, the increasingly uncertain environment
created by the events will translate into a
deceleration of new growth
 The expected recovery from slowing growth trends
will be delayed 6-12 months and is widely expected
to occur in late 2002
33
… but limits on the IT and Telecom sector’s ability to drive
innovations could impair the remainder of the NYC economy
Investors are reluctant to fund
high-risk ventures
Newly uncertain environment restricts access to
new venture capital
Dangers for the remainder of
the economy
Available funds have been used for
recovery
Communications companies in particular are short
of cash for new projects
Customers feel insecure and
vulnerable …
Sense of vulnerability (on both individual and
corporate levels) heightens concerns about
redundancy, security
… so they are reluctant to spend
on new technologies …
Customers are less focused on expanding
offerings vs. protecting/preserving core operations
… and any spend is for traditional
services

Technology
companies
cannot support
cutting edge
efforts
• The development of new
technology-dependent
products/services (e.g., online
brokerages) is hindered
• Competition in the space is
diminished potentially
increasing costs and limiting
innovative approaches to
business
• The natural redundancy of
multi-carrier networks is
reduced, increasing risk for all
businesses
Customers exhibit greater reliance on/gravitation
towards proven service offerings of established
players
34
Although Lower Manhattan is home to 363 sector companies,
their business base was not severely impacted by 9/11
Pre 9/11 Lower
Manhattan
IT and Telecom
Sector
Sub-Sector
# Co.’s
Jobs
IT Hardware
3
49
IT Services
159
8,525
IT Software
107
5,122
Telecom Hardware
2
468

Telecom Services
92
3,944

Total
363
18,108
Listing of Sector Businesses
Lost in Lower Manhattan*







Sub-Sector
# Co.’s
Jobs
IT Hardware
0
0
IT Services
8
800
IT Software
5
238
Telecom Hardware
0
0
Telecom Services
3
85
Total
16
1,123


Business Loss in
Lower Manhattan
IT and Telecom
Sector





Avesta Computer Svcs
Bridge Fixed Income Svcs
Careerengine Network
Espeed
Lindatech
Metiom
SRA America
Thor Technologies
Financial Technologies
Lava Trading
Optech Systems
Temenos USA
Thebeast.com
Ati Telecom
Ingress Net
Interoute Telcommunications
*Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head office
Source: Dun & Bradstreet, BAH Analysis
35
Rebuilding efforts support the technology sector – estimates
indicate $8B of technology infrastructure must be replaced by
former WTC occupants
WTC Towers, Tenants by Floors and Employees, 9/10/01
Observations
1 WTC
Company
Sandler O'Neill
AON
Fiduciary Trust
American Bureau of Shipping
Washington Group
Keefe, Bruyette & Woods
NYS DOT&F
Harris Beach
Euro Brokers/Maxcor
Fuji Bank
Morgan Stanley
Bridge Info Sys
ICAP
Fireman's Fund
Wachovia/First Union
Thatcher Proffitt & Wood
Frankel & Co.
Oppenheimer Funds
Sun Microsystems
Scor-US
2 WTC
Emp
177
1100
645
16
190
171
222
113
285
625
3500
284
500
190
48
300
213
598
300
120
Floors
0.5
9
4
0.5
0.5
2
2
1
1
4
17
2
2
2
1
3
1.5
5
2
1.5
Company
Windows on the World
Cantor Fitzgerald
Marsh & McLennan
Fred Alger Mgmt
Carr Futures
Ohrenstein & Brown
Network Plus
Port Authority
Dai-Ichi Kangyo Bank
Lehman Brothers
Kemper Insurance
Empire Blue Cross
ICAP
Bank of America
Emp
Floors
70
1000
3200
55
141
91
46
2000
300
618
234
1914
250
400
UNKNOWN: Who will leave
NYC?
2
3
8
1.5
1.5
1
1
23
3
3
2
10
1
3
 A significant portion of the
companies within the WTC are
large-sized firms (500+
employees)
 Not considering those with
significant lost employees, these
firms are likely to require
significant additional IT and
telecom spending outlays to set
up operations elsewhere
 These IT and telecom
expenditures can be expected to
mostly go to NYC-based IT firms
Companies with greater than 500 employees within WTC
Source: NYC Comptroller Report
36
Technology subsectors taken individually see minimal net
incremental impact of the attacks
Sub-Sector
General
IT
Telecom
Capital Loss
Incremental Impact*
Short Term
Long Term
Short-t
($2.17B)m
IT Hardware
(0.5%)
(0.2%)
IT Software
(1.3%)
0.1%
IT Services
(1.6%)
0.2%
Telecom
Hardware
Wireless
(0.7%)
(0.2%)
0.1%
0.1%
Local Voice
(0.05%)
0.0%
Long Distance
Voice
Data
- Telephony
- Cable
(0.05%)
0.0%
(1.5%)
0.2%
Qualitative Incremental Impact
Moderate short term revenue gain – initial repair/replacement of
damaged infrastructure will drive near-term revenues; long-term
infrastructure development will take 18 to 24 months and drive slower but
more sustained revenue growth
Increase in revenue from rebuild spending will be counterweighed by
general spending slowdown
Rebuild spending and new investment in selected
infrastructure/operations capabilities (e.g., security, video conf., remote
access) will come primarily as a shift in spend away from typical growth
areas (ERP, CRM, etc)
Rebuild spending in selected outsourced services (e.g., data center) and
new investment in key business continuity planning/services will come
primarily as a shift away from discretionary spending on services
Increase in revenue from rebuild spending will be counterweighed by
general spending slowdown
Increase in revenue from usage and customer growth as a result of
security/ travel concerns
Small increase in revenue from videoconferencing and/or telecommutingrelated usage will only slightly offset declining voice market
Small increase in revenue from videoconferencing and/or telecommutingrelated usage will only slightly offset declining voice market
Short-term revenue shortfalls from service interruptions counterweighed
by new service connections due to relocations
Minimal one-time revenue decrease due to loss of customers and
business activity
*Note: Impact figures defined as difference between pre-9/11 growth levels and base scenario post-9/11 growth levels, one quarter and eight quarters
beyond 3Q-01 for short-term and long-term, respectively
Detailed projections are provided in Appendix B
37
Actions
38
After analyzing the impact to the sector, we developed four
imperatives and associated actions to mitigate the effects
Imperatives
Rebuild World-Class
Infrastructure
Key Actions


Accelerate restoration of communications infrastructure
• Reimburse/finance rebuilding of damaged infrastructure
• Leverage opportunities to deploy “leapfrogging” technologies
Build the broadband infrastructure to support multiple centers of business around New
York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan)
Collaborate for the
Future

