1 IT and Telecom Sector Analysis. 2 Overall Project Objectives Adopt a baseline of NYC economic forecasts prior to September 11 Assess economic impact

1

IT and Telecom Sector Analysis

2

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

3

Table of Contents

Executive Summary

NYC Snapshot

Pre-9/11 Baseline

Impact Assessment

Actions

Methodology and Assumptions

Appendices

4

Executive Summary

5

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 post-9/11 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 infrastructure for New York and for the country

• Rebuilding the technology sector and improving the overall technology infrastructure for business in NYC• Establish mechanisms for ongoing demand- and supply-side cooperation to ensure requirements are met • Preserve the entrepreneurial influence by supporting small businesses• Provide an environment that fosters innovation and competition within the technology sector

6

Understanding the nature of the impact, we developed four imperatives and associated actions to mitigate the effects

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)

Imperatives Key Actions

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)

Establish new business development zone(s) throughout NYC• Identify and prioritize prospective areas for development• Deploy advanced technology infrastructure, targeted toward small-business

requirements

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)

Rebuild World-Class Infrastructure

Collaborate for the Future

Make NYC Better for Small Business

Nurture Innovation and Foster Competition

7

4.4

21.8

42,406 488

361,516

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenue* Jobs Companies

Hardware Services

Pre-attack, the IT and Telecom sector generated $37.8B* and employed nearly 97,000 people throughout New York City

4.215,667

414

1,50629

6.735,694

731

0.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenue Jobs Companies

Software Hardware Services

1,17452,867$11.6B 52443,922$26.2B*

Information TechnologyRevenue, Jobs, and Companies (2000)

TelecommunicationsRevenue, Jobs, and Companies (2000)

*Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York CitySource: Dunn & Bradstreet, BAH Analysis

8

-10%

0%

10%

20%

30%

2000 2001 2002 2003 2004 2005

Software Services Hardware

On an annual basis, the IT and Telecom sectors generally showed declining growth prior to 9/11

Ann

ual I

T R

even

ue G

row

th

Ann

ual T

elec

om R

even

ue G

row

th (

%)

-20%

-10%

0%

10%

20%

30%

40%

2000 2001 2002 2003 2004 2005

Telecom Hardware Voice

Data Wireless

IT IndustryPre-9/11 Projected Annual Growth

Telecom IndustryPre-9/11 Projected Annual Growth

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

Source: IDC, Gartner Group, Economy.com, BAH Analysis

9

In addition, industries that are historically large consumers of IT and Telecom (e.g., Financial Services) were reducing their spending levels

ObservationsObservations

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


Reduction in spending as percentage of revenue is offset by overall increasing corporate revenues



(1) Other industries include Agriculture, Mining, Construction, Transportation, Utilities, IT, Petroleum, Services, Healthcare, Manufacturing, Transportation and EducationNote: 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

US IT and Telecom Spendas Avg % of Firm Revenue by Industry

Te

chn

olo

gy S

pen

d a

s a

% o

f Re

ven

ue

0%

5%

10%

15%

2000 2001 (E) 2002 (E)

Government Communications Financial ServicesRetail/Wholesale Others (1)

US IT Spend by Industry (2000)

$ 59 B

$ 112 B

$ 151 B

$ 67 B

$ 379 B

10

The 9/11 events caused major infrastructure damage of ~$2B to the IT and Telecom sector…

Source: Morgan Stanley estimates, NYC Comptroller Report, news articles, BAH Analysis

Estimated One-time Capital Losses from Event

2170

50

1400

720

$0

$500

$1,000

$1,500

$2,000

$2,500

Total Capital Losses Other Capital Losses Netw ork, Communication,Hardw are and Equipment

Losses

Facilities Losses

Cost Categories

Es

tim

ate

d L

os

se

d (

$M

M)

Based on $600/sq. ft. value estimate for 140 West Street property

(Verizon)


(Verizon)

Estimated $2B in communication and utility

cable/equipment repair -- $70% attributed to communications



Includes replacement of cellular towers and other

small replacement requirements



… other sectors lost ~$10B of technology infrastructure

11

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-SectorSub-Sector

IT HardwareIT Hardware

# Co.’s# Co.’s

33

IT ServicesIT Services 159159

IT SoftwareIT Software 107107

Telecom HardwareTelecom Hardware 22

Telecom ServicesTelecom Services 9292

JobsJobs

4949

8,5258,525

5,1225,122

468468

3,9443,944



IT ServicesIT Services

IT SoftwareIT Software

Telecom HardwareTelecom Hardware

Telecom ServicesTelecom Services

# Co.’s# Co.’s

00

88

55

00

33

JobsJobs

00

800800

238238

00

8585

Business Loss in Lower Manhattan


TotalTotal 1616 1,1231,123

TotalTotal 363363 18,10818,108

*Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head officeSource: Dun & Bradstreet, BAH Analysis

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


Listing of Sector Businesses Lost in Lower Manhattan*

12

11-Sep 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 5th Qtr 6th Qtr +

Original Planned Spend

Revised Spend

Emergency Spend

Looking forward, planned technology spending has been postponed by six to twelve months

Reinstate ServiceReinstate Service Rationalize InstallationRationalize 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

ILLUSTRATIVE

ILLUSTRATIVE

STAGE 1 STAGE 2 STAGE 3

IT Spending

13

The current downward trend in revenue growth will likely be extended for 2-3 quarters

0.0

2.0

4.0

6.0

8.0

10.0

4Q-99

1Q-00

2Q-00

3Q-00

4Q-00

1Q-01

2Q-01

3Q-01

4Q-01

1Q-02

2Q-02

3Q-02

4Q-02

1Q-03

2Q-03

3Q-03

4Q-03

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Post 9/11 Revenue Pre 9/11 GrowthPost 9/11 Growth

0.0

2.0

4.0

6.0

8.0

10.0

4Q-99

1Q-00

2Q-00

3Q-00

4Q-00

1Q-01

2Q-01

3Q-01

4Q-01

1Q-02

2Q-02

3Q-02

4Q-02

1Q-03

2Q-03

3Q-03

4Q-03

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Post 9/11 Revenue Pre 9/11 Growth Post 9/11 Growth

Rev

enue

s ($

BN

)

Rev

enue

s ($

BN

)

