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 n Executive Summary n NYC Snapshot n Pre-9/11 Baseline n Impact Assessment n Actions n Methodology and Assumptions n 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 n 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 n 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 n 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 n 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 n Accelerate restoration of communications infrastructure Reimburse/finance rebuilding of damaged infrastructure Leverage opportunities to deploy “leapfrogging” technologies n Build the broadband infrastructure to support multiple centers of business around New York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan) ImperativesKey Actions n 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) n Establish new business development zone(s) throughout NYC Identify and prioritize prospective areas for development Deploy advanced technology infrastructure, targeted toward small-business requirements n 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 Pre-attack, the IT and Telecom sector generated $37.8B* and employed nearly 97,000 people throughout New York City 1,17452,867$11.6B52443,922$26.2B* Information Technology Revenue, Jobs, and Companies (2000) Telecommunications Revenue, Jobs, and Companies (2000) *Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City Source: Dunn & Bradstreet, BAH Analysis

8 On an annual basis, the IT and Telecom sectors generally showed declining growth prior to 9/11 Annual IT Revenue Growth Annual Telecom Revenue Growth (%) IT Industry Pre-9/11 Projected Annual Growth Telecom Industry Pre-9/11 Projected Annual Growth n New technology purchases drive the IT Hardware market, creating greater sensitivity to slowing corporate IT spend and a general economic downturn n Outsourcing, maintenance, and other short-term fixed IT spend areas support the service sector, limiting its exposure to economic downturns n Emphasis on security systems (e.g., virus protection, intruder detection) drove any software growth in 2000-2001 n Decreased growth in wireless and data was expected as penetration increased n Local voice maket expected to remain flat, with long distance services seeing declines due to price competition n 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 Observations n Technology has become an integral part of business operations and firms have to spend on technology upgrade and maintenance every year n Reduction in spending as percentage of revenue is offset by overall increasing corporate revenues n Slower growth is driving down stock prices, however long-term forecasts indicate double-digit growth n Potential risk in New York City market as key local industries plan to reduce technology spend n Technology has become an integral part of business operations and firms have to spend on technology upgrade and maintenance every year n Reduction in spending as percentage of revenue is offset by overall increasing corporate revenues n Slower growth is driving down stock prices, however long-term forecasts indicate double-digit growth n Potential risk in New York City market as key local industries plan to reduce technology spend (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 Spend as Avg % of Firm Revenue by Industry Technology Spend as a % of Revenue (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 Based on $600/sq. ft. value estimate for 140 West Street property (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-Sector IT Hardware # Co.’s 3 3 IT Services 159 IT Software 107 Telecom Hardware 2 2 Telecom Services 92 Jobs 49 8,525 5,122 468 3,944 Sub-Sector IT Hardware IT Services IT Software Telecom Hardware Telecom Services # Co.’s 0 0 8 8 5 5 0 0 3 3 Jobs 0 0 800 238 0 0 85 Business Loss in Lower Manhattan IT and Telecom Sector Total 16 1,123 Total 363 18,108 *Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head office Source: Dun & Bradstreet, BAH Analysis n Avesta Computer Svcs n Bridge Fixed Income Svcs n Careerengine Network n Espeed n Lindatech n Metiom n SRA America n Thor Technologies n Financial Technologies n Lava Trading n Optech Systems n Temenos USA n Thebeast.com n Ati Telecom n Ingress Net n Interoute Telcommunications n Avesta Computer Svcs n Bridge Fixed Income Svcs n Careerengine Network n Espeed n Lindatech n Metiom n SRA America n Thor Technologies n Financial Technologies n Lava Trading n Optech Systems n Temenos USA n Thebeast.com n Ati Telecom n Ingress Net n Interoute Telcommunications Listing of Sector Businesses Lost in Lower Manhattan*

12 Looking forward, planned technology spending has been postponed by six to twelve months Reinstate Service Rationalize Installation Upgrade to New Standards Incur large tactical emergency spend to restore basic services Address emergency needs via “patches” to systems Replace stopgap measures with more permanent solutions Install new equipment and systems to match (or surpass) original upgrade plans ILLUSTRATIVE STAGE 1STAGE 2STAGE 3 IT Spending

13 The current downward trend in revenue growth will likely be extended for 2-3 quarters Revenues ($ BN) Quarterly NYC IT Revenue Quarterly NYC Telecom Revenue n Replacement of $12B technology infrastructure will be a source of revenue for the national technology sector n 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 Employees Quarterly NYC IT Employment Quarterly NYC Telecom Employment 0 n Rebuild efforts and temporary outsourcing service requirements limit additional layoffs n 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 n New employment recovery expected in late 2002, approximately three quarters later than originally forecasted n Service reconnection efforts and new service connections limit additional layoffs n 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 n Long term recovery now planned for late 2002, early 2003, approximately three quarters later than originally forecasted Employees 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  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 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 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 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 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 capital Available funds have been used for recovery Communications companies in particular are short of cash for new projects

18 Action To address any potential issues we developed eleven joint public and private sector actions Impact on NYC Primary Support 1.)Reimburse/finance the efforts of key players to rebuild while upgrading 2.)Help companies with capacity find customers with needs 3.)Upgrade capacity and capability of communications infrastructure 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 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 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 4 4 1 1 4 4 2 2 4 4 2 2 2 2 1 1 1 1 3 3 2 2 Combined public and private sector Private sector Combined public and private sector Private sector Combined public and private sector Private sector Combined public and private sector Private sector Public sector 04 High ImpactLow Impact

19 SAMPLE ACTION: Establish business and service-provider consortia to address infrastructure requirements Action Establish business and service-provider consortia to address infrastructure requirements Implementation Actions n 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 n Business and service provider consortia should operate jointly and independently to determine constituents specific needs n Suggested agenda items: Disaster recover and survivability planning Capacity requirements and constraints New technology requirements and implementation methods n 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) n 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 n Business and service provider consortia should operate jointly and independently to determine constituents specific needs n Suggested agenda items: Disaster recover and survivability planning Capacity requirements and constraints New technology requirements and implementation methods n 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 Costs Key Benefits n Establishment of consortia and coordination costs should incur minimal costs n ~1 management-level FTE to help coordinate key players n Overall Cost Estimate: $4-6MM n Source of funds: Private consortia/key individual company members n Establishment of consortia and coordination costs should incur minimal costs n ~1 management-level FTE to help coordinate key players n Overall Cost Estimate: $4-6MM n Source of funds: Private consortia/key individual company members n 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 n Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues n Provide forum to develop future disaster recovery plans n 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 n Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues n Provide forum to develop future disaster recovery plans Feasibility n High n 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 n Allows greater redundancy to be built without public-sector intervention n High n 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 n Allows greater redundancy to be built without public-sector intervention EXAMPLE