Create industry-specific demand-side and supply-side consortia (e.g., Financial
Services, Communications Services)
• Develop current and future industry-wide infrastructure requirements (e.g.,
redundancy, availability, capacity) and the plans to implement
• Establish clear communication of priorities to suppliers (equipment and services)
• Coordinate new technology implementation efforts (e.g., mesh networks, 3G, etc)
among multiple service providers
• Leverage existing industry consortia to extent possible (e.g., SIAC)
Make NYC Better for
Small Business

Establish new business development zone(s) throughout NYC
• Identify and prioritize prospective areas for development
• Deploy advanced technology infrastructure, targeted toward small-business
requirements
Nurture Innovation and
Foster Competition

Establish industry-wide commitment to develop innovative technologies
• Channel greater investment to new technologies enabling new business platforms
• Provide public sector support where possible to encourage development and
deployment of new technologies (e.g., 3G, 802.11b, mesh networks)
39
We developed specific actions, using four key imperatives that
drive the IT and Telecom sector’s ability to support a NYC
recovery
Imperative
Description

Rebuild World-Class
Infrastructure


Collaborate for the
Future


Make NYC Better for
Small Business
Potential Benefits
Replace one-time capital losses suffered
by the industry as a result of the 9/11
events
Drive the NYC infrastructure forward by
upgrading it where possible

Develop ongoing mechanism to
determine technology requirements of
different industries and NYC economy as
a whole
Establish cooperative environment for
technology players to work with
customers to provide best solutions to
address requirements

Provide resources to ensure the viability
of small businesses within NYC, both
within and outside of the technology
sector





Nurture Innovation
and Foster
Competition


Facilitate the development of new
technologies on an ongoing basis
Create an environment to encourage the
exploration of new products and services


Provides short-term financial support to sector
companies experiencing significant infrastructure
damage
Restores IT/Telecom services and infrastructure
while instituting higher levels of customer service
Enables greater infrastructure redundancy and
advanced capabilities without placing undue
burden on supply-side sector companies to
invest capital with no expectation of reasonable
return
Potentially, provides valuable precedent for
greater cooperation between supply-side sector
companies and demand-side industries for future
issues
Allows small companies to leverage leading
technologies in operations and/or service
offerings
Provides key selling point for NYC to potential
small business community members, vs. other
regions
Encourages development/testing of innovative
technologies on limited basis within NYC
Provides continued funding to high-growth areas,
to ensure industry is not “left behind” by faster
players elsewhere
Helps to retain skilled high-tech talent pool within
NYC area
40
Eleven actions emerged across the imperatives
Imperatives
Rebuild World-Class
Infrastructure
Actions
1.)
Reimburse/finance the efforts of key players to rebuild or repair damaged/destroyed
infrastructure, getting NYC services “back to normal” while upgrading current
infrastructure
2.)
Help companies with capacity find customers with needs -- support customer access to
key providers/subcontractors for short-term requirements
3.)
Upgrade capacity and capability of communications infrastructure
4.)
Improve customer service, satisfaction, and customer options for communications
services
5a.) Establish demand-side consortia to address key infrastructure requirements
Collaborate for the
Future
Make NYC Better for
Small Business
Nurture Innovation and
Foster Competition
5b.) Establish supply-side consortia to address key infrastructure requirements
6.)
Establish new business development region with advanced technology infrastructure
7.)
Provide mechanisms to help small technology sector companies take advantage of
rebuilding spend
8.)
Enable small companies to refocus and/or diversify to accommodate shifts in company
priorities
9.)
Support competition in communication services by educating businesses on available
service alternatives
10.) Channel investments to technologies critical to native NYC industries
11.) Establish NYC as center of technology R&D by fostering a climate for new technology
venturing
41
Four actions stand out as the highest priority, with potentially
enduring benefits and high feasibility
Imperatives
Actions
1.) Reimburse/finance rebuilding …
Rebuild WorldClass
Infrastructure
2.) Help companies with capacity find …
3.) Upgrade capacity and capability …
4.) Improve customer service, satisfaction …
5a.) Establish demand-side consortia …
Collaborate for
the Future
5b.) Establish supply-side consortia …
6.) Establish new business development …
Make NYC
Better for
Small
Business
7.) Provide mechanisms to help small …
8.) Enable small companies to refocus …
Highest-Priority Actions
1.) Reimburse/finance the efforts of key players to
rebuild or repair damaged/destroyed
infrastructure, getting NYC services “back to
normal” while upgrading current infrastructure
5a.) Establish demand-side consortia to address key
infrastructure requirements
5b.) Establish supply-side consortia to address key
infrastructure requirements
6.) Establish new business development region with
advanced technology infrastructure
9.) Support competition in communications …
Nurture
Innovation and
Foster
Competition
10.) Channel investments to technologies …
10.) Channel investments to technologies critical to
native NYC industries
11.) Establish NYC as center of …
Each of the actions is discussed in detail in Appendix C
42
Methodology and Assumptions
43
At each stage of analysis, we validated hypotheses with multiple
credible sources
Description
Section


NYC Snapshot




Pre 9/11 Baseline

Leveraged Dun & Bradstreet database of NYC companies identified by
SIC code
Gathered key information for these companies including employee and
revenue figures
Isolated Lower Manhattan companies by zip code
Developed profile of the technology sector, segmented by size and
subsector
IDC
Gartner Group
Economy.com


Projections based on external sources and
overall economic drivers
Key factor is planned IT spend at major
companies

Incorporated interview results (industry executives, analysts, investment
experts) where possible

Utilized three forecast scenarios (Base, Pessimistic, Optimistic)
Incorporated interview results (industry executives, analysts, investment
experts) where possible
Developed and incorporated subsector-specific assumptions where
appropriate (discussed within Impact section)