Quarterly NYC IT Revenue Quarterly NYC Telecom Revenue

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

14

The employment downturn will also be extended and a turnaround will lag revenue recovery

4Q-99

1Q-00

2Q-00

3Q-00

4Q-00

1Q-01

2Q-01

3Q-01

4Q-01

1Q-02

2Q-02

3Q-02

4Q-02

1Q-03

2Q-03

3Q-03

4Q-03

Pre 9/11 New Forecast

Em

ploy

ees

Quarterly NYC IT Employment Quarterly NYC Telecom Employment

0

Rebuild efforts and temporary outsourcing service requirements 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

New employment recovery expected in late 2002, approximately three quarters later than originally forecasted

Service reconnection efforts and new service connections limit additional layoffs

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

Long term recovery now planned for late 2002, early 2003, approximately three quarters later than originally forecasted

4Q-99

1Q-00

2Q-00

3Q-00

4Q-00

1Q-01

2Q-01

3Q-01

4Q-01

1Q-02

2Q-02

3Q-02

4Q-02

1Q-03

2Q-03

3Q-03

4Q-03

Pre 9/11 New Forecast

Em

ploy

ees

0

40,000

60,000

50,000

30,000

40,000

60,000

50,000

30,000

15

Overall, the incremental impact on IT and Telecom from the 9/11 attacks is minimal relative to other sectors

Companies replacing damaged and/or destroyed equipment will drive a temporary increase in spending in certain technology subsectors

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

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






Nearly zero incremental impact -- overall economic trends continue to drive the NYC IT and Telecom sector

Nearly zero incremental impact -- overall economic trends continue to drive the NYC IT and Telecom sector

Key Drivers

Net Incremental Impact

16

The IT and Telecom sector provides critical capabilities that can help support a recovery in overall NYC business

• 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., Lower Manhattan, Queens, Brooklyn)

• Leverage newest high-speed fiber technologies to distribute existing telecom switching operations

Provide robust levels of redundancy and survivability

Develop and deploy new technologies to drive business forward

Areas of Potential Contribution

Examples

Provide enhanced capacity and service levels

Deploy infrastructure to enable distributed business operations

17

Limits on the IT and Telecom sector’s ability to drive these innovations and improvements could impair the remainder of the NYC economy

Customers feel insecure and vulnerable …


Technology companies

cannot support cutting edge

efforts



efforts

Sense of vulnerability (on both individual and corporate levels) heightens concerns about redundancy, security


Dangers for the remainder of the economy


• 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




… so they are reluctant to spend on new technologies …


Customers are less focused on expanding offerings vs. protecting/preserving core operationsCustomers are less focused on expanding offerings vs. protecting/preserving core operations

… and any spend is for traditional services


Customers exhibit greater reliance on/gravitation towards proven service offerings of established players


Investors are reluctant to fund high-risk ventures


Newly uncertain environment restricts access to new venture capitalNewly uncertain environment restricts access to new venture capital

Available funds have been used for recovery


Communications companies in particular are short of cash for new projectsCommunications companies in particular are short of cash for new projects

18

ActionAction

To address any potential issues we developed eleven joint public and private sector actions

Impact on NYCImpact on NYC Primary SupportPrimary Support

1.) Reimburse/finance the efforts of key players to rebuild while upgrading

1.) Reimburse/finance the efforts of key players to rebuild while upgrading

2.) Help companies with capacity find customers with needs2.) Help companies with capacity find customers with needs

3.) Upgrade capacity and capability of communications infrastructure3.) Upgrade capacity and capability of communications infrastructure

4.) Improve customer service, satisfaction, and customer options for communications service options

4.) Improve customer service, satisfaction, and customer options for communications service options

5.) Establish demand-side and supply-side consortia to address key infrastructure requirements

5.) Establish demand-side and 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 communications services by educating businesses on available service alternatives

9.) Support competition in communications 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 climate for new technology venturing

11.) Establish NYC as center of technology R&D by fostering climate for new technology venturing

44

11

44

22

44

22

22

11

11

33

22

Combined public and private sectorCombined public and private sector

Private sectorPrivate sector









Public sectorPublic sector

0 4 High ImpactLow Impact

19

SAMPLE ACTION: Establish business and service-provider consortia to address infrastructure requirements

ActionActionEstablish business and service-provider consortia to address infrastructure requirementsEstablish business and service-provider consortia to address infrastructure requirements

Implementation Actions


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)






Key CostsKey Costs

Key BenefitsKey Benefits

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




FeasibilityFeasibility

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



EXAMPLE

EXAMPLE

20

SAMPLE ACTION (continued): Establish business and service provider consortia to address infrastructure requirements

Sample Agenda Items

Kickoff Timing

Infrastructure providers (e.g., Verizon, AT&T)

Business continuity service providers (e.g., SunGard)

Equipment providers (e.g., IBM, EMC)

EXAMPLE

EXAMPLE

Key Players

Advanced/Alternative Technology Capability Requirements

Infrastructure Capacity Requirements

Business Continuity Requirements• Infrastructure Redundancy• Data Backup• Equipment/Space Availability

Immediate Representatives from key NYC industries (e.g., Financial Services, Media)

Business Service Providers

12-24 months Infrastructure providers (e.g., Verizon, AT&T)


Key new technology players (e.g., Level3)

Representatives from key NYC industries (e.g., Financial Services, Media)

Representatives from key NYC industries (e.g., Financial Services, Media)

6-12 months Infrastructure providers (e.g., Verizon, AT&T)

Ley new technology players (e.g., Level3)

Disaster Recovery Requirements for Small Businesses

Representatives from key NYC industries (e.g., Financial Services, Media) -- with representation from small players within each

Immediate Infrastructure providers (e.g., Verizon, AT&T)

Business continuity service providers (e.g., SunGard)


21

NYC Snapshot

22

The New York IT and Telecom sector includes a number of familiar names, along with plenty of smaller players

SectorSector

ITIT


HardwareHardware

TelecomTelecom

SoftwareSoftware

ServicesServices

HardwareHardware

Voice (Local &

LD)

Voice (Local &

LD)

SIC Code - DescriptionSIC Code - Description

357 - Computers, Peripherals, Office Equipment

357 - Computers, Peripherals, Office Equipment

7371/2 - Computer related software

7371/2 - Computer related software

7373 to 7379 - Computer related services

7373 to 7379 - Computer related services

366 - Communications Equipment

366 - Communications Equipment

ExamplesExamples

Human Scale Corporation Dot Hill Systems Corporation

Human Scale Corporation Dot Hill Systems Corporation

Nutech Integrated Systems Aegis Software

Nutech Integrated Systems Aegis Software

AMC Computer Corporation Netik Inc.