20 SAMPLE ACTION (continued): Establish business and service provider consortia to address infrastructure requirements Sample Agenda Items Kickoff Timing n Infrastructure providers (e.g., Verizon, AT&T) n Business continuity service providers (e.g., SunGard) n Equipment providers (e.g., IBM, EMC) EXAMPLE Key Players n Advanced/Alternative Technology Capability Requirements n Infrastructure Capacity Requirements n Business Continuity Requirements Infrastructure Redundancy Data Backup Equipment/Space Availability n Immediate n Representatives from key NYC industries (e.g., Financial Services, Media) BusinessService Providers n 12-24 months n Infrastructure providers (e.g., Verizon, AT&T) n Equipment providers (e.g., IBM, EMC) n Key new technology players (e.g., Level3) n Representatives from key NYC industries (e.g., Financial Services, Media) n 6-12 months n Infrastructure providers (e.g., Verizon, AT&T) n Ley new technology players (e.g., Level3) n Disaster Recovery Requirements for Small Businesses n Representatives from key NYC industries (e.g., Financial Services, Media) -- with representation from small players within each n Immediate n Infrastructure providers (e.g., Verizon, AT&T) n Business continuity service providers (e.g., SunGard) n Equipment providers (e.g., IBM, EMC)

21 NYC Snapshot

22 The New York IT and Telecom sector includes a number of familiar names, along with plenty of smaller players Sector IT Sub-Sector Hardware Telecom Software Services Hardware Voice (Local & LD) SIC Code - Description  357 - Computers, Peripherals, Office Equipment  7371/2 - Computer related software  7373 to 7379 - Computer related services  366 - Communications Equipment Examples  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 Wireless Data  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 1,17452,867$11.6B52443,922$26.2B* Information Technology Revenue, Jobs, and Companies (2000) Telecommunications Revenue, Jobs, and Companies (2000) *Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City Source: Dunn & Bradstreet, BAH Analysis

24 Small companies provide nearly 40% of the employment and approximately 15% of revenues 1,69896,789$100B NYC IT & Telecom Industry by Firm Size *Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City Source: Dunn & Bradstreet, BAH Analysis $37.8B*

25 Most sector companies reside within Manhattan -- Lower Manhattan hosts approximately 20% of the employment Other Boroughs FirmsRevenue $3.0B 206 Jobs 18,127 Lower Manhattan $4.0B 18,108 JobsRevenue 363 Firms Other Manhattan $30.9B Revenue 1,131 Firms 60,554 Jobs IT Hardware Lower Manhattan 49 Other Manhattan 501 Other Boroughs 956 Software 8,525 24,626 2,543 Services 5,122 10,025 520 Telecom Hardware 468 432 616 Services 3,944 24,970 13,492 New York City IT and Telecom Employment (2000) Total 18,108 60,554 18,127 IT Hardware Lower Manhattan $0.02 Other Manhattan $0.5 Other Boroughs $0.1 Software $1.1 $3.1 $0.07 Services $1.1 $5.4 $0.2 Telecom Hardware $0.3 $3.9 $0.2 Services $1.4 $18.0 $2.4 New York City IT and Telecom Revenues (2000) Total $4.0 $30.9 $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 Annual IT Revenue Growth Annual Telecom Revenue Growth (%) IT Industry Pre-9/11 Projected Annual Growth Telecom Industry Pre-9/11 Projected Annual Growth n New technology purchases drive the IT Hardware market, creating greater sensitivity to slowing corporate IT spend and a general economic downturn n Outsourcing, maintenance, and other short-term fixed IT spend areas support the service sector, limiting its exposure to economic downturns n Emphasis on security systems (e.g., virus protection, intruder detection) drove any software growth in 2000-2001 n Decreased growth in wireless and data was expected as penetration increased n Local voice maket expected to remain flat, with long distance services seeing declines due to price competition n 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 Subsector Hardware Trend Drivers n Corporate IT spending trends play a major role n Key consumers of technology were slowing overall capital expenditures n Slowdown in consumer spending affects PC market n Corporate IT spending trends play a major role n Key consumers of technology were slowing overall capital expenditures n Slowdown in consumer spending affects PC market Software n Shift in spending was away from discretionary software n Security was already a priority for many companies n Spending levels are maintained by long-term contracts and need to upgrade n Shift in spending was away from discretionary software n Security was already a priority for many companies n Spending levels are maintained by long-term contracts and need to upgrade Services n Outsourcing services benefited as companied sought to reduce costs n Companies delivering discretionary services (e.g. customer software development) saw the greatest slowdown n Outsourcing services benefited as companied sought to reduce costs n Companies delivering discretionary services (e.g. customer software development) saw the greatest slowdown Company Size Small Trend Drivers n Smaller firms felt disproportionately large impact from economic slowdown n Funding for new ventures had become scarce n Smaller firms felt disproportionately large impact from economic slowdown n Funding for new ventures had become scarce Large n Many large firms had begun to lay off workers to maintain profitability n A return to growth was expected in 2002 n Many large firms had begun to lay off workers to maintain profitability n 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 Subsector Hardware Trend Drivers n Slowdowns in corporate spending limited once-high growth n Large providers that had planned for continued explosive growth faced an inventory glut n Failures/bankruptcies in several sectors (e.g., CLECs) placed strains on vendor financing activities n Slowdowns in corporate spending limited once-high growth n Large providers that had planned for continued explosive growth faced an inventory glut n Failures/bankruptcies in several sectors (e.g., CLECs) placed strains on vendor financing activities Wireless (voice) n Trends from Europe and Japan indicated wireless services would weather the economic slowdown well n Slowdown in growth was a consequence of increased penetration rather than economic conditions n Increasing ARPU offset slowdown in new subscribers n Trends from Europe and Japan indicated wireless services would weather the economic slowdown well n Slowdown in growth was a consequence of increased penetration rather than economic conditions n Increasing ARPU offset slowdown in new subscribers Wireline voice (LD&IXC) n Markets were nearly 100% saturated and facing cutthroat price competition n Growth was extremely limited n Markets were nearly 100% saturated and facing cutthroat price competition n Growth was extremely limited Data n Growth in high-bandwidth services was driven by constantly increasing data requiremens and advanced internet applicaitons n CLEC and competitive player failures were becoming increasingly common, but incumbents continued to perform well n Growth in high-bandwidth services was driven by constantly increasing data requiremens and advanced internet applicaitons n CLEC and competitive player failures were becoming increasingly common, but incumbents continued to perform well Company Size Small Trend Drivers n Smaller firms felt disproportionately large impact from economic slowdown n Funding for new ventures had become scarce n Smaller firms felt disproportionately large impact from economic slowdown n Funding for new ventures had become scarce Large n Large telecom firms (e.g., Verizon) experiencing increased profit margins n Medium size wireless carriers were having trouble accessing capital for growth n Voice continued to experience margin pressure n Data services were growing n Large telecom firms (e.g., Verizon) experiencing increased profit margins n Medium size wireless carriers were having trouble accessing capital for growth n Voice continued to experience margin pressure n 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 n 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 n 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 n 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 n 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 Based on $600/sq. ft. value estimate for 140 West Street property (Verizon) Estimated $2B in communication and utility cable/equipment repair -- $70% attributed to communications Includes replacement of cellular towers and other small replacement requirements