Impact


Initiatives

Developed set of candidate initiatives by:
• Tapping internal resources within BA&H (both within and external to
project team)
• Identifying key prospective actions suggested in research resources
Added to and refined this set based on interview feedback
44
Our sources included interviews with over 30 individuals,
including large and small companies as well as sector experts
Interviewees
Organization
Accenture
Accenture
Accenture
Aegis Software Inc
AMC Corporation
Arbinet-thexchange
AT&T
AT&T
Avaya
Bear Stearns
CIBC
ConEd Communications
CSFB
Global Crossing
IBM
Inforocket.com
Lucent
Lucent
Lucent
Lucent
MSDW
MSDW
Netik Inc
Nutech Integ. Sys.
Probe Research
RCN
RRE Ventures
Siemens Corporation
Verizon
Verizon
Verizon
Verizon
Warburg Pincus
Name
Bill Andrews
Steve Phillips
Mark Tillinger
Andrew Serrel
Mark Romanowski
Mike Lemberg
Michael Armstrong
Reed Harrison
Don Peterson
Rich Lukaj
Gary Rabin
Peter Rust
Todd Raker
David Carey
Gus Maikish
Susan N.
John Heindel
Dave Dial
Nick DeTura
Bob Holder
Luis Carvalho
Rich Bilotti
Pam Cytron
Jessica Kowalick
Allan Tumolillo
Ed Kuczma
Jim Robinson IV
Klaus Kleinfeld
Bob Ingalls
David Pitcher
Bruce Gordon
Paul Crotty
Stewart Gross
Title/Level
Associate Partner
Partner
Partner, Capital Markets Group Leader
Senior Vice President
Chief Financial Officer
Director
CEO
Senior VP, Local Service & Network
CEO
Senior MD
Senior MD
CEO
Managing Director
Senior VP, Global Network
Managing Director
Executive Vice President
President, Worldwide Svcs
Product Management VP
Global Program Mgmt VP
Executive Vice President
Managing Director
Managing Director
Executive Vice President
Controller
Analyst, Telecom
VP, GM Manhattan Ops
Director
COO
President, Bus. Solns. Grp.
Corporate Economist
President, Retail Markets
Group President, NY & CT
Senior MD
45
We analyzed the data from these sources to arrive at our
projected estimates…
Projection Development Framework
IDC
Growth Rates
Gartner Group
Revenues
BAH
Growth
Analysis
Economy.com
2000 Revenues
Analyst Reports



National revenue
projections
Compute national % growth
trends
Adjust national trends to New
York City trends

% of spend

Elasticity for growth

Population Base
Revenue &

Projections
Dun & Bradstreet Report
IDC
BAH
Gartner Group
Employment
Employment
Reports
Analysis




National growth projections
NYC Comptroller Reports

Growth Rates
Employment
Projections
Dun & Bradstreet data
New York city relationship to
national projections
Job Loss reports (newspapers,
reports) in New York City
46
… in the context of the three standard scenarios established by
the Core Team
Impact Scenarios
Assumptions
Scenario
Base
Pessimistic

Unclear implications of conflict

Recession in Q3 and Q4 2001 due to
declining consumer confidence

Implications

Market expectations of industry growth rates
over the next few years considering the
impact of 9/11 attacks
Recovery in Q1 2002

Further reduction in growth rates following
the 9/11 attacks but recovery time is
expected to be the same

Economic depression with 4 consecutive
declining quarters


Plunging consumer confidence stays low
Deeper plunge in growth rates followed in
some cases by a longer wait time for the
growth rates to turn around

Escalation of hostilities with lingering fear

“Best-case” scenario


Conflict primarily resolved and/or clarified in
short term
Technology sector demonstrates immediate
comeback

Growth rates continue to rise but at a slower
pace than in the early 1990s
Optimistic

Consumer confidence rejuvenated

Downturn subdued
47
A three-stage recovery spending framework drove the
development of post-9/11 trajectories for each scenario
STAGE 1
STAGE 2
STAGE 3
Reinstate Service
Rationalize
Installation
Upgrade to New
Standards
•
Incur large tactical
emergency spend to
restore basic
services
•
Address emergency
needs via “patches”
to systems
•
Replace stopgap
measures with more
permanent solutions
•
Install new equipment
and systems to match
(or surpass) original
upgrade plans
IT Spend
Original Planned Spend
Revised Spend
Emergency Spend
11-Sep
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
5th Qtr
6th Qtr
48
New York City’s historically close tracking of national growth
rates guided the sector trajectories
US and New York City GDP Growth Rates
Observations
10%

Rebuilding expense and a lower
starting point were expected to
drive growth rates - San Francisco
and Tokyo earthquakes have
witnessed such returns in their
growth rates following the initial
downturn

This rise is expected to arrive after
a 3 or 4 quarter time lag as the
rebuilding spend trickles throught
he economy

New York city economy has grown
faster than the national average in
boom cycles and this trend is
expected to continue in the next
boom phase
GDP Growth
8%
6%
NYC
USA
4%
2%
0%
1995
1996
1997
1998
1999
2000 2001E 2002E 2003E 2004E 2005E
-2%
-4%
Source: Economy.com, Bureau of Economic Analysis, BAH Analysis
49
New redundancy communications requirements and rebuilding
spend should help move technology out of the decline
Description
Drivers

Additional
Security/Redundancy



New remote
communication needs


Rebuilding
Activities
Demand to create additional redundancy infrastructure drives most technology subsectors (hardware, software, services) exception being telecom services
Industries like postal services, airlines will increase their technology spending on
security and redundancy needs
Industries which have traditionally been high consumers of technology will also reevaluate their budgets to increase their spend on security/redundancy
Drive to decentralize key information will lead to increased implementation of
remote communications solutions
Some larger players may acquire small companies with proprietary technologies apply marketing $ supported by brand name to grow the market for these services
Increase in telecommuting needs will increase demand for services like home
offices and video conferencing

$10-12B flowing into technology sector -- $230-275 MM in New York specific
companies

Rebuilding spend and a lower starting point were expected to drive growth rates
e.g., San Francisco and Tokyo earthquakes led to an immediate downturn in the
regioanl economies, but rebuilding spend resulted drove a quick rebound in growth
rates
50
The “inertia” of maintenance vs. new IT spending is another
factor – reductions come most readily from trimming new
technology purchases
Discussion
IT Spend Reduction Scenario

IT spend dedicated to maintenance
purposes (e.g., HW maintenance,
support) is relatively “uncompressible”
-- spending requirements are relatively
unchangeable in the short term

When overall IT spend faces reduction
pressures (e.g., economic downturn,
uncertainty), spend typically must
come from the New IT spend while
Maintenance IT spend continues

The New IT spend area is most closely
related with the Hardware and
Software subsectors, moreso than with
the Services subsector
Effect on Different Spend Types
0.48
0.52
0.32
0.48
Maintenance
New Spend
Total =1.0
Total =0.8
51
We considered IT industry perspectives that despite corporate
spending pullbacks, long-term growth is inevitable
US IT and Telecom Spend
as Avg % of Firm Revenue by Industry
15%
Technology Spend as a % of Revenue
US IT Spend by
Industry (2000)
Observations

Technology has become an integral
part of business operations and firms
have to spend on technology upgrade
and maintenance every year

Reduction in spending as % of revenue
is offset by overall increasing corporate
revenues

Slower growth is driving down stock
prices, however long-term forecasts
indicate double-digit growth