AMC Computer Corporation Netik Inc.

L3 Communications Loral Space Communications

L3 Communications Loral Space Communications

WirelessWireless

DataData

4812 - Wireless Telecom Services

4813 - Telecom Services 4822 - Telegraph and other

Communications 4899 - Telecom services, not

elsewhere classified

4812 - Wireless Telecom Services

4813 - Telecom Services 4822 - Telegraph and other

Communications 4899 - Telecom services, not

elsewhere classified

Verizon RSL Communications Arbinet-thexchange

Verizon RSL Communications Arbinet-thexchange

23

The technology sector generated $37.8B* and employed nearly 97,000 people throughout New York City

4.4

21.8

42,406 488

361,516

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenue* Jobs Companies

Hardware Services

4.215,667

414

1,50629

6.735,694

731

0.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenue Jobs Companies

Software Hardware Services

1,17452,867$11.6B 52443,922$26.2B*

Information TechnologyRevenue, Jobs, and Companies (2000)

TelecommunicationsRevenue, Jobs, and Companies (2000)


24

Small companies provide nearly 40% of the employment and approximately 15% of revenues

11%

39%

82%

13%

34%

17%

83%

55%

24%

4%

37%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenue NYC-generated Revenue* Jobs Companies

Small Medium Large

1,69896,789$100B

NYC IT & Telecom Industry by Firm Size


$37.8B*

25

Most sector companies reside within Manhattan -- Lower Manhattan hosts approximately 20% of the employment

Other Boroughs

Firms Revenue

$3.0B206

Jobs

18,127

Lower Manhattan

$4.0B18,108

Jobs Revenue

363

Firms

Other Manhattan

$30.9B

Revenue

1,131

Firms

60,554

Jobs

ITIT

HardwareHardware

Lower Manhattan

Lower Manhattan

4949

Other Manhattan

Other Manhattan

501501

Other Boroughs

Other Boroughs

956956

SoftwareSoftware 8,5258,525 24,62624,626 2,5432,543

ServicesServices 5,1225,122 10,02510,025 520520

TelecomTelecomHardwareHardware 468468 432432 616616

ServicesServices 3,9443,944 24,97024,970 13,49213,492

New York City IT and Telecom Employment (2000)

TotalTotal 18,10818,108 60,55460,554 18,12718,127

ITIT

HardwareHardware

Lower Manhattan

Lower Manhattan

$0.02$0.02

Other Manhattan

Other Manhattan

$0.5$0.5

Other Boroughs

Other Boroughs

$0.1$0.1

SoftwareSoftware $1.1$1.1 $3.1$3.1 $0.07$0.07

ServicesServices $1.1$1.1 $5.4$5.4 $0.2$0.2

TelecomTelecomHardwareHardware $0.3$0.3 $3.9$3.9 $0.2$0.2

ServicesServices $1.4$1.4 $18.0$18.0 $2.4$2.4

New York City IT and Telecom Revenues (2000)

TotalTotal $4.0$4.0 $30.9$30.9 $3.0$3.0

Overall Distribution of IT/Telecom Firms, Jobs, and Revenue by NYC Region

26

Pre 9/11 Baseline

27

Pre-attack trends for IT and telecom showed slowing growth rates, with an anticipated rebound in Q4 2002

Expect steady 8-10% long-term growth for

wireless

Expect steady 8-10% long-term growth for

wireless

-10%

0%

10%

20%

30%

2000 2001 2002 2003 2004 2005

Software Services Hardware

Ann

ual I

T R

even

ue G

row

th

Ann

ual T

elec

om R

even

ue G

row

th (

%)

-20%

-10%

0%

10%

20%

30%

40%

2000 2001 2002 2003 2004 2005

Telecom Hardware Voice

Data Wireless

IT IndustryPre-9/11 Projected Annual Growth

Telecom IndustryPre-9/11 Projected Annual Growth

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

Source: IDC, Gartner Group, Economy.com, BAH Analysis

28

Prior to the 9/11 attacks, the IT hardware subsector was on a downward trend, with software and services experiencing slowed growth

SubsectorSubsector

HardwareHardware

TrendTrend DriversDrivers

Corporate IT spending trends play a major role Key consumers of technology were slowing overall capital expenditures Slowdown in consumer spending affects PC market

Corporate IT spending trends play a major role Key consumers of technology were slowing overall capital expenditures Slowdown in consumer spending affects PC market

SoftwareSoftware

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

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

ServicesServices

Outsourcing services benefited as companied sought to reduce costs Companies delivering discretionary services (e.g. customer software

development) saw the greatest slowdown

Outsourcing services benefited as companied sought to reduce costs Companies delivering discretionary services (e.g. customer software

development) saw the greatest slowdown

Company SizeCompany Size

SmallSmall


Smaller firms felt disproportionately large impact from economic slowdown

Funding for new ventures had become scarce

Smaller firms felt disproportionately large impact from economic slowdown

Funding for new ventures had become scarce

LargeLarge

Many large firms had begun to lay off workers to maintain profitability A return to growth was expected in 2002

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

29

In the telecom sector, well-capitalized incumbent wireless service providers drove pre-9/11 growth while the hardware sector was in a decline

SubsectorSubsector

HardwareHardware


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

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

Wireless (voice)Wireless (voice)

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

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

Wireline voice (LD&IXC)Wireline voice (LD&IXC)

Markets were nearly 100% saturated and facing cutthroat price competition Growth was extremely limited

Markets were nearly 100% saturated and facing cutthroat price competition Growth was extremely limited

DataData

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

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

Company SizeCompany Size

SmallSmall


Smaller firms felt disproportionately large impact from economic slowdown Funding for new ventures had become scarce

Smaller firms felt disproportionately large impact from economic slowdown Funding for new ventures had become scarce

LargeLarge

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

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

30

Impact Assessment

31

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

32

The immediate capital loss from the 9/11 attack is estimated at ~$2B, comprised primarily of facilities & equipment

