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City Woos New Tech

08 January 01

by Lynda Crawford

Diana Chapin often talked with her boss, Joel Miele, Sr., about the pipeline that lay empty beneath the city. Chapin was the first deputy commissioner, and Miele the commissioner, of the Department of Environmental Protection, and they both were sure the big old pipes might be useful for something. But they just couldn't figure out what.

Built in 1908 in the days of horse-drawn fire carts, the pipes once served as a high pressure water system, pumping water high enough to reach the tallest buildings of the time. By the 1960s, the system became obsolete and was phased out.

As Chapin and Miele were mulling what to do with the pipelines, the Department of Information, Technology and Telecommunications approached them seeking permission to lay fiber optic cable in the city's sewage system. It was a Eureka moment.

Why not use the abandoned water pipes, Chapin thought, to house the fiber optic cable? Use the city's past to enhance its future.

And that is just one idea the city has dreamed up in its hustle for high tech.

A SURFEIT OF SUITORS

Despite plummeting technology stocks, the city remains convinced that tech industries are essential for New York's future, and has launched a plan of many parts to get them here and keep them happy: converting the old water main, offering incentives to locate in boroughs other than Manhattan, negotiating with Verizon to improve customer service, forming the Mayor's Council on New Media and holding a series of hearings by the City Council. All this is intended to get rid of the main obstacles new tech businesses now face in the city: getting space, getting wired and getting employees.

Government at all levels -- from Washington on down -- is eager to get in on the boom in new industries. President-elect George Bush met with high tech executives last week. In his state of the state address, Governor George Pataki offered a plan for New York to foster development of high tech industries. With much of Pataki's effort aimed upstate, at least initially, city officials want to make sure the five boroughs are not left out.

EXPLOSIVE GROWTH

Last year, new tech generated $9.2 billion in gross revenues for the city and provided jobs to more than 138,000 New Yorkers. By the year 2002, the mayor's office expects the number of new tech jobs will reach 250,000.

"The explosive growth is equivalent to the advent of telephone and television, side by side," says Mark Scarpa, executive director of the Mayor's Council on New Media, and CEO of Jumpcut, a company specializing in webcast production, design and delivery.

The six percent decline in the market last year has had an impact, particularly on the ease in which start-ups can locate funding. Razorfish and DoubleClick both saw their stock collapse by more than 90 percent, Pseudo.com has shut its doors, and the announcement by Rupert Murdoch's News Corporation last week that it was drastically curtailing its web operations shook those who hoped that net companies tied to big corporations could ride out the ills afflicting smaller, independent dot-coms. Despite all this, the new tech industry still represents the fastest growing segment of the city's economy.

"The party is definitely over" says Scarpa. "But that doesn't mean the industry will die. The companies that have survived -- and survived is the word -- will emerge as strong legitimate businesses."

REAL SPACE

One major challenge for high tech business in New York, much as it is for their lower tech counterparts, is finding space. A front page article in The New York Times last September reported what is common knowledge to anyone renting an office today: Space is scarce, and landlords in Manhattan have taken advantage of the situation by raising rents nearly 30 percent over the last year alone.

"The shortage of office space makes it tough for a company like mine to succeed and thrive," says Andrew Brust, president of Progressive Systems Consulting, Inc., a six-year old custom software development company based in Manhattan with eight employees, who is also vice chairman of the New York Software Industry Association.

"We weren't poor," says Brust. "We could afford $20 a square foot for a space on Fifth Avenue and 20th Street." This year, however, Progressive Systems was forced to relocate. Brust now pays $32 a square foot on Seventh Avenue and 29th Street. But that building wasn't wired, so he had to spend an additional $600 for lines and $3,000 for wiring and computer network connections before he could open for business.

"The real estate industry is dumb," says Brust. "The goal seems to be to make money in the short term, but if new tech companies have to use all their venture capital to pay these rents, they have no long-term viability. A year from now, they'll have to leave or go out of business. Then we'll have a glut of office space again."

In an effort to ease the office space crunch for new tech firms, the mayor's office created Digital NYC, managed by the New York City Economic Development Corporation. Digital NYC tries to lure new-tech companies to low-cost ($15 to $22 square foot), pre-wired office spaces in neighborhoods that could use a boost. The city provides $250,000 in matching funding per zone to help landlords and developers publicize the zones.

New-tech businesses that relocate from midtown or downtown Manhattan or from outside the city to one of these areas gets a city tax refund of $3,000 per employee.

Each district has been given a catchy handle: Harlem's Hi Way 125, Broadband Brooklyn (four sections), Si Hub in Staten Island, BronxSmart in the South Bronx and Cyber City in Long Island City.

The downtown Brooklyn district, DUMBO (Down Under the Manhattan Bridge Overpass), has been an immediate success: 70,000 square feet has been leased by 11 companies, bringing 225 jobs to the area, according to the New York Times.