Potential risk in New York City market
as key local industries plan to reduce
technology spend
$ 59 B
10%
$ 112 B
$ 151 B
5%
$ 379 B
$ 67 B
0%
2000
Government
Retail/Wholesale
2001 (E)
Communications
(1)
Others
2002 (E)
Financial Services
(1)
Other industries include Agriculture, Mining, Construction, Transportation, Utilities, IT, Petroleum, Services, Healthcare, Manufacturing, Transportation and
Education.
Note: IT spend includes corporate expenditure on hardware, software and services expenses and telecom spend includes voice and data communication expenses.
Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis
52
A simple risk-return framework enabled a prioritization of the
actions
Prioritization Framework
Hi
Identify participants and
Pursue with multiple
implement immediately
partners or as an
industry to reduce risks
Potential Return
(Financial)
Pick low hanging fruit
Avoid as private firms --
and implement
public sector may fund if
societal benefits exist
Lo
Lo
Hi
Complexity and Sensitivity
53
Utilizing this framework revealed that actions fostering
cooperation deliver the highest return with the least complexity
Prioritization of Actions
Actions
Hi
5a/b
1
3
10
6
Potential
Return
(Financial)
4
2
9
11
7
8
Lo
Lo
Complexity and
Sensitivity
Hi
1.)
Reimburse/finance efforts of key players to rebuild while
upgrading infrastructure
2.)
Help companies with capacity find customers with needs -support customer access to key providers/subcontractors for
short-term requirements
3.)
Upgrade capacity and capability of communications
infrastructure
4.)
Improve customer service, satisfaction, and customer options
for communications services
5a.)
Establish demand-side consortia to address key infrastructure
requirements
5b.)
Establish supply-side consortia to address key infrastructure
requirements
6.)
Establish new business development region with advanced
technology infrastructure
7.)
Provide mechanisms to help small technology sector
companies take advantage of rebuilding spend
8.)
Enable small companies to refocus and/or diversify to
accommodate shifts in company priorities
9.)
Support competition in communication services by educating
businesses on available service alternatives
10.)
Channel investments to technologies critical to native NYC
industries
11.)
Establish NYC as center of technology R&D by fostering a
climate for new technology venturing
Note: Size of bubble indicates relative impact on NYC businesses
Shading indicates highest priority actions
54
To evaluate funding sources for the actions, we strove to ensure
primary beneficiaries provide the majority of the investment
Funding Framework
Community
Building
Initiatives
Public
Combined Initiatives
Joint
Private
Corporate
Self-Help Initiatives
Private
Joint
Public

Little economic benefit for individual firms
investing in these initiatives

Long-term horizon for benefits realization;
e.g., 6-7 years

Typically focused on overall infrastructure
improvements (e.g., universal connectivity,
public transit)

Community benefits are indirect or a result
of companies in the New York City area
competing more effectively

Public sector provides incentives or funding
to increase economic viability of projects for
individual companies/groups of companies

Profit potential for individual companies,
however long lead times limit corporate
investment

Investments return tangible returns for
participants

Private companies will undertake these
projects since they result in shareholder
value creation

May need encouragement from demand
side consortia to ensure demand for new
products or services provided
55
The highest-priority actions should be private-sector or jointly
funded
Funding Framework
Community
Building
Initiatives
Public
Combined Initiatives
11.)
Establish NYC as center of technology R&D by fostering
a climate for new technology venturing
1.)
Reimburse/finance efforts of key players to rebuild
while upgrading infrastructure
3.)
Upgrade capacity and capability of communications
infrastructure
4.)
Improve customer service, satisfaction, and customer
options for communications services
6.)
Establish new business development region with
advanced technology infrastructure
7.)
Provide mechanisms to help small technology sector
companies take advantage of rebuilding spend
9.)
Support competition in communication services by
educating businesses on available service alternatives
2.)
Help companies with capacity find customers with needs
-- support customer access to key
providers/subcontractors for short-term requirements
Enable small companies to refocus and/or diversify to
accommodate shifts in company priorities
Both
8.)
Private
Corporate
Self-Help Initiatives
5a.)
Establish demand-side consortia to address key
infrastructure requirements
5b.)
Establish supply-side consortia to address key
infrastructure requirements
Channel investments to technologies critical to
native NYC industries
10.)
Private
Both
Public
Primary Funding Source
Note: Actions in bold indicate highest priority
56
Appendices
A.
Subsector Pre-9/11 Baseline Trends
B.
Subsector Post-9/11 Projections
C.
Detailed Actions
57
Appendix A. Subsector Pre-9/11 Baseline Trends
58
The IT hardware market sensitivity to the overall economy will
result in reduced revenues for 2001 – recovery is expected by
2002
IT Hardware
Annual Revenue
Annual IT Hardware
Revenue $ (BN)
$1.0
$0.8
NYC market
represents
0.50% of
national market
Pre-9/11 Observations

PC market is saturated, traditional
drivers of growth are no longer
applicable (e.g., enterprise desktop
roll-out)

PC makers depend on increasing
demands of advanced software
packages and peripherals to drive
growth (e.g., Windows XP, video
conferencing)

Spending on storage subsystems
will not see a downturn as
information revolution and internet
expansion will continue to drive
spending on network-related
storage products

Servers were expected to see a
quick rebound driven by the
ongoing need to build greater
redundancy
$0.6
$0.4
$0.2
$0.0
1999
2000
2001E 2002E 2003E 2004E 2005E
IT Hardware
Annual Revenue Growth
Annual IT Hardware
Revenue Growth (%)
20%
15%
10%
Storage
5%
Servers
0%
PC
-5%
-10%
-15%
2000
2001 2002
2003
2004 2005
Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis
59
Security systems support continued double digit growth for the
software sector with enterprise applications driving future growth
NYC market
represents
4.4% of
national market
IT Software
Annual Revenue and Growth Rate

$9
25.0%
Annual IT Software Revenue $ (BN)
$6.9
$7
20.0%
$6.2
$6
$5.4
15.0%
$4.7
$5
$4.2
$3.8
10.0%
$3
$2
5.0%
$1
$0
Annual IT Software Revenue Growth
(%)
$7.7
$8
$4
Pre-9/11 Observations
Current slowing growth trends
attributable to three key factors:
–
Slow down in PC spending
–
Halt in corporate upgrades with
announcement of Windows XP
–
Loss of fascination with ‘e-’
trends

Security systems (e.g., firewalls,
login, etc.) continue to be the
number one priority for corporate IT
departments

Enterprise applications such as
ERP and CRM drove previous
growth and will continue to drive
growth in the future
0.0%
1999
2000
2001E
2002E 2003E
Revenue
2004E
2005E
Revenue Growth
Source: Gartner Group, Economy.com, IDC, Dun & Bradstreet, BAH Analysis
60
Demand for IT Services was expected to continue growing but at
a slower pace than the mid 1990’s
NYC market
represents
2.1% of
national market
IT Services
Annual Revenue and Growth Rate
$14