… Other sectors lost ~$10B of technology infrastructure

Source: Morgan Stanley estimates, NYC Comptroller Report, news articles, BAH Analysis

Estimated One-time Capital Losses from Event

2170

50

1400

720

$0

$500

$1,000

$1,500

$2,000

$2,500

Total Capital Losses Other Capital Losses Netw ork, Communication,Hardw are and Equipment

Losses

Facilities Losses

Cost Categories

Es

tim

ate

d L

os

se

d (

$M

M)


(Verizon)


(Verizon)









33

Overall, the incremental impact on IT and Telecom from the 9/11 attacks is minimal relative to other sectors…











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

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

Key Drivers

Net Incremental Impact

34

… but limits on the IT and Telecom sector’s ability to drive innovations could impair the remainder of the NYC economy





efforts



efforts













Customers are less focused on expanding offerings vs. protecting/preserving core operationsCustomers are less focused on expanding offerings vs. protecting/preserving core operations







Newly uncertain environment restricts access to new venture capitalNewly uncertain environment restricts access to new venture capital



Communications companies in particular are short of cash for new projectsCommunications companies in particular are short of cash for new projects

35

Although Lower Manhattan is home to 363 sector companies, their business base was not severely impacted by 9/11

Pre 9/11 Lower Manhattan




# Co.’s# Co.’s

33

IT ServicesIT Services 159159

IT SoftwareIT Software 107107

Telecom HardwareTelecom Hardware 22

Telecom ServicesTelecom Services 9292

JobsJobs

4949

8,5258,525

5,1225,122

468468

3,9443,944



IT ServicesIT Services

IT SoftwareIT Software

Telecom HardwareTelecom Hardware

Telecom ServicesTelecom Services

# Co.’s# Co.’s

00

88

55

00

33

JobsJobs

00

800800

238238

00

8585

Business Loss in Lower Manhattan


TotalTotal 1616 1,1231,123

TotalTotal 363363 18,10818,108

*Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head officeSource: Dun & Bradstreet, BAH Analysis



Listing of Sector Businesses Lost in Lower Manhattan*

36

Rebuilding efforts support the technology sector – estimates indicate $8B of technology infrastructure must be replaced by former WTC occupants

1 WTC 2 WTC

Company Emp Floors Company Emp FloorsSandler O'Neill 177 0.5 Windows on the World 70 2

AON 1100 9 Cantor Fitzgerald 1000 3

Fiduciary Trust 645 4 Marsh & McLennan 3200 8

American Bureau of Shipping 16 0.5 Fred Alger Mgmt 55 1.5

Washington Group 190 0.5 Carr Futures 141 1.5

Keefe, Bruyette & Woods 171 2 Ohrenstein & Brown 91 1

NYS DOT&F 222 2 Network Plus 46 1

Harris Beach 113 1 Port Authority 2000 23

Euro Brokers/Maxcor 285 1 Dai-Ichi Kangyo Bank 300 3

Fuji Bank 625 4 Lehman Brothers 618 3

Morgan Stanley 3500 17 Kemper Insurance 234 2

Bridge Info Sys 284 2 Empire Blue Cross 1914 10

ICAP 500 2 ICAP 250 1

Fireman's Fund 190 2 Bank of America 400 3

Wachovia/First Union 48 1

Thatcher Proffitt & Wood 300 3

Frankel & Co. 213 1.5

Oppenheimer Funds 598 5

Sun Microsystems 300 2

Scor-US 120 1.5

Source: NYC Comptroller Report

WTC Towers, Tenants by Floors and Employees, 9/10/01


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

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

UNKNOWN: Who will leave NYC?UNKNOWN: Who will leave NYC?

Companies with greater than 500 employees within WTC

37

Technology subsectors taken individually see minimal net incremental impact of the attacks

Incremental Impact*Sub-SectorShort Term Long Term

Qualitative Incremental Impact

General Capital Loss Short-t($2.17B)m

Moderate short term revenue gain – initial repair/replacement ofdamaged infrastructure will drive near-term revenues; long-terminfrastructure development will take 18 to 24 months and drive slower butmore sustained revenue growth

IT Hardware (0.5%) (0.2%) Increase in revenue from rebuild spending will be counterweighed bygeneral spending slowdown

IT

IT Software (1.3%) 0.1% Rebuild spending and new investment in selectedinfrastructure/operations capabilities (e.g., security, video conf., remoteaccess) will come primarily as a shift in spend away from typical growthareas (ERP, CRM, etc)

IT Services (1.6%) 0.2% Rebuild spending in selected outsourced services (e.g., data center) andnew investment in key business continuity planning/services will comeprimarily as a shift away from discretionary spending on services

TelecomHardware

(0.7%) (0.2%) Increase in revenue from rebuild spending will be counterweighed bygeneral spending slowdown

Wireless 0.1% 0.1% Increase in revenue from usage and customer growth as a result ofsecurity/ travel concerns

Local Voice (0.05%) 0.0% Small increase in revenue from videoconferencing and/or telecommuting-related usage will only slightly offset declining voice market

Long DistanceVoice

(0.05%) 0.0% Small increase in revenue from videoconferencing and/or telecommuting-related usage will only slightly offset declining voice market

Telecom

Data- Telephony

Short-term revenue shortfalls from service interruptions counterweighedby new service connections due to relocations

- Cable

(1.5%) 0.2%

Minimal one-time revenue decrease due to loss of customers andbusiness 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

38

Actions

39

After analyzing the impact to the sector, we developed four imperatives and associated actions to mitigate the effects

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)

Imperatives Key Actions

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)

Establish new business development zone(s) throughout NYC• Identify and prioritize prospective areas for development• Deploy advanced technology infrastructure, targeted toward small-business

requirements

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)





40

We developed specific actions, using four key imperatives that drive the IT and Telecom sector’s ability to support a NYC recovery



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



Facilitate the development of new technologies on an ongoing basis

Create an environment to encourage the exploration of new products and services

Imperative Description Potential Benefits

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



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

41

Eleven actions emerged across the imperatives

ActionsImperatives

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

5b.) Establish supply-side consortia to address key infrastructure requirements






9.) Support competition in communication services by educating businesses on available service alternatives