33 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  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 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 Customers feel insecure and vulnerable … Technology companies cannot support cutting edge 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 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 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 capital Available funds have been used for recovery Communications 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 IT and Telecom Sector Sub-Sector IT Hardware # Co.’s 3 3 IT Services 159 IT Software 107 Telecom Hardware 2 2 Telecom Services 92 Jobs 49 8,525 5,122 468 3,944 Sub-Sector IT Hardware IT Services IT Software Telecom Hardware Telecom Services # Co.’s 0 0 8 8 5 5 0 0 3 3 Jobs 0 0 800 238 0 0 85 Business Loss in Lower Manhattan IT and Telecom Sector Total 16 1,123 Total 363 18,108 *Note: Includes companies with head offices in buildings destroyed on 9/11, in which >75% of employees worked at the head office Source: Dun & Bradstreet, BAH Analysis n Avesta Computer Svcs n Bridge Fixed Income Svcs n Careerengine Network n Espeed n Lindatech n Metiom n SRA America n Thor Technologies n Financial Technologies n Lava Trading n Optech Systems n Temenos USA n Thebeast.com n Ati Telecom n Ingress Net n Interoute Telcommunications n Avesta Computer Svcs n Bridge Fixed Income Svcs n Careerengine Network n Espeed n Lindatech n Metiom n SRA America n Thor Technologies n Financial Technologies n Lava Trading n Optech Systems n Temenos USA n Thebeast.com n Ati Telecom n Ingress Net n Interoute Telcommunications 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 Source: NYC Comptroller Report WTC Towers, Tenants by Floors and Employees, 9/10/01 Observations  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? Companies with greater than 500 employees within WTC

37 Technology subsectors taken individually see minimal net incremental impact of the attacks *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 n Accelerate restoration of communications infrastructure Reimburse/finance rebuilding of damaged infrastructure Leverage opportunities to deploy “leapfrogging” technologies n Build the broadband infrastructure to support multiple centers of business around New York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan) ImperativesKey Actions n 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) n Establish new business development zone(s) throughout NYC Identify and prioritize prospective areas for development Deploy advanced technology infrastructure, targeted toward small-business requirements n 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

40 We developed specific actions, using four key imperatives that drive the IT and Telecom sector’s ability to support a NYC recovery Rebuild World-Class Infrastructure n Replace one-time capital losses suffered by the industry as a result of the 9/11 events n Drive the NYC infrastructure forward by upgrading it where possible Collaborate for the Future n Develop ongoing mechanism to determine technology requirements of different industries and NYC economy as a whole n Establish cooperative environment for technology players to work with customers to provide best solutions to address requirements Make NYC Better for Small Business n Provide resources to ensure the viability of small businesses within NYC, both within and outside of the technology sector Nurture Innovation and Foster Competition n Facilitate the development of new technologies on an ongoing basis n Create an environment to encourage the exploration of new products and services ImperativeDescriptionPotential Benefits n Provides short-term financial support to sector companies experiencing significant infrastructure damage n Restores IT/Telecom services and infrastructure while instituting higher levels of customer service n 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 n Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues n Allows small companies to leverage leading technologies in operations and/or service offerings n Provides key selling point for NYC to potential small business community members, vs. other regions n Encourages development/testing of innovative technologies on limited basis within NYC n Provides continued funding to high-growth areas, to ensure industry is not “left behind” by faster players elsewhere n 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 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 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 9.)Support competition in communication services by educating businesses on available service alternatives 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 9.)Support competition in communication services by educating businesses on available service alternatives 10.)Channel investments to technologies critical to native NYC industries 11.)Establish NYC as center of technology R&D by fostering a climate for new technology venturing 10.)Channel investments to technologies critical to native NYC industries 11.)Establish NYC as center of technology R&D by fostering a climate for new technology venturing Rebuild World-Class Infrastructure Collaborate for the Future Make NYC Better for Small Business Nurture Innovation and Foster Competition

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 1.)Reimburse/finance the efforts of key players to rebuild or repair damaged/destroyed infrastructure, getting NYC services “back to normal” while upgrading current infrastructure 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 6.)Establish new business development region with advanced technology infrastructure 10.)Channel investments to technologies critical to native NYC industries Highest-Priority Actions 1.) 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 Collaborate for the Future Make NYC Better for Small Business Nurture Innovation and Foster Competition