Long-term outsourcing contracts
provide steady source of revenue
for sector

Several failures in the Internet
space limited 2000 growth

Pent up demand for IT projects
(e.g., systems integration, CRM,
supply chain services) is expected
to help growth in 2002

Large service firms (e.g., IBM,
EDS) growth easily counters
smaller companies
20.0%
$10.3
$10
$9.2
$8.3
15.0%
$7.5
$8
$6.7
$6.1
$6
10.0%
$4
Annual IT Services Revenue Growth
(%)
$11.4
$12
Annual IT Services Revenue $ (BN)
Pre-9/11 Observations
$2
$0
5.0%
1999
2000
2001E 2002E 2003E 2004E 2005E
Revenue
Revenue Growth
Source: Gartner Group, IDC, Dun & Bradstreet, BAH Analysis
61
Corporate IT spending reductions hurt the high-dollar
communications hardware industry
NYC market
represents
3.7% of
national market
Network Hardware
Annual Revenue and Growth Rate

Marginal impact on New York City
since none of the major
manufacturers have significant
operations in the city

Equipment manufacturers
exacerbated demand-side issues
with over production (for aggressive
growth) resulting in large
inventories

Revenues will continue to grow
slowly or see negative growth for
one to two years driven by the time
required to absorb excess inventory

Current economic climate prevents
many service providers from
accessing capital markets to fund
expansion

Continued margin pressure is
expected as customers continue to
reduce IT spending
30.0%
$4.3
15.0%
$4.4
$4.3
$4.2
$3.9
$4
$4.0
0.0%
$3.9
-15.0%
$3
Annual Network Hardware Revenue
Growth (%)
Annual Network Hardware Revenue $
(BN)
$5
Pre-9/11 Observations
-30.0%
1999
2000
2001E 2002E 2003E 2004E 2005E
Revenue
Revenue Growth
Source: Gartner Group, US Census Bureau , BAH Analysis
62
Local and LD Voice revenue continues to decline due to ongoing
price competition and wireless substitutes
NYC market
represents 2.8%
of national
market
Voice Services
Annual Revenue
Annual Voice Services
Revenue $ (BN)
$6
Observations
$4
Long distance price competition is
eroding revenue streams across
the industry

Consumers and businesses
continue to adopt wireless, pagers,
and email as substitutes for phone
calls
$0
2000
2001E
2002E
2003E
Local
2004E
2005E
LD (IXC)
Voice Services
Annual Revenue Growth
20%
Annual Voice Services
Revenue Growth (%)

$2
10%
0%
-10%
2000
2001
Growth local
2002
2003
2004
2005
Growth LD (IXC)
Source: JP Morgan H&Q and McKinsey& Co. Joint Study, BAH Analysis
63
High penetration levels limit new wireless subscriber growth, with
rising revenues per user sustaining most carriers
NYC market
represents 2.8%
of national
market
Wireless Services
Annual Revenue and Growth Rate
Increased penetration reduces
historically high growth rates

20.0%
Hybrid cellular services will drive
wireless revenue growth
$4
15.0%
• By 2005, 70% of users will
have hybrid service up from
the current 39%
$3
$2
$1.7
$1.9
$2.0
$2.4
$2.2
10.0%
$1.4
Growth (%)
Annual Wireless Services Revenues $ (BN)

25.0%
$5
Pre-9/11 Observations
• Hybrid service fees are 30%
more than the wireless
average

3G applications and adoption of
fixed wireless will help drive future
revenue growth

New wireless applications (e.g.,
BlueTooth) may form the future
communications backbone
5.0%
$1
0.0%
$0
2000
2001E
Revenue
2002E
2003E
Revenue Growth
2005E
2004E
ARPU Growth
Note: Wireless revenues includes only voice service revenues
Source: IDC, US Census Bureau, Morgan Stanley Dean Wittier, BAH Analysis
64
Recent CLEC failures have dampened the broadband picture,
however data revenues are growing
Annual Data Services
Revenues $ (BN)
Data Services
Annual Revenue
Pre-9/11 Observations
$4

Data services are a new market
and therefore experiencing
explosive growth rates - slower
future growth is expected

Most of the increased revenues will
be captured by the incumbents
$3
$2
$1
$0
2000
2001E
Broadband
2002E
2003E
Cable
2004E
DSL/ISDN
• Industry consolidation acquired revenues
2005E
ISP
• Lack of funding to unprofitable
players
Annual Data Services
Revenues Growth (%)
Data Services
Annual Revenue Growth
100%
80%
Note: target
growth rates for
2005 in the 1520% range
60%

Many CLEC business models were
inoperable and most never
achieved profitability

Future expansions are limited by
restricted access to capital
40%
20%
0%
2001
2002
Broadband
Source: Gartner Group, BAH Analysis
2003
Cable
2004
DSL/ISDN
2005
ISP
65
Appendix B. Subsector Post-9/11 Projections
66
IT Hardware: Aggressive reconstruction fosters a return to
quarterly growth
New York City Quarterly PC
Sub-Sector Revenue Growth
Quarterly PC
Revenue Growth (%)
10%
Post-9/11 Observations
5%

Any significant corporate moves to
locations outside the city will limit
growth potential

PC growth driven by companies
relocating within city and replacing
lost hardware

Additional servers from redundancy
and security requirements

Technology advances in out-years
will accelerate hardware growth

Significant spend in this sector will
go to companies outside NYC
0%
-5%
-10%
2000
2001E
2003E
New York City Quarterly Server
Sub-Sector Revenue Growth
10%
Quarterly Server
Revenue Growth (%)
2002E
5%
10%
5%
0%
0%
-5%
-5%
Q1
Q32000
Q1
Q3
2001E
Q1
Q3
Pre 9/11
Source: IDC’, Economy.com, BAH Analysis
Base
2002E
Q1
Q3
2003E
Pessimistic
Optimistic
67
IT Software: New York City software sector revenues will grow
when the banking sector increases IT spend
New York City Quarterly Software
Sub-Sector Revenue Growth
Post-9/11 Observations
Quarterly Software
Revenue Growth (%)
10%
Annual growth still
below the high 20%
range of the 1990s
5%

Security systems (e.g., virus
protection, advanced login
services) were already a high
priority for business customers

Redundancy and backup software
expected to be major sources of
growth

Additional spending on enterprise
software likely to be limited

NYC software recovery dependent
on banking sector – many small
software firms develop specialized
banking applicaitons
0%
10%
5%
0%
-5%
-5%
2000
Q1
Q3
Q1
2001E
Q3
Q1
Pre 9/11
Source: IDC’, Economy.com, BAH Analysis
2002E
Q3
Base
Q1
2003E
Q3
Pessimistic
Optimistic
68
IT Services: Expect continued growth after an initial slowdown
New York City Quarterly Services
Sub-Sector Revenue Growth
Post-9/11 Observations
Quarterly Services
Revenue Growth (%)
10%
5%
0%
10%