11.) Establish NYC as center of technology R&D by fostering a climate for new technology venturing





Collaborate for the FutureCollaborate for the Future





42

Four actions stand out as the highest priority, with potentially enduring benefits and high feasibility

Each of the actions is discussed in detail in Appendix C

ActionsImperatives



5b.)Establish supply-side consortia to address key infrastructure requirements



Highest-Priority Actions1.) Reimburse/finance rebuilding …

8.) Enable small companies to refocus …

2.) Help companies with capacity find …

3.) Upgrade capacity and capability …

11.) Establish NYC as center of …

7.) Provide mechanisms to help small …

4.) Improve customer service, satisfaction …

10.) Channel investments to technologies …

9.) Support competition in communications …

5a.) Establish demand-side consortia …

6.) Establish new business development …

5b.) Establish supply-side consortia …

Rebuild World-Class

Infrastructure

Rebuild World-Class

Infrastructure







43

Methodology and Assumptions

44

At each stage of analysis, we validated hypotheses with multiple credible sources

NYC SnapshotNYC Snapshot

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

Pre 9/11 BaselinePre 9/11 Baseline

Projections based on external sources and overall economic drivers

Key factor is planned IT spend at major companies

ImpactImpact

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)

Section Description

IDC Gartner Group Economy.com

Incorporated interview results (industry executives, analysts, investment experts) where possible

InitiativesInitiatives

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

45

Our sources included interviews with over 30 individuals, including large and small companies as well as sector experts

IntervieweesOrganizationOrganization

AccentureAccenture

AccentureAccenture

AccentureAccenture

Aegis Software IncAegis Software Inc

AMC CorporationAMC Corporation

Arbinet-thexchangeArbinet-thexchange

AT&TAT&T

AT&TAT&T

AvayaAvaya

Bear StearnsBear Stearns

CIBCCIBC

ConEd CommunicationsConEd Communications

CSFBCSFB

Global CrossingGlobal Crossing

IBMIBM

Inforocket.comInforocket.com

LucentLucent

LucentLucent

LucentLucent

LucentLucent

MSDWMSDW

MSDWMSDW

Netik IncNetik Inc

Nutech Integ. Sys.Nutech Integ. Sys.

Probe ResearchProbe Research

RCNRCN

RRE VenturesRRE Ventures

Siemens CorporationSiemens Corporation

VerizonVerizon

VerizonVerizon

VerizonVerizon

VerizonVerizon

Warburg PincusWarburg Pincus

NameNameBill AndrewsBill Andrews

Steve PhillipsSteve Phillips

Mark TillingerMark Tillinger

Andrew SerrelAndrew Serrel

Mark RomanowskiMark Romanowski

Mike LembergMike Lemberg

Michael ArmstrongMichael Armstrong

Reed HarrisonReed Harrison

Don PetersonDon Peterson

Rich LukajRich Lukaj

Gary RabinGary Rabin

Peter RustPeter Rust

Todd RakerTodd Raker

David CareyDavid Carey

Gus MaikishGus Maikish

Susan N.Susan N.

John HeindelJohn Heindel

Dave DialDave Dial

Nick DeTuraNick DeTura

Bob HolderBob Holder

Luis CarvalhoLuis Carvalho

Rich BilottiRich Bilotti

Pam CytronPam Cytron

Jessica KowalickJessica Kowalick

Allan TumolilloAllan Tumolillo

Ed KuczmaEd Kuczma

Jim Robinson IVJim Robinson IV

Klaus KleinfeldKlaus Kleinfeld

Bob IngallsBob Ingalls

David PitcherDavid Pitcher

Bruce GordonBruce Gordon

Paul CrottyPaul Crotty

Stewart GrossStewart Gross

Title/LevelTitle/LevelAssociate PartnerAssociate Partner

PartnerPartner

Partner, Capital Markets Group LeaderPartner, Capital Markets Group Leader

Senior Vice PresidentSenior Vice President

Chief Financial OfficerChief Financial Officer

DirectorDirector

CEOCEO

Senior VP, Local Service & NetworkSenior VP, Local Service & Network

CEOCEO

Senior MDSenior MD

Senior MDSenior MD

CEOCEO

Managing DirectorManaging Director

Senior VP, Global NetworkSenior VP, Global Network


Executive Vice PresidentExecutive Vice President

President, Worldwide SvcsPresident, Worldwide Svcs

Product Management VPProduct Management VP

Global Program Mgmt VPGlobal Program Mgmt VP





ControllerController

Analyst, TelecomAnalyst, Telecom

VP, GM Manhattan OpsVP, GM Manhattan Ops

DirectorDirector

COOCOO

President, Bus. Solns. Grp.President, Bus. Solns. Grp.

Corporate EconomistCorporate Economist

President, Retail MarketsPresident, Retail Markets

Group President, NY & CTGroup President, NY & CT

Senior MDSenior MD

46

We analyzed the data from these sources to arrive at our projected estimates…

IDCIDC

Gartner GroupGartner Group

Economy.comEconomy.com

Analyst ReportsAnalyst Reports

National revenue projections

BAH

Analysis

BAH

Analysis

Compute national % growth trends

Adjust national trends to New York City trends

% of spend Elasticity for growth Population Base

Growth RatesGrowth Rates

2000 Revenues2000 Revenues

Revenue &

Growth

Projections

Revenue &

Growth

Projections

Dun & Bradstreet Report

IDCIDC

Gartner GroupGartner Group

National growth projections NYC Comptroller Reports

BAH

Analysis

BAH

Analysis

Dun & Bradstreet data New York city relationship to

national projections Job Loss reports (newspapers,

reports) in New York City

Growth RatesGrowth Rates

EmploymentReports

EmploymentReports

Employment

Projections

Employment

Projections

Projection Development Framework

Revenues

Employment

47

ScenarioScenario

… in the context of the three standard scenarios established by the Core Team

BaseBase

PessimisticPessimistic

OptimisticOptimistic

AssumptionsAssumptions

Unclear implications of conflict Recession in Q3 and Q4 2001 due to

declining consumer confidence Recovery in Q1 2002

Unclear implications of conflict Recession in Q3 and Q4 2001 due to

declining consumer confidence Recovery in Q1 2002

Economic depression with 4 consecutive declining quarters

Plunging consumer confidence stays low Escalation of hostilities with lingering fear