43 Methodology and Assumptions

44 At each stage of analysis, we validated hypotheses with multiple credible sources NYC Snapshot n Leveraged Dun & Bradstreet database of NYC companies identified by SIC code n Gathered key information for these companies including employee and revenue figures n Isolated Lower Manhattan companies by zip code n Developed profile of the technology sector, segmented by size and subsector Pre 9/11 Baseline n Projections based on external sources and overall economic drivers n Key factor is planned IT spend at major companies Impact n Utilized three forecast scenarios (Base, Pessimistic, Optimistic) n Incorporated interview results (industry executives, analysts, investment experts) where possible n Developed and incorporated subsector-specific assumptions where appropriate (discussed within Impact section) Section Description n IDC n Gartner Group n Economy.com n Incorporated interview results (industry executives, analysts, investment experts) where possible Initiatives n 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 n 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 Interviewees Organization Accenture Aegis Software Inc AMC Corporation Arbinet-thexchange AT&T Avaya Bear Stearns CIBC ConEd Communications CSFB Global Crossing IBM Inforocket.com Lucent MSDW Netik Inc Nutech Integ. Sys. Probe Research RCN RRE Ventures Siemens Corporation Verizon Warburg Pincus Name Bill Andrews Steve Phillips Mark Tillinger Andrew Serrel Mark Romanowski Mike Lemberg Michael Armstrong Reed Harrison Don Peterson Rich Lukaj Gary Rabin Peter Rust Todd Raker David Carey Gus Maikish Susan N. John Heindel Dave Dial Nick DeTura Bob Holder Luis Carvalho Rich Bilotti Pam Cytron Jessica Kowalick Allan Tumolillo Ed Kuczma Jim Robinson IV Klaus Kleinfeld Bob Ingalls David Pitcher Bruce Gordon Paul Crotty Stewart Gross Title/Level Associate Partner Partner Partner, Capital Markets Group Leader Senior Vice President Chief Financial Officer Director CEO Senior VP, Local Service & Network CEO Senior MD CEO Managing Director Senior VP, Global Network Managing Director Executive Vice President President, Worldwide Svcs Product Management VP Global Program Mgmt VP Executive Vice President Managing Director Executive Vice President Controller Analyst, Telecom VP, GM Manhattan Ops Director COO President, Bus. Solns. Grp. Corporate Economist President, Retail Markets Group President, NY & CT Senior MD

46 We analyzed the data from these sources to arrive at our projected estimates… IDC Gartner Group Economy.com Analyst Reports n National revenue projections BAH Analysis n Compute national % growth trends n Adjust national trends to New York City trends  % of spend  Elasticity for growth  Population Base Growth Rates 2000 Revenues Revenue & Growth Projections n Dun & Bradstreet Report IDC Gartner Group n National growth projections n NYC Comptroller Reports BAH Analysis n Dun & Bradstreet data n New York city relationship to national projections n Job Loss reports (newspapers, reports) in New York City Growth Rates Employment Reports Employment Projections Projection Development Framework Revenues Employment

47 Scenario … in the context of the three standard scenarios established by the Core Team Base Pessimistic Optimistic Assumptions n Unclear implications of conflict n Recession in Q3 and Q4 2001 due to declining consumer confidence n Recovery in Q1 2002 n Unclear implications of conflict n Recession in Q3 and Q4 2001 due to declining consumer confidence n Recovery in Q1 2002 n Economic depression with 4 consecutive declining quarters n Plunging consumer confidence stays low n Escalation of hostilities with lingering fear n Economic depression with 4 consecutive declining quarters n Plunging consumer confidence stays low n Escalation of hostilities with lingering fear n “Best-case” scenario n Conflict primarily resolved and/or clarified in short term n Consumer confidence rejuvenated n Downturn subdued n “Best-case” scenario n Conflict primarily resolved and/or clarified in short term n Consumer confidence rejuvenated n Downturn subdued Impact Scenarios Implications n Market expectations of industry growth rates over the next few years considering the impact of 9/11 attacks n Further reduction in growth rates following the 9/11 attacks but recovery time is expected to be the same n Market expectations of industry growth rates over the next few years considering the impact of 9/11 attacks n Further reduction in growth rates following the 9/11 attacks but recovery time is expected to be the same n Deeper plunge in growth rates followed in some cases by a longer wait time for the growth rates to turn around n Technology sector demonstrates immediate comeback n Growth rates continue to rise but at a slower pace than in the early 1990s n Technology sector demonstrates immediate comeback n 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 Reinstate Service Rationalize Installation Upgrade to New Standards Incur large tactical emergency spend to restore basic services Address emergency needs via “patches” to systems Replace stopgap measures with more permanent solutions Install new equipment and systems to match (or surpass) original upgrade plans ILLUSTRATIVE STAGE 1STAGE 2STAGE 3 IT Spend

49 New York City’s historically close tracking of national growth rates guided the sector trajectories Observations n 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 n This rise is expected to arrive after a 3 or 4 quarter time lag as the rebuilding spend trickles throught he economy n 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 n 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 n This rise is expected to arrive after a 3 or 4 quarter time lag as the rebuilding spend trickles throught he economy n 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 GDP Growth Source: Economy.com, Bureau of Economic Analysis, BAH Analysis

50 New redundancy communications requirements and rebuilding spend should help move technology out of the decline n $10-12B flowing into technology sector -- $230-275 MM in New York specific companies n 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 n Demand to create additional redundancy infrastructure drives most technology subsectors (hardware, software, services) exception being telecom services n Industries like postal services, airlines will increase their technology spending on security and redundancy needs n Industries which have traditionally been high consumers of technology will also re- evaluate their budgets to increase their spend on security/redundancy n Drive to decentralize key information will lead to increased implementation of remote communications solutions n Some larger players may acquire small companies with proprietary technologies - apply marketing $ supported by brand name to grow the market for these services n Increase in telecommuting needs will increase demand for services like home offices and video conferencing Drivers Description Rebuilding Activities Rebuilding Activities Additional Security/Redundancy 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 Discussion n IT spend dedicated to maintenance purposes (e.g., HW maintenance, support) is relatively “uncompressible” -- spending requirements are relatively unchangeable in the short term n 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 n The New IT spend area is most closely related with the Hardware and Software subsectors, moreso than with the Services subsector n IT spend dedicated to maintenance purposes (e.g., HW maintenance, support) is relatively “uncompressible” -- spending requirements are relatively unchangeable in the short term n 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 n 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 Total =1.0 Total =0.8 ILLUSTRATIVE