Spend shifting to security and
reliability since mid-1999 due to
Y2K preparation, and new viruses
(e.g., Melissa virus)

Opportunities for service
companies exist in all economic
environments -- key factor is ability
to switch service offerings quickly

After being delayed, in 2003
business process improvement
related srevices (e.g., CRM) will
drive growth
5%
0%
-5%
2001E
2000
-5%
Q1
Q3
Q1
Q3
Q1
Pre 9/11
Source: IDC’, Economy.com, BAH Analysis
2002E
Q3
Base
Q1
2003E
Q3
Pessimistic
Optimistic
69
Telecom Hardware: Creation of a more serviceable, robust, and
redundant data infrastructure will drive telecom hardware growth
New York City Quarterly Telecom Hardware
Sub-Sector Revenue Growth
Post-9/11 Observations

Sector affected by limited
availability of capital markets
funding for wireless, CLEC, or
internet-related expansions

Rebuilding initiatives will require
significant amounts of high-end
telecom equipment

New priorities on redundancy and
disaster recovery will further drive
sales

Clearing inventory will delay
company benefits from rebuilding
sales
10%
Quarterly Telecom
Hardware Revenue Growth
(%)
‘95 to ‘99 growth
rates averaged ~16%
5%
0%
10%
5%
0%
-5%
2001E
2000
-5%
Q1
Q3
Q1
Q3
Q1
Pre 9/11
Source: IDC, Economy.com, BAH Analysis
2002E
Q3
Base
Q1
2003E
Q3
Pessimistic
Optimistic
70
Telecom Voice: Voice will not grow, though losses may occur if
customer migration out of the city occurs
New York City Voice Sub-Sector
Quarterly Revenue Growth
Post-9/11 Observations

Voice service revenues unaffected by attack - loss from service disruptions is minimal
compared to base volumes

Some increase from additional video
conferencing or telecommuniting, however
these increases will be too small to affect the
overall base

New York sector will be hurt if significant
movement of telecom intensive industries
(banking, real estate, wholesale) occurs

Continued (and increased) substitution of
wireless VOIP and other technologies further
erodes revenues here

Potential for companies to stick with larger
players (e.g., Verizon) in the short run,
limiting the erosion
Quarterly Voice Revenue
Growth (%)
5%
0%
10%
5%
0%
-5%
2001E
2000
-5%
Q1
Q3
Q1
Q3
Pre 9/11
Q1
Q3
Base
Source: IDC, Economy.com, BAH Analysis
2002E
Q1
2003E
Q3
Pessimistic
Optimistic
71
Telecom Wireless: Growth is dependent on 3G deployment
New York City Quarterly Wireless
Sub-Sector Revenue Growth
Post-9/11 Observations
Quarterly Wireless
Revenue Growth (%)
6%
4%

Medium to long term growth is
dependent on next-generation / 3G
roll out (higher bandwidth enables
new services; e.g., 802.11b,
Bluetooth, fixed wireless)

Access to capital for expansion in
these areas was already limited,
the attacks will delay a greater
opening of the capital markets to
most providers

Minor increases in usage as a
result of the attacks will not impact
overall sector

National players (e.g., Sprint, SBC)
still growing
2%
10%
5%
0%
0%
2001E
2000
-5%
Q1
Q3
Q1
Q3
Q1
Pre 9/11
Source: IDC, Economy.com, BAH Analysis
2002E
Q3
Base
Q1
2003E
Q3
Pessimistic
Optimistic
72
Telecom Data: Deployment of advanced infrastructure and
availability of cable data to small businesses will drive revenues
New York City Quarterly Data Sub-Sector
Revenue Growth
Post-9/11 Observations

While growth is decelerating,
quarterly levels are still very high
(annualized over 30% for 2002)

Businesses expected to invest in
redundant wireless infrastrucutres,
or wireless technologoes for
disaster recovery

Growth may be supported by need
to build redundant “national security
communications grid”

Potential long-term limits on capital
market access prevents alternative
carriers from making inroads into
this subsector
Quarterly Data Revenue
Growth (%)
15%
This is still large
growth -- but is
primarily shifted to
incumbents
10%
5%
10%
5%
0%
0%
2001E
2000
-5%
Q1
Q3
Q1
Q3
Q1
Pre 9/11
Source: IDC’, Economy.com, BAH Analysis
2002E
Q3
Base
Q1
2003E
Q3
Pessimistic
Optimistic
73
Appendix C. Detailed Actions
74
1.) HIGH-PRIORITY ACTION – Reimburse/finance efforts of key
players to rebuild while upgrading
Action
Reimburse/finance the efforts of key players to rebuild or repair damaged/destroyed infrastructure,
getting NYC services “back to normal” while upgrading current infrastructure

Implementation
Actions






Key Costs





Key Benefits

Feasibility

Develop guidelines for new infrastructure standards allowing service providers and corporations to “leapfrog” technology
cycles
•
New wireless standards
•
Next generation wireline
Define scope of reimbursements -- e.g., minimum thresholds for reimbursement, damage types within scope
Determine key sector companies and estimate expenses suffered due to extensive infrastructure damage from 9/11
through research study or company-initiated application for assistance
Work with settlement and insurance companies to communicate process for distribution of reimbursement funds
Administer and monitor approved use of reimbursement funds
Total estimates exceed $2B for service providers, $10B for corporations
Variable reimbursement costs depending on scope of repair/replacement effort; general administrative costs for
reimbursement program, including coordination of repair/replacement resources
~1 mgmt-level FTEs (plus small staff of 2-3 FTEs) to scope, develop and administer the program over 12-24 months
Overall Cost Estimate: $10-12B
Source of funds: Public sector and insurance companies
Provides short-term financial support to sector companies experiencing significant infrastructure damage
Restores IT/Telecom services and infrastructure while instituting higher levels of customer service
High
Government (both state and federal) bailout/disaster relief funds are likely to cover reimbursement needs, in conjunction
with any applicable insurance payments
75
2.) Help companies with capacity find customers with needs –
support customer access to key providers/subcontractors
Action
Help companies with capacity find customers with needs -- support customer access to key
providers/subcontractors for short-term requirements