Economic depression with 4 consecutive declining quarters

Plunging consumer confidence stays low Escalation of hostilities with lingering fear

“Best-case” scenario Conflict primarily resolved and/or clarified in

short term Consumer confidence rejuvenated Downturn subdued

“Best-case” scenario Conflict primarily resolved and/or clarified in

short term Consumer confidence rejuvenated Downturn subdued

Impact Scenarios

ImplicationsImplications

Market expectations of industry growth rates over the next few years considering the impact of 9/11 attacks

Further reduction in growth rates following the 9/11 attacks but recovery time is expected to be the same

Market expectations of industry growth rates over the next few years considering the impact of 9/11 attacks

Further reduction in growth rates following the 9/11 attacks but recovery time is expected to be the same

Deeper plunge in growth rates followed in some cases by a longer wait time for the growth rates to turn around

Deeper plunge in growth rates followed in some cases by a longer wait time for the growth rates to turn around

Technology sector demonstrates immediate comeback

Growth rates continue to rise but at a slower pace than in the early 1990s

Technology sector demonstrates immediate comeback

Growth rates continue to rise but at a slower pace than in the early 1990s

48

A three-stage recovery spending framework drove the development of post-9/11 trajectories for each scenario

11-Sep 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 5th Qtr 6th Qtr

Original Planned Spend

Revised Spend

Emergency Spend

Reinstate ServiceReinstate Service Rationalize InstallationRationalize Installation



• 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

ILLUSTRATIVE

ILLUSTRATIVE

STAGE 1 STAGE 2 STAGE 3

IT Spend

49

New York City’s historically close tracking of national growth rates guided the sector trajectories


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

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

US and New York City GDP Growth Rates

GD

P G

row

th

Source: Economy.com, Bureau of Economic Analysis, BAH Analysis

-4%

-2%

0%

2%

4%

6%

8%

10%

1995 1996 1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E

NYC

USA

50

New redundancy communications requirements and rebuilding spend should help move technology out of the decline

$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

Demand to create additional redundancy infrastructure drives most technology sub-sectors (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 re-evaluate 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

Drivers Description

RebuildingActivities

RebuildingActivities

Additional Security/Redundancy

Additional Security/Redundancy

New remote communication needs

New remote communication needs

51

The “inertia” of maintenance vs. new IT spending is another factor – reductions come most readily from trimming new technology purchases

DiscussionDiscussion

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

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

IT Spend Reduction Scenario

Effect on Different Spend Types

0.520.48

0.32

0.48

Maintenance

New Spend

Total =1.0Total =1.0 Total =0.8Total =0.8

ILLUSTRATIVE

ILLUSTRATIVE

52

We considered IT industry perspectives that despite corporate spending pullbacks, long-term growth is inevitable



Reduction in spending as % of revenue is offset by overall increasing corporate revenues




Reduction in spending as % of revenue is offset by overall increasing corporate revenues



(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

US IT and Telecom Spendas Avg % of Firm Revenue by Industry

Te

chn

olo

gy S

pen

d a

s a

% o

f Re

ven

ue

0%

5%

10%

15%

2000 2001 (E) 2002 (E)

Government Communications Financial ServicesRetail/Wholesale Others (1)

US IT Spend by Industry (2000)

$ 59 B

$ 112 B

$ 151 B

$ 67 B

$ 379 B

53

A simple risk-return framework enabled a prioritization of the actions

Potential Return (Financial)

Complexity and Sensitivity

Hi

HiLo

Lo

Identify participants and

implement immediately

Pick low hanging fruit

and implement

Pursue with multiple

partners or as an

industry to reduce risks

Avoid as private firms --

public sector may fund if

societal benefits exist

Prioritization Framework

54

ActionsActions

Utilizing this framework revealed that actions fostering cooperation deliver the highest return with the least complexity

Complexity and Sensitivity

1

8

2

11

5a/b

6

9

4

3

7

10

Hi

HiLo

Lo

Potential Return

(Financial)

Note: Size of bubble indicates relative impact on NYC businesses Shading indicates highest priority actions

1.) Reimburse/finance efforts of key players to rebuild while upgrading infrastructure
























Prioritization of Actions

55

To evaluate funding sources for the actions, we strove to ensure primary beneficiaries provide the majority of the investment

Ben

efi c

iary

Sec

tor

Private

Private Public

Public

Resultant Potential Funding Source

Joint

Joint

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)

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 Building

Initiatives

Community Building

Initiatives

Combined Initiatives Combined Initiatives

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

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

Corporate Self-Help Initiatives


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

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

Funding Framework

56

The highest-priority actions should be private-sector or jointly funded

Ben

efi c

iar y

Sec

tor

Private

Private Public

Public

Both

Both



Community Building

Initiatives

Community Building

Initiatives

Combined Initiatives Combined Initiatives













Primary Funding SourceNote: Actions in bold indicate highest priority













Funding Framework

57

Appendices

A. Subsector Pre-9/11 Baseline Trends

B. Subsector Post-9/11 Projections

C. Detailed Actions

58

Appendix A. Subsector Pre-9/11 Baseline Trends

59

The IT hardware market sensitivity to the overall economy will result in reduced revenues for 2001 – recovery is expected by 2002

Pre-9/11 ObservationsPre-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

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

Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis

Ann

ua

l IT

Ha

rdw

are

R

eve

nu

e $

(B

N)

IT HardwareAnnual Revenue

Ann

ua

l IT

Ha

rdw

are

R

eve

nu

e G

row

th (

%)

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

1999 2000 2001E 2002E 2003E 2004E 2005E

-15%

-10%

-5%

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005

Storage

Servers

PC

IT HardwareAnnual Revenue Growth

NYC market represents 0.50% of national

market

NYC market represents 0.50% of national

market

60

Security systems support continued double digit growth for the software sector with enterprise applications driving future growth


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

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

IT SoftwareAnnual Revenue and Growth Rate

Source: Gartner Group, Economy.com, IDC, Dun & Bradstreet, BAH Analysis

$3.8$4.2

$4.7

$5.4

$6.2

$6.9

$7.7

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

1999 2000 2001E 2002E 2003E 2004E 2005E

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Revenue Revenue Growth

Ann

ua

l IT

So

ftw

are

Re

venu

e G

row

th

(%)