52 We considered IT industry perspectives that despite corporate spending pullbacks, long-term growth is inevitable Observations n Technology has become an integral part of business operations and firms have to spend on technology upgrade and maintenance every year n Reduction in spending as % of revenue is offset by overall increasing corporate revenues n Slower growth is driving down stock prices, however long-term forecasts indicate double-digit growth n Potential risk in New York City market as key local industries plan to reduce technology spend n Technology has become an integral part of business operations and firms have to spend on technology upgrade and maintenance every year n Reduction in spending as % of revenue is offset by overall increasing corporate revenues n Slower growth is driving down stock prices, however long-term forecasts indicate double-digit growth n Potential risk in New York City market as key local industries plan to reduce technology spend (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 Spend as Avg % of Firm Revenue by Industry Technology Spend as a % of Revenue (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 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 Actions 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 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 2.)Help companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirements 3.)Upgrade capacity and capability of communications infrastructure 4.)Improve customer service, satisfaction, and customer options for communications services 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 9.)Support competition in communication services by educating businesses on available service alternatives 10.)Channel investments to technologies critical to native NYC industries 11.)Establish NYC as center of technology R&D by fostering a climate for new technology venturing 1.)Reimburse/finance efforts of key players to rebuild while upgrading infrastructure 2.)Help companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirements 3.)Upgrade capacity and capability of communications infrastructure 4.)Improve customer service, satisfaction, and customer options for communications services 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 9.)Support competition in communication services by educating businesses on available service alternatives 10.)Channel investments to technologies critical to native NYC industries 11.)Establish NYC as center of technology R&D by fostering a climate for new technology venturing Prioritization of Actions

55 To evaluate funding sources for the actions, we strove to ensure primary beneficiaries provide the majority of the investment Beneficiary Sector Private Public Resultant Potential Funding Source Joint n Little economic benefit for individual firms investing in these initiatives n Long-term horizon for benefits realization; e.g., 6-7 years n Typically focused on overall infrastructure improvements (e.g., universal connectivity, public transit) n Little economic benefit for individual firms investing in these initiatives n Long-term horizon for benefits realization; e.g., 6-7 years n Typically focused on overall infrastructure improvements (e.g., universal connectivity, public transit) Community Building Initiatives Combined Initiatives n Community benefits are indirect or a result of companies in the New York City area competing more effectively n Public sector provides incentives or funding to increase economic viability of projects for individual companies/groups of companies n Profit potential for individual companies, however long lead times limit corporate investment n Community benefits are indirect or a result of companies in the New York City area competing more effectively n Public sector provides incentives or funding to increase economic viability of projects for individual companies/groups of companies n Profit potential for individual companies, however long lead times limit corporate investment Corporate Self-Help Initiatives n Investments return tangible returns for participants n Private companies will undertake these projects since they result in shareholder value creation n May need encouragement from demand side consortia to ensure demand for new products or services provided n Investments return tangible returns for participants n Private companies will undertake these projects since they result in shareholder value creation n 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 Beneficiary Sector Private Public Both 11.)Establish NYC as center of technology R&D by fostering a climate for new technology venturing Community Building Initiatives Combined Initiatives Corporate Self-Help Initiatives 2.)Help companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirements 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 10.)Channel investments to technologies critical to native NYC industries 2.)Help companies with capacity find customers with needs -- support customer access to key providers/subcontractors for short-term requirements 8.)Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.)Establish supply-side consortia to address key infrastructure requirements 10.)Channel investments to technologies critical to native NYC industries Primary Funding Source Note: Actions in bold indicate highest priority 1.)Reimburse/finance efforts of key players to rebuild while upgrading infrastructure 3.)Upgrade capacity and capability of communications infrastructure 4.)Improve customer service, satisfaction, and customer options for communications services 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 9.)Support competition in communication services by educating businesses on available service alternatives 1.)Reimburse/finance efforts of key players to rebuild while upgrading infrastructure 3.)Upgrade capacity and capability of communications infrastructure 4.)Improve customer service, satisfaction, and customer options for communications services 6.)Establish new business development region with advanced technology infrastructure 7.)Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 9.)Support competition in communication services by educating businesses on available service alternatives 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 Observations n PC market is saturated, traditional drivers of growth are no longer applicable (e.g., enterprise desktop roll-out) n PC makers depend on increasing demands of advanced software packages and peripherals to drive growth (e.g., Windows XP, video conferencing) n 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 n Servers were expected to see a quick rebound driven by the ongoing need to build greater redundancy n PC market is saturated, traditional drivers of growth are no longer applicable (e.g., enterprise desktop roll-out) n PC makers depend on increasing demands of advanced software packages and peripherals to drive growth (e.g., Windows XP, video conferencing) n 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 n 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 Annual IT Hardware Revenue $ (BN) IT Hardware Annual Revenue Annual IT Hardware Revenue Growth (%) IT Hardware Annual Revenue Growth 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 Pre-9/11 Observations n 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 n Security systems (e.g., firewalls, login, etc.) continue to be the number one priority for corporate IT departments n Enterprise applications such as ERP and CRM drove previous growth and will continue to drive growth in the future n 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 n Security systems (e.g., firewalls, login, etc.) continue to be the number one priority for corporate IT departments n Enterprise applications such as ERP and CRM drove previous growth and will continue to drive growth in the future IT Software Annual Revenue and Growth Rate Source: Gartner Group, Economy.com, IDC, Dun & Bradstreet, BAH Analysis Annual IT Software Revenue Growth (%) Annual IT Software Revenue $ (BN) NYC market represents 4.4% of national market

61 Demand for IT Services was expected to continue growing but at a slower pace than the mid 1990’s Pre-9/11 Observations n Long-term outsourcing contracts provide steady source of revenue for sector n Several failures in the Internet space limited 2000 growth n Pent up demand for IT projects (e.g., systems integration, CRM, supply chain services) is expected to help growth in 2002 n Large service firms (e.g., IBM, EDS) growth easily counters smaller companies n Long-term outsourcing contracts provide steady source of revenue for sector n Several failures in the Internet space limited 2000 growth n Pent up demand for IT projects (e.g., systems integration, CRM, supply chain services) is expected to help growth in 2002 n Large service firms (e.g., IBM, EDS) growth easily counters smaller companies Source: Gartner Group, IDC, Dun & Bradstreet, BAH Analysis IT Services Annual Revenue and Growth Rate Annual IT Services Revenue Growth (%) Annual IT Services Revenue $ (BN) NYC market represents 2.1% of national market