Implementation
Actions






Key Costs





Key Benefits


Feasibility


Establish resource for providers of IT and telecom services to more easily reach customers requiring such services; e.g.:
•
Online facility
•
Temporary referral agency (non-technology option)
•
Combination
Determine eligibility guidelines for providers (quality level guarantees)
Communicate availability of program to providers and potential customers throughout NYC
If possible, leverage existing contact engine, similar to hotjobs.com, to facilitate rapid deployment
Variable -- for technology option, could be up to $2MM for new technology platform, less if partnering with established
player
Non-technology option requires small office staff (3-5 FTEs)
~1 management-level FTEs to develop and administer program
Minimal ongoing costs as all transactions are negotiated between parties
Overall Cost Estimate: $15-17MM
Source of funds: Private Consortium or Public sector
Enables small IT service providers to better compete with larger players for short-term increase in demand in certain areas
Reduces costs for small to medium business to find quality IT service providers that are available to help them
May develop into long-term facility to foster business development going forward
Moderate (technology option) to High
Total cost appears to be small, primarily basic administration expenses
Business organizations such as NYC Partnership could facilitate/host services relatively easily
76
3.) Upgrade capacity/capabilities of the communications
infrastructure
Action
Upgrade capacity and capability of communications infrastructure (e.g., 3G, 802.11, voice-over-cable,
VOIP, upgraded wireline capacity, Bell Atlantic Net)


Implementation
Actions





Key Costs



Key Benefits




Feasibility

Coordinate with industry leaders/experts to identify critical next generation initiatives/upgrade opportunities ready to deploy
and valuable to business community -- from both redundancy as well as improved services perspectives
Identify players with deployment capabilities for next generation technology infrastructure in Lower Manhattan -- allow self
nomination or conduct independent research study
Develop action plans, milestones for deployment of various technologies -- consider any lower Manhattan-specific
implementation obstacles
Determine overall deployment costs for various infrastructure elements
Will be costly, as upgrade efforts were previously avoided due to lack of economic viability
Additional coordination costs to work with numerous companies
Minimal logistic and other operating costs
Overall Cost Estimate: $2-3MM
Source of funds: Private consortium, Public sector, and/or Individual companies
Performance of existing NYC businesses is likely to improve due to operational advantages provided by advanced
infrastructure
New businesses (both high-tech and other) will be more likely to locate in New York for similar reasons
Highly-skilled labor resources will find relocation within NYC to be relatively more attractive as well
Low
Cost to deploy new infrastructure/replace existing infrastructure is high
In some cases deployment may cause delays in reconnection of services and/or disruptions in basic service already in
place
77
4.) Improve customer service, satisfaction, and customer options
for communications services
Action
Improve customer service, satisfaction, and customer options for communications services (billing
options, call center performance, etc.)

Implementation
Actions





Key Costs



Key Benefits



Feasibility



Identify new key industry benchmarks and best practices for customer service and satisfaction -- customer service
performance during recent crises has increased service levels and reduced cycle time expectations
Establish minimum standards to satisfy new requirements based on customer feedback, industry performance
Increase funds and/or reengineer operations to accommodate new customer service and satisfaction requirements
(e.g., implementing new systems and resources to accommodate new billing options)
On an ongoing basis, monitor key performance metrics and improve processes
~4 FTE over 2 months to research best practices and understand key performance thresholds
Additional labor, equipment/system costs associated with improving customer service (dependent on service levels
required); e.g.:
•
Increased staff
•
Upgraded systems
•
Enhanced services
Overall Cost Estimate: $0.5MM
Source of funds: Private consortium or individual companies (e.g., Verizon, AT&T)
Companies throughout NYC (and potentially the tri-state area) gain better voice and data service to conduct business,
increasing their overall economic benefit to the city
New York City business infrastructure is improved
Communications -- Infrastructure limitations removed as barrier to locating business in New York City
Low/Medium
Service providers must commit to providing better service
Customers must be willing to pay for increased costs
Creative solutions for cost sharing may be available
78
5a / 5b.) HIGH PRIORITY ACTION – Establish business and
service-provider consortia to address infrastructure requirements
Action
Establish business and service-provider (demand and supply) consortia to address infrastructure
requirements