Ann

ua

l IT

So

ftw

are

Re

venu

e $

(B

N)

NYC market represents 4.4% of

national market


national market

61

Demand for IT Services was expected to continue growing but at a slower pace than the mid 1990’s


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

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

Source: Gartner Group, IDC, Dun & Bradstreet, BAH Analysis

IT ServicesAnnual Revenue and Growth Rate

$6.1$6.7

$7.5$8.3

$9.2

$10.3

$11.4

$0

$2

$4

$6

$8

$10

$12

$14

1999 2000 2001E 2002E 2003E 2004E 2005E

5.0%

10.0%

15.0%

20.0%


Ann

ua

l IT

Se

rvic

es

Re

ven

ue

Gro

wth

(%

)

Ann

ua

l IT

Se

rvic

es

Re

ven

ue

$ (

BN

)


national market


national market

62

Corporate IT spending reductions hurt the high-dollar communications hardware industry


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

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

Source: Gartner Group, US Census Bureau , BAH Analysis

Network HardwareAnnual Revenue and Growth Rate

$4.3$4.4

$3.9

$4.3

$3.9 $4.0

$4.2

$3

$4

$5

1999 2000 2001E 2002E 2003E 2004E 2005E

-30.0%

-15.0%

0.0%

15.0%

30.0%


Ann

ua

l Ne

twor

k H

ard

war

e R

eve

nu

e G

row

th (

%)

Ann

ua

l Ne

twor

k H

ard

war

e R

eve

nu

e $

(B

N)


national market


national market

63

Local and LD Voice revenue continues to decline due to ongoing price competition and wireless substitutes


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

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

Ann

ua

l Vo

ice

Se

rvic

es

Rev

en

ue

$ (

BN

)

Voice ServicesAnnual Revenue

Ann

ua

l Vo

ice

Se

rvic

es

Rev

en

ue

Gro

wth

(%

)

Source: JP Morgan H&Q and McKinsey& Co. Joint Study, BAH Analysis

$0

$2

$4

$6

2000 2001E 2002E 2003E 2004E 2005E

Local LD (IXC)

-10%

0%

10%

20%

2000 2001 2002 2003 2004 2005

Growth local Growth LD (IXC)

Voice ServicesAnnual Revenue Growth

NYC market represents 2.8% of national marketNYC market represents 2.8% of national market

64

High penetration levels limit new wireless subscriber growth, with rising revenues per user sustaining most carriers


Increased penetration reduces historically high growth rates

Hybrid cellular services will drive wireless revenue growth

• By 2005, 70% of users will have hybrid service up from the current 39%

• 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

Increased penetration reduces historically high growth rates

Hybrid cellular services will drive wireless revenue growth

• By 2005, 70% of users will have hybrid service up from the current 39%

• 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

Wireless Services Annual Revenue and Growth Rate

Note: Wireless revenues includes only voice service revenuesSource: IDC, US Census Bureau, Morgan Stanley Dean Wittier, BAH Analysis

$1.4$1.7

$1.9 $2.0$2.2 $2.4

$0

$1

$2

$3

$4

$5

2000 2001E 2002E 2003E 2004E 2005E

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Revenue Revenue Growth ARPU Growth

Gro

wth

(%

)

Ann

ua

l Wir

ele

ss S

erv

ice

s R

eve

nu

es

$ (

BN

)

NYC market represents 2.8% of national marketNYC market represents 2.8% of national market

65

Recent CLEC failures have dampened the broadband picture, however data revenues are growing


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

• Industry consolidation - acquired revenues

• Lack of funding to unprofitable players

Many CLEC business models were inoperable and most never achieved profitability

Future expansions are limited by restricted access to capital

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

• Industry consolidation - acquired revenues

• Lack of funding to unprofitable players

Many CLEC business models were inoperable and most never achieved profitability

Future expansions are limited by restricted access to capital

Ann

ua

l Da

ta S

erv

ice

s R

eve

nu

es $

(B

N)

Data ServicesAnnual Revenue

Ann

ua

l Da

ta S

erv

ice

s R

eve

nu

es G

row

th (

%)

Source: Gartner Group, BAH Analysis

$0

$1

$2

$3

$4

2000 2001E 2002E 2003E 2004E 2005E

Broadband Cable DSL/ISDN ISP

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005

Broadband Cable DSL/ISDN ISP

Data ServicesAnnual Revenue Growth Note: target growth rates

for 2005 in the 15-20% range

Note: target growth rates for 2005 in the 15-20%

range

66

Appendix B. Subsector Post-9/11 Projections

67

IT Hardware: Aggressive reconstruction fosters a return to quarterly growth

Post-9/11 ObservationsPost-9/11 Observations

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

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

Source: IDC’, Economy.com, BAH Analysis

Qua

rter

ly P

C

Rev

enue

Gro

wth

(%

)

New York City Quarterly PC Sub-Sector Revenue Growth

Qua

rter

ly S

erve

r

Rev

enue

Gro

wth

(%

)

-10%

-5%

0%

5%

10%

-5%

0%

5%

10%

New York City Quarterly Server Sub-Sector Revenue Growth

2000 2001E 2002E 2003E

2000 2001E 2002E 2003E

68

IT Software: New York City software sector revenues will grow when the banking sector increases IT spend


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

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


Qua

rter

ly S

oftw

are

Rev

enue

Gro

wth

(%

)

New York City Quarterly SoftwareSub-Sector Revenue Growth

-5%

0%

5%

10%

2000 2001E 2002E 2003E

Annual growth still below the high 20% range of the 1990sAnnual growth still below the high 20% range of the 1990s

69

IT Services: Expect continued growth after an initial slowdown


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

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

Qua

rte

rly S

erv

ice

s

Rev

en

ue

Gro

wth

(%

)

New York City Quarterly Services Sub-Sector Revenue Growth

-5%

0%

5%

10%


2000 2001E 2002E 2003E

70

Telecom Hardware: Creation of a more serviceable, robust, and redundant data infrastructure will drive telecom hardware growth


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

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

Qua

rte

rly T

ele

com

H

ard

war

e

Re

ven

ue

Gro

wth

(%

)