62 Corporate IT spending reductions hurt the high-dollar communications hardware industry Pre-9/11 Observations n Marginal impact on New York City since none of the major manufacturers have significant operations in the city n Equipment manufacturers exacerbated demand-side issues with over production (for aggressive growth) resulting in large inventories n Revenues will continue to grow slowly or see negative growth for one to two years driven by the time required to absorb excess inventory n Current economic climate prevents many service providers from accessing capital markets to fund expansion n Continued margin pressure is expected as customers continue to reduce IT spending n Marginal impact on New York City since none of the major manufacturers have significant operations in the city n Equipment manufacturers exacerbated demand-side issues with over production (for aggressive growth) resulting in large inventories n Revenues will continue to grow slowly or see negative growth for one to two years driven by the time required to absorb excess inventory n Current economic climate prevents many service providers from accessing capital markets to fund expansion n Continued margin pressure is expected as customers continue to reduce IT spending Source: Gartner Group, US Census Bureau, BAH Analysis Network Hardware Annual Revenue and Growth Rate Annual Network Hardware Revenue Growth (%) Annual Network Hardware Revenue $ (BN) NYC market represents 3.7% of national market

63 Local and LD Voice revenue continues to decline due to ongoing price competition and wireless substitutes Observations n Long distance price competition is eroding revenue streams across the industry n Consumers and businesses continue to adopt wireless, pagers, and email as substitutes for phone calls n Long distance price competition is eroding revenue streams across the industry n Consumers and businesses continue to adopt wireless, pagers, and email as substitutes for phone calls Annual Voice Services Revenue $ (BN) Voice Services Annual Revenue Annual Voice Services Revenue Growth (%) Source: JP Morgan H&Q and McKinsey& Co. Joint Study, BAH Analysis Voice Services Annual Revenue Growth NYC market represents 2.8% of national market

64 High penetration levels limit new wireless subscriber growth, with rising revenues per user sustaining most carriers Pre-9/11 Observations n Increased penetration reduces historically high growth rates n 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 n 3G applications and adoption of fixed wireless will help drive future revenue growth n New wireless applications (e.g., BlueTooth) may form the future communications backbone n Increased penetration reduces historically high growth rates n 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 n 3G applications and adoption of fixed wireless will help drive future revenue growth n 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 revenues Source: IDC, US Census Bureau, Morgan Stanley Dean Wittier, BAH Analysis Growth (%) Annual Wireless Services Revenues $ (BN) NYC market represents 2.8% of national market

65 Recent CLEC failures have dampened the broadband picture, however data revenues are growing Pre-9/11 Observations n Data services are a new market and therefore experiencing explosive growth rates - slower future growth is expected n Most of the increased revenues will be captured by the incumbents Industry consolidation - acquired revenues Lack of funding to unprofitable players n Many CLEC business models were inoperable and most never achieved profitability n Future expansions are limited by restricted access to capital n Data services are a new market and therefore experiencing explosive growth rates - slower future growth is expected n Most of the increased revenues will be captured by the incumbents Industry consolidation - acquired revenues Lack of funding to unprofitable players n Many CLEC business models were inoperable and most never achieved profitability n Future expansions are limited by restricted access to capital Annual Data Services Revenues $ (BN) Data Services Annual Revenue Annual Data Services Revenues Growth (%) Source: Gartner Group, BAH Analysis Data Services Annual Revenue Growth 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 Observations n Any significant corporate moves to locations outside the city will limit growth potential n PC growth driven by companies relocating within city and replacing lost hardware n Additional servers from redundancy and security requirements n Technology advances in out-years will accelerate hardware growth n Significant spend in this sector will go to companies outside NYC n Any significant corporate moves to locations outside the city will limit growth potential n PC growth driven by companies relocating within city and replacing lost hardware n Additional servers from redundancy and security requirements n Technology advances in out-years will accelerate hardware growth n Significant spend in this sector will go to companies outside NYC Source: IDC’, Economy.com, BAH Analysis Quarterly PC Revenue Growth (%) New York City Quarterly PC Sub-Sector Revenue Growth Quarterly Server Revenue Growth (%) New York City Quarterly Server Sub-Sector Revenue Growth 20002001E2002E2003E 20002001E2002E2003E

68 IT Software: New York City software sector revenues will grow when the banking sector increases IT spend Post-9/11 Observations n Security systems (e.g., virus protection, advanced login services) were already a high priority for business customers n Redundancy and backup software expected to be major sources of growth n Additional spending on enterprise software likely to be limited n NYC software recovery dependent on banking sector – many small software firms develop specialized banking applicaitons n Security systems (e.g., virus protection, advanced login services) were already a high priority for business customers n Redundancy and backup software expected to be major sources of growth n Additional spending on enterprise software likely to be limited n NYC software recovery dependent on banking sector – many small software firms develop specialized banking applicaitons Source: IDC’, Economy.com, BAH Analysis Quarterly Software Revenue Growth (%) New York City Quarterly Software Sub-Sector Revenue Growth 20002001E2002E2003E Annual growth still below the high 20% range of the 1990s

69 IT Services: Expect continued growth after an initial slowdown Post-9/11 Observations n Spend shifting to security and reliability since mid-1999 due to Y2K preparation, and new viruses (e.g., Melissa virus) n Opportunities for service companies exist in all economic environments -- key factor is ability to switch service offerings quickly n After being delayed, in 2003 business process improvement related srevices (e.g., CRM) will drive growth n Spend shifting to security and reliability since mid-1999 due to Y2K preparation, and new viruses (e.g., Melissa virus) n Opportunities for service companies exist in all economic environments -- key factor is ability to switch service offerings quickly n After being delayed, in 2003 business process improvement related srevices (e.g., CRM) will drive growth Quarterly Services Revenue Growth (%) New York City Quarterly Services Sub-Sector Revenue Growth Source: IDC’, Economy.com, BAH Analysis 2000 2001E2002E2003E