The other digital districts, however, have yet to take off, the Times says. Only three leases have been signed for Staten Island and Brooklyn's Information Technology Center at Sunset Park, and there are no leases for any of the remaining four districts.

"No matter how much space is made available outside Manhattan," observes Andrew Brust, "some companies need to be in Manhattan." Those that don't, though, can now go to Harlem, Brooklyn, the Bronx, Long Island City or, if they want something more suburban, Staten Island, he says. "They no longer have to cross the Hudson."

Some businesses prefer neighborhood identification to a downtown Manhattan address. The Urban Broadcasting Company (UBC), for example, plans to build a state of the art studio in Harlem's new HiWay 125 tech district.

LOST IN THE BOOM?

All this attention for new tech firms, however, has some older businesses worried. City Limits Weekly reported that woodworking shops and other manufacturers in the BronxSmart district are alarmed by landlords installing fiber optic cables and making other renova tions in their buildings, a sign that older businesses could soon be priced out and displaced.

The garment industry has voiced concern also. Testifying before the City Council in September, Linda Dworak, executive director of the Garment Industry Development Corporation, urged the city not to push the growth of the new tech "at the expense of traditional manufacturing."

THE HIGH TECH JUGGERNAUT

But there seems to be no stopping the improvements related to new tech. A flurry of businesses are working at breakneck speed to get the city wired. Feeding the frenzy is the threat that New York could lose out to cities, such as Chicago, Los Angeles, Austin, Pittsburgh, Indianapolis and San Diego, that have put government assistance to new tech on a fast track. New York has an additional disadvantage because its wiring is the oldest in the country.

"The primary medium of 21st century telecommunications technology is fiber-optic cable running under or above public rights-of-way," Bruce Regal, acting deputy commissioner and general counsel to the New York City Department of Information Technology and Telecommunications (DoITT) told the City Council in September.

Regal says 15 different companies will be building fiber optic systems to provide high speed and reliability to customers. This demand for cable, however, is quickly filling all available underground conduits, the tunnels that the cables run through.

In an effort to expand conduit capacity without tearing up the streets (although some of that is inevitable), DoITT is speaking with all of the underground pipeline players -- Con Edison, the Metropolitan Transit Authority, Time Warner, RCN, Verizon, Empire City Subway (owned by Verizon) and the Department of Environmental Protection.

The key participant, though, is Verizon. "Verizon plays a special role for two reasons," Andrew Brust told the City Council's Subcommittee on Small Business, Retail and Emerging Technologies. "The first reason is that even competitive phone companies and digital subscriber line (DSL) providers deliver their services over Verizon's line and rely on its technicians." The second reason, Brust explained, is that Empire City Subway, once a subsidiary of AT&T, now owns a substantial portion of the cable conduit in Manhattan. And who owns Empire City Subway? Verizon.

But dealing with that phone company can be frustrating, Brust says, adding, "to get anything in a short time span is next to impossible." He cites accounts of missed appointments, installations that take months and hours spent on hold. "I don't think I need to explain why this puts New York City at a competitive disadvantage when compared to other regions," Brust says.

Verizon did not respond to calls for comment. The city is currently negotiating with Verizon for the creation of a special customer service office exclusively for the new tech businesses, something that Brust says "would be ground breaking if it happened."

HELP WANTED

Finding qualified employees is another problem for new tech businesses. Skilled workers are often lured away from high tech firms by Wall Street concerns or by companies in other parts of the country where it is cheaper to live, according to Tech New York, a study funded by the City Council and released last year.

Meanwhile, lack of relevant training in city schools contributes to the scarcity of skilled workers while widening the digital divide that separates people with lower incomes, often minorities and women, from access to computer training and the resulting careers and opportunities. While applauding a summer internship programs offered through the New York Media Association, the New York Software Industry Associationand colleges in the CUNY system, the report faulted public education in the city at both the university and the K-12 levels, for making little effort to determine what kind of training would be relevant in today's technologically-driven economy.

To counter some of these problems, Governor George Pataki, in his 2001 State of the State Address, announced the creation of research centers "that will bring together the ingenuity of the private sector with the world-class research capabilities of our universities. This will be the largest high-tech economic development initiative in our state's history." The new program will start with three upstate universities, but Pataki proposed future research centers on Long Island and in the city to forge links between academia and businesses in information technology and medicine.

There are several efforts underway to offer more technical training in the public schools, including an agreement under which Cablevision and Time Warner will build and provide free high speed internet service to every public school in the city, with approximately 100 students able to connect simultaneously in every school.

The Board of Education is considering a proposal to give all fourth graders, beginning with the class of 2001, networked devices, if not actual computers, according to Crains.

"But the answer isn't just throwing computers and internet access at schools," says Brust. "We need to provide access to good education, primary and secondary . . . . Students need the ability to think and problem solve and write."

"Some of us think the new tech industry is not only about commerce," says Angel Rodriguez, chair of the Council's Small Business, Retail and Emerging Technologies Sub-Committee. "Some of us think it is also about opportunity, about access, and about education."

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