New York City Quarterly Telecom Hardware Sub-Sector Revenue Growth

Source: IDC, Economy.com, BAH Analysis

-5%

0%

5%

10%

2000 2001E 2002E 2003E

‘95 to ‘99 growth rates averaged ~16%

‘95 to ‘99 growth rates averaged ~16%

71

Telecom Voice: Voice will not grow, though losses may occur if customer migration out of the city occurs


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

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

Qua

rte

rly V

oic

e R

eve

nu

e

Gro

wth

(%

)

New York City Voice Sub-SectorQuarterly Revenue Growth


-5%

0%

5%

2000 2001E 2002E 2003E

72

Telecom Wireless: Growth is dependent on 3G deployment


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

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

Qua

rte

rly W

irel

ess

R

eve

nu

e G

row

th (

%)

New York City Quarterly Wireless

Sub-Sector Revenue Growth


0%

2%

4%

6%

2000 2001E 2002E 2003E

73

Telecom Data: Deployment of advanced infrastructure and availability of cable data to small businesses will drive revenues


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

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

Qua

rte

rly D

ata

Re

ven

ue

G

row

th (

%)

New York City Quarterly Data Sub-Sector Revenue Growth


0%

5%

10%

15%

2000 2001E 2002E 2003E

This is still large growth -- but is primarily shifted to incumbents

This is still large growth -- but is primarily shifted to incumbents

74

Appendix C. Detailed Actions

75

1.) HIGH-PRIORITY ACTION – Reimburse/finance efforts of key players to rebuild while upgrading



Key CostsKey Costs


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

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

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

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

High Government (both state and federal) bailout/disaster relief funds are likely to cover reimbursement needs, in conjunction

with any applicable insurance payments

ActionActionReimburse/finance the efforts of key players to rebuild or repair damaged/destroyed infrastructure, getting NYC services “back to normal” while upgrading current infrastructureReimburse/finance the efforts of key players to rebuild or repair damaged/destroyed infrastructure, getting NYC services “back to normal” while upgrading current infrastructure

76

2.) Help companies with capacity find customers with needs – support customer access to key providers/subcontractors



Key CostsKey Costs


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

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

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

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

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

ActionActionHelp companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirementsHelp companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirements

77

3.) Upgrade capacity/capabilities of the communications infrastructure



Key CostsKey Costs


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

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

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

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

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

ActionActionUpgrade capacity and capability of communications infrastructure (e.g., 3G, 802.11, voice-over-cable, VOIP, upgraded wireline capacity, Bell Atlantic Net)Upgrade capacity and capability of communications infrastructure (e.g., 3G, 802.11, voice-over-cable, VOIP, upgraded wireline capacity, Bell Atlantic Net)

78




Key CostsKey Costs


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

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)

~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

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

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

ActionActionImprove customer service, satisfaction, and customer options for communications services (billing options, call center performance, etc.)Improve customer service, satisfaction, and customer options for communications services (billing options, call center performance, etc.)

79

5a / 5b.) HIGH PRIORITY ACTION – Establish business and service-provider consortia to address infrastructure requirements

ActionActionEstablish business and service-provider (demand and supply) consortia to address infrastructure requirementsEstablish business and service-provider (demand and supply) consortia to address infrastructure requirements













Key CostsKey Costs















80

6.) HIGH-PRIORITY ACTION – Establish new business development region with advanced technology infrastructure



Key CostsKey Costs


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

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

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

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

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

ActionActionEstablish new business development region (or regions) within New York City, with advanced technology infrastructure (e.g., 802.11B system) -- focus on supporting small businessesEstablish new business development region (or regions) within New York City, with advanced technology infrastructure (e.g., 802.11B system) -- focus on supporting small businesses

81




Key CostsKey Costs


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.,

• tax benefits• discounted rates• service bundling opportunities

Publicize availability and legitimacy of program to customers, integrate cross-marketing into member companies’ sales efforts where possible

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.,

• tax benefits• discounted rates• 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)

~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

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

Moderate Costs appear to be relatively low Determining appropriate certification criteria, as well as coordinating members effectively, may prove to be difficult

political obstacle

ActionActionProvide mechanisms to help small technology sector companies take advantage of rebuilding spend; allow smaller firms to compete more effectively with larger established corporationsProvide mechanisms to help small technology sector companies take advantage of rebuilding spend; allow smaller firms to compete more effectively with larger established corporations

82




Key CostsKey Costs


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

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

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

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

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

ActionActionEnable 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)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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9.) Support competition in communication services through education of businesses on available service alternatives



Key CostsKey Costs


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

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:

• Printing and distribution costs• Technology support and maintenance costs• Media campaign creative and production costs

Overall Cost Estimate: $100-110MM Source of funds: Public sector or private consortium

~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:

• Printing and distribution costs• Technology support and maintenance costs• 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

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

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

ActionActionSupport competition in communication services by educating businesses on available service alternativesSupport competition in communication services by educating businesses on available service alternatives

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10.) HIGH-PRIORITY ACTION – Channel investments to technologies critical to native NYC industries



Key CostsKey Costs


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.:

• Provide tax incentives for investment in emerging high-growth areas• Utilize existing public sector vehicles to provide growth capital (e.g., SBA-type loan guarantees, etc.)

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.:

• Provide tax incentives for investment in emerging high-growth areas• 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)

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


Provides continued funding to critical support technology areas, to ensure NYC industries are not “left behind” by more technologically advanced players elsewhere



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

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

ActionActionChannel investments to the technologies critical to native NYC industries, establishing an industry-wide commitment to forward-looking areas that will advance these industriesChannel investments to the technologies critical to native NYC industries, establishing an industry-wide commitment to forward-looking areas that will advance these industries

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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



Key CostsKey Costs


Establish R&D coordination office• To attract and foster R&D activities throughout NYC• 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)

Establish R&D coordination office• To attract and foster R&D activities throughout NYC• 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 private-

sector staff Overall Cost Estimate: $300-400K Source of funds: Private companies and/or public-sector

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 private-

sector 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

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 self-

perpetuating; otherwise, will drain funds for little benefit

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 self-

perpetuating; otherwise, will drain funds for little benefit

ActionActionEstablish 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)

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)

Documents

1 IT and Telecom Sector Analysis. 2 Overall Project Objectives Adopt a baseline of NYC economic forecasts prior to September 11 Assess economic impact