70 Telecom Hardware: Creation of a more serviceable, robust, and redundant data infrastructure will drive telecom hardware growth Post-9/11 Observations n Sector affected by limited availability of capital markets funding for wireless, CLEC, or internet-related expansions n Rebuilding initiatives will require significant amounts of high-end telecom equipment n New priorities on redundancy and disaster recovery will further drive sales n Clearing inventory will delay company benefits from rebuilding sales n Sector affected by limited availability of capital markets funding for wireless, CLEC, or internet-related expansions n Rebuilding initiatives will require significant amounts of high-end telecom equipment n New priorities on redundancy and disaster recovery will further drive sales n Clearing inventory will delay company benefits from rebuilding sales Quarterly Telecom Hardware Revenue Growth (%) New York City Quarterly Telecom Hardware Sub-Sector Revenue Growth Source: IDC, Economy.com, BAH Analysis 2000 2001E2002E2003E ‘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 Post-9/11 Observations n Voice service revenues unaffected by attack - - loss from service disruptions is minimal compared to base volumes n Some increase from additional video conferencing or telecommuniting, however these increases will be too small to affect the overall base n New York sector will be hurt if significant movement of telecom intensive industries (banking, real estate, wholesale) occurs n Continued (and increased) substitution of wireless VOIP and other technologies further erodes revenues here n Potential for companies to stick with larger players (e.g., Verizon) in the short run, limiting the erosion n Voice service revenues unaffected by attack - - loss from service disruptions is minimal compared to base volumes n Some increase from additional video conferencing or telecommuniting, however these increases will be too small to affect the overall base n New York sector will be hurt if significant movement of telecom intensive industries (banking, real estate, wholesale) occurs n Continued (and increased) substitution of wireless VOIP and other technologies further erodes revenues here n Potential for companies to stick with larger players (e.g., Verizon) in the short run, limiting the erosion Quarterly Voice Revenue Growth (%) New York City Voice Sub-Sector Quarterly Revenue Growth Source: IDC, Economy.com, BAH Analysis 2000 2001E2002E2003E

72 Telecom Wireless: Growth is dependent on 3G deployment Post-9/11 Observations n 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) n 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 n Minor increases in usage as a result of the attacks will not impact overall sector n National players (e.g., Sprint, SBC) still growing n 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) n 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 n Minor increases in usage as a result of the attacks will not impact overall sector n National players (e.g., Sprint, SBC) still growing Quarterly Wireless Revenue Growth (%) New York City Quarterly Wireless Sub-Sector Revenue Growth Source: IDC, Economy.com, BAH Analysis 2000 2001E2002E2003E

73 Telecom Data: Deployment of advanced infrastructure and availability of cable data to small businesses will drive revenues Post-9/11 Observations n While growth is decelerating, quarterly levels are still very high (annualized over 30% for 2002) n Businesses expected to invest in redundant wireless infrastrucutres, or wireless technologoes for disaster recovery n Growth may be supported by need to build redundant “national security communications grid” n Potential long-term limits on capital market access prevents alternative carriers from making inroads into this subsector n While growth is decelerating, quarterly levels are still very high (annualized over 30% for 2002) n Businesses expected to invest in redundant wireless infrastrucutres, or wireless technologoes for disaster recovery n Growth may be supported by need to build redundant “national security communications grid” n Potential long-term limits on capital market access prevents alternative carriers from making inroads into this subsector Quarterly Data Revenue Growth (%) New York City Quarterly Data Sub-Sector Revenue Growth Source: IDC’, Economy.com, BAH Analysis 2000 2001E2002E2003E 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 Implementation Actions Key Costs Key Benefits n Develop guidelines for new infrastructure standards allowing service providers and corporations to “leapfrog” technology cycles New wireless standards Next generation wireline n Define scope of reimbursements -- e.g., minimum thresholds for reimbursement, damage types within scope n 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 n Work with settlement and insurance companies to communicate process for distribution of reimbursement funds n Administer and monitor approved use of reimbursement funds n Develop guidelines for new infrastructure standards allowing service providers and corporations to “leapfrog” technology cycles New wireless standards Next generation wireline n Define scope of reimbursements -- e.g., minimum thresholds for reimbursement, damage types within scope n 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 n Work with settlement and insurance companies to communicate process for distribution of reimbursement funds n Administer and monitor approved use of reimbursement funds n Total estimates exceed $2B for service providers, $10B for corporations n Variable reimbursement costs depending on scope of repair/replacement effort; general administrative costs for reimbursement program, including coordination of repair/replacement resources n ~1 mgmt-level FTEs (plus small staff of 2-3 FTEs) to scope, develop and administer the program over 12-24 months n Overall Cost Estimate: $10-12B n Source of funds: Public sector and insurance companies n Total estimates exceed $2B for service providers, $10B for corporations n Variable reimbursement costs depending on scope of repair/replacement effort; general administrative costs for reimbursement program, including coordination of repair/replacement resources n ~1 mgmt-level FTEs (plus small staff of 2-3 FTEs) to scope, develop and administer the program over 12-24 months n Overall Cost Estimate: $10-12B n Source of funds: Public sector and insurance companies n Provides short-term financial support to sector companies experiencing significant infrastructure damage n Restores IT/Telecom services and infrastructure while instituting higher levels of customer service n Provides short-term financial support to sector companies experiencing significant infrastructure damage n Restores IT/Telecom services and infrastructure while instituting higher levels of customer service Feasibility n High n Government (both state and federal) bailout/disaster relief funds are likely to cover reimbursement needs, in conjunction with any applicable insurance payments n High n Government (both state and federal) bailout/disaster relief funds are likely to cover reimbursement needs, in conjunction with any applicable insurance payments Action Reimburse/finance the efforts of key players to rebuild or repair damaged/destroyed infrastructure, getting NYC services “back to normal” while upgrading current infrastructure