Implementation
Actions



Key Costs



Key Benefits

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Feasibility
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Solicit participants, from key businesses, service providers, and equipment manufacturers (e.g., Large Financial Services
companies, Verizon, AT&T, Lucent, AOL) to ensure buy-iin from all key consituents
Business and service provider consortia should operate jointly and independently to determine constituents specific needs
Suggested agenda items:
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Disaster recover and survivability planning
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Capacity requirements and constraints
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New technology requirements and implementation methods
Suggested action-item categories:
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Methods for funding potentially non-economically beneficial activities (e.g., redundancy creation) by individual
members
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Required / Suggested policy changes
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Specific responsibilities for implementation by member companies (e.g., client corporations required to upgrade so
service provider investments in new technologies will have a market)
Establishment of consortia and coordination costs should incur minimal costs
~1 management-level FTE to help coordinate key players
Overall Cost Estimate: $4-6MM
Source of funds: Private consortia/key individual company members
Enables greater infrastructure redundancy and advanced capabilities without placing undue burden on supply-side sector
companies to invest capital with no expectation of reasonable return
Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side
industries for future issues
Provide forum to develop future disaster recovery plans
High
Cost to establish consortia is minimal, and cost to deploy redundancy should be matched as best as possible with
potential for increased revenue/earnings to supply-side companies
Allows greater redundancy to be built without public-sector intervention
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6.) HIGH-PRIORITY ACTION – Establish new business
development region with advanced technology infrastructure
Action
Establish new business development region (or regions) within New York City, with advanced
technology infrastructure (e.g., 802.11B system) -- focus on supporting small businesses
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Identify candidate regions for establishment of business development area, based on value to city, existing
infrastructure, business demand
Identify key sector companies to understand key technologies available/feasible for deployment; work with them to
prioritize
Develop staged implementation plan for selected areas and technologies
Incorporate needs of small business (technology and non-technology) in development zone
2 FTEs for 3 months to research and evaluate potential areas , as well as work with sector companies to understand
candidate technologies and advantages provided by each
Variable deployment costs depending on number of areas to be established and scale; should be less than ~$50M for
establishment of single small zone
Overall Cost Estimate: $30-50MM
Source of funds: Private sector in partnership with public sector funding
Allows small companies to leverage leading technologies in operations and/or service offerings
Provides key selling point for NYC to potential small business community members, vs. other regions
Encourages development/testing of innovative technologies on limited basis within NYC
Moderate
Scope must be managed to keep costs reasonable
Determination of appropriate locations for establishment of new zones may ultimately be more political than
economical
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7.) Provide mechanisms to help small technology sector
companies take advantage of rebuilding spend
Action
Provide mechanisms to help small technology sector companies take advantage of rebuilding spend;
allow smaller firms to compete more effectively with larger established corporations
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Establish “NYC hometown provider” (or similar) network of rebuilding service providers to enable small providers to
demonstrate quality
Provide screening based on financial health, customer satisfaction, etc. to ensure quality of service providers
Provide customer companies with financial incentives for the use of “hometown providers”; e.g.,
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tax benefits
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discounted rates
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service bundling opportunities
Publicize availability and legitimacy of program to customers, integrate cross-marketing into member companies’ sales
efforts where possible
~1 mgmt-level FTE to set up and administer program, coordinate activities between members, certify and review
membership applicants
Small (~$0.5M) budget to launch program with small administrative staff
Overall Cost Estimate: $.5-.75 MM
Source of funds: Public sector and/or industry consortium (perhaps through membership fees or shared profit pool)
Preserves viability of small companies that may lack brand recognition and/or marketing muscle of larger players
Ensures competitive market for services, reducing time and cost for customers requiring extraordinary services to
execute rebuilding process
Moderate
Costs appear to be relatively low
Determining appropriate certification criteria, as well as coordinating members effectively, may prove to be difficult
political obstacle
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8.) Enable small companies to refocus and/or diversify to
accommodate shifts in company priorities
Action
Enable small companies to refocus and/or diversify for short- to medium-term, as a result of new shifts
in company priorities (e.g., shift toward increased security spending)
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Identify specific companies adversely affected by shifts in corporate priorities resulting from 9/11 -- allow companies to
submit applications, or execute independent research study to determine this
Analyze/understand company (or company groups if appropriate) situations to develop possible refocusing/diversification
opportunities on case-by-case basis
Determine extent/type of funding and assistance available vs. required (e.g., professional services, direct funding,
networking assistance)
Communicate assistance program options to relevant companies, help to coordinate delivery
Total refocusing costs variable depending on level of assistance required by identified companies and extent to which
leveraging of economies of scale is possible
~2 management-level FTEs over 12-24 months to develop and administer program
General administrative costs for program (small office of 3-5 FTEs), including external resource coordination
Overall Cost Estimate: $400K - $500K
Source of funds: Private Consortium
Provides key temporary/transitional resources to small and medium sized companies, allowing them to survive and
potentially expand into higher-growth areas
Provides clients of new high-priority services with more service options and greater provider competition
Enables companies within the region to better exploit new market opportunities long-term through increased networking
and diversification of skill set
Low
Direct benefit to city is unclear
Ability to raise significant funds is questionable
Cost and complexity appear to be unreasonably high
However, certain professional and/or business associations may find this attractive
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9.) Support competition in communication services through
education of businesses on available service alternatives
Action
Support competition in communication services by educating businesses on available service
alternatives
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Identify key services for which small businesses typically have difficulty understanding benefits and/or locating suitable
providers (e.g., advanced/alternative voice services, high-value IT deployment and maintenance services)
Coordinate with industry leaders to develop/understand key benefits of various technologies to typical small-business
owners -- leverage existing marketing efforts
Develop resources (company-sponsored or otherwise) to communicate all available options and key benefits -- may
be print materials, online, broadcast advertising campaign, etc.
Identify key undeserved geographic areas within NYC for relevant technologies
Establish guidelines for private investment and public-sector subsidies to expand/accelerate infrastructure deployment
~1 mgmt-level FTE over 6 months to determine key areas, design and administer program, in addition to small staff
for materials creation (2-3 FTEs)
Basic administration costs
Costs to create educational campaign; these can include:
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Printing and distribution costs
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Technology support and maintenance costs
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Media campaign creative and production costs
Overall Cost Estimate: $100-110MM
Source of funds: Public sector or private consortium
Existing small ventures in NYC are provided with key information to enable their survival and success
New technology ventures may be attracted to NYC area due to marketing/education infrastructure in place to
communicate new technology benefits to potential customers
Low
Challenge/political conflicts in identifying key technologies to espouse, and evaluating their true benefits vs. costs, is
significant
Costs, however, should be minimal compared to other initiatives
83
10.) HIGH-PRIORITY ACTION – Channel investments to
technologies critical to native NYC industries
Action
Channel investments to the technologies critical to native NYC industries, establishing an industrywide commitment to forward-looking areas that will advance these industries
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Assemble industry consortium to identify key key support technology support areas in which to channel investments
Selectively invest -- on individual company basis, aggressively utilize available funds to pursue these areas (shift away
from low-growth but potentially higher-revenue areas)
Supplement these actions with support from the public sector; e.g.:
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Provide tax incentives for investment in emerging high-growth areas
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Utilize existing public sector vehicles to provide growth capital (e.g., SBA-type loan guarantees, etc.)
Lower investment in low-growth but proven areas may decrease ongoing cash position and flexibility
No direct incremental costs
Source of funds: Individual companies, Public sector (if provides incentives)
Provides continued funding to critical support technology areas, to ensure NYC industries are not “left behind” by more
technologically advanced players elsewhere
Helps to retain skilled high-tech talent pool within NYC area
Moderate
Key high-growth areas may vary significantly from company to company; investments may be so different as to not
provide tangible benefits
Costs should be relatively small, as includes primarily incremental additions to investments that would have been
made otherwise
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11.) Establish NYC as the center of Finance and Media
technology R&D by fostering a climate for new technology
venturing
Action
Establish NYC as center of Finance and Media technology R&D (e.g., foster a climate for new
technology venturing, facilitate R&D investment and development of local talent, provide incentives to
companies/entities conduction NYC centric technology R&D activities)
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Implementation
Actions
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Key Costs
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Key Benefits
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Feasibility
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Establish R&D coordination office
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To attract and foster R&D activities throughout NYC
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To ensure communication/cooperation between academic, public-sector, and commercial players for given R&D efforts
Provide public sector-supported financial incentives (tax, loans, etc.) for R&D spending by companies, with clear incentives to
participate in NYC-wide programs
Develop and implement program to ensure access to home-grown capital through private-sector financial institutions
Identify technology priorities which have significant relevance to NYC industries and develop a set of venturing initiatives
Establish ongoing relationships and program to coordinate development with research talent pool/resources in local area (e.g.,
research universities)
2 FTEs over 12 months to determine key improvements areas, design and administer program; 1 FTE ongoing
Ongoing administration and coordination efforts will have to be provided through permanent group of public-sector and/or privatesector staff
Overall Cost Estimate: $300-400K
Source of funds: Private companies and/or public-sector
Positions NYC as technological focal point, bringing in individuals and companies with innovative ideas/solutions
Provides NYC with a continuously improving technology infrastructure, attracting new businesses and helping retain existing
businesses
Enables small businesses to more easily obtain/leverage services that might otherwise only be available to large businesses with
greater resources to spend on infrastructure
Retains entrepreneurial talent pool
Provides existing NYC small ventures an advantage over other regions
Low
Costs may be prohibitive (especially wrt physical R&D centers) without significant public-sector participation
Important to achieve “critical mass” in R&D participants (especially local research talent pool) to make this successful and selfperpetuating; otherwise, will drain funds for little benefit
85