76 2.) Help companies with capacity find customers with needs – support customer access to key providers/subcontractors Implementation Actions Key Costs Key Benefits n 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 n Determine eligibility guidelines for providers (quality level guarantees) n Communicate availability of program to providers and potential customers throughout NYC n If possible, leverage existing contact engine, similar to hotjobs.com, to facilitate rapid deployment n 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 n Determine eligibility guidelines for providers (quality level guarantees) n Communicate availability of program to providers and potential customers throughout NYC n If possible, leverage existing contact engine, similar to hotjobs.com, to facilitate rapid deployment n Variable -- for technology option, could be up to $2MM for new technology platform, less if partnering with established player n Non-technology option requires small office staff (3-5 FTEs) n ~1 management-level FTEs to develop and administer program n Minimal ongoing costs as all transactions are negotiated between parties n Overall Cost Estimate: $15-17MM n Source of funds: Private Consortium or Public sector n Variable -- for technology option, could be up to $2MM for new technology platform, less if partnering with established player n Non-technology option requires small office staff (3-5 FTEs) n ~1 management-level FTEs to develop and administer program n Minimal ongoing costs as all transactions are negotiated between parties n Overall Cost Estimate: $15-17MM n Source of funds: Private Consortium or Public sector n Enables small IT service providers to better compete with larger players for short-term increase in demand in certain areas n Reduces costs for small to medium business to find quality IT service providers that are available to help them n May develop into long-term facility to foster business development going forward n Enables small IT service providers to better compete with larger players for short-term increase in demand in certain areas n Reduces costs for small to medium business to find quality IT service providers that are available to help them n May develop into long-term facility to foster business development going forward Feasibility n Moderate (technology option) to High n Total cost appears to be small, primarily basic administration expenses n Business organizations such as NYC Partnership could facilitate/host services relatively easily n Moderate (technology option) to High n Total cost appears to be small, primarily basic administration expenses n Business organizations such as NYC Partnership could facilitate/host services relatively easily Action Help 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 Implementation Actions Key Costs Key Benefits n 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 n Identify players with deployment capabilities for next generation technology infrastructure in Lower Manhattan -- allow self nomination or conduct independent research study n Develop action plans, milestones for deployment of various technologies -- consider any lower Manhattan-specific implementation obstacles n Determine overall deployment costs for various infrastructure elements n 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 n Identify players with deployment capabilities for next generation technology infrastructure in Lower Manhattan -- allow self nomination or conduct independent research study n Develop action plans, milestones for deployment of various technologies -- consider any lower Manhattan-specific implementation obstacles n Determine overall deployment costs for various infrastructure elements n Will be costly, as upgrade efforts were previously avoided due to lack of economic viability n Additional coordination costs to work with numerous companies n Minimal logistic and other operating costs n Overall Cost Estimate: $2-3MM n Source of funds: Private consortium, Public sector, and/or Individual companies n Will be costly, as upgrade efforts were previously avoided due to lack of economic viability n Additional coordination costs to work with numerous companies n Minimal logistic and other operating costs n Overall Cost Estimate: $2-3MM n Source of funds: Private consortium, Public sector, and/or Individual companies n Performance of existing NYC businesses is likely to improve due to operational advantages provided by advanced infrastructure n New businesses (both high-tech and other) will be more likely to locate in New York for similar reasons n Highly-skilled labor resources will find relocation within NYC to be relatively more attractive as well n Performance of existing NYC businesses is likely to improve due to operational advantages provided by advanced infrastructure n New businesses (both high-tech and other) will be more likely to locate in New York for similar reasons n Highly-skilled labor resources will find relocation within NYC to be relatively more attractive as well Feasibility n Low n Cost to deploy new infrastructure/replace existing infrastructure is high n In some cases deployment may cause delays in reconnection of services and/or disruptions in basic service already in place n Low n Cost to deploy new infrastructure/replace existing infrastructure is high n In some cases deployment may cause delays in reconnection of services and/or disruptions in basic service already in place Action Upgrade capacity and capability of communications infrastructure (e.g., 3G, 802.11, voice-over-cable, VOIP, upgraded wireline capacity, Bell Atlantic Net)

78 4.) Improve customer service, satisfaction, and customer options for communications services Implementation Actions Key Costs Key Benefits n 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 n Establish minimum standards to satisfy new requirements based on customer feedback, industry performance n 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) n On an ongoing basis, monitor key performance metrics and improve processes n 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 n Establish minimum standards to satisfy new requirements based on customer feedback, industry performance n 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) n On an ongoing basis, monitor key performance metrics and improve processes n ~4 FTE over 2 months to research best practices and understand key performance thresholds n Additional labor, equipment/system costs associated with improving customer service (dependent on service levels required); e.g.: Increased staff Upgraded systems Enhanced services n Overall Cost Estimate: $0.5MM n Source of funds: Private consortium or individual companies (e.g., Verizon, AT&T) n ~4 FTE over 2 months to research best practices and understand key performance thresholds n Additional labor, equipment/system costs associated with improving customer service (dependent on service levels required); e.g.: Increased staff Upgraded systems Enhanced services n Overall Cost Estimate: $0.5MM n Source of funds: Private consortium or individual companies (e.g., Verizon, AT&T) n 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 n New York City business infrastructure is improved n Communications -- Infrastructure limitations removed as barrier to locating business in New York City n 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 n New York City business infrastructure is improved n Communications -- Infrastructure limitations removed as barrier to locating business in New York City Feasibility n Low/Medium n Service providers must commit to providing better service n Customers must be willing to pay for increased costs n Creative solutions for cost sharing may be available n Low/Medium n Service providers must commit to providing better service n Customers must be willing to pay for increased costs n Creative solutions for cost sharing may be available Action 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 Action Establish business and service-provider (demand and supply) consortia to address infrastructure requirements Implementation Actions n 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 n Business and service provider consortia should operate jointly and independently to determine constituents specific needs n Suggested agenda items: Disaster recover and survivability planning Capacity requirements and constraints New technology requirements and implementation methods n 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) n 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 n Business and service provider consortia should operate jointly and independently to determine constituents specific needs n Suggested agenda items: Disaster recover and survivability planning Capacity requirements and constraints New technology requirements and implementation methods n 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 Costs Key Benefits n Establishment of consortia and coordination costs should incur minimal costs n ~1 management-level FTE to help coordinate key players n Overall Cost Estimate: $4-6MM n Source of funds: Private consortia/key individual company members n Establishment of consortia and coordination costs should incur minimal costs n ~1 management-level FTE to help coordinate key players n Overall Cost Estimate: $4-6MM n Source of funds: Private consortia/key individual company members n 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 n Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues n Provide forum to develop future disaster recovery plans n 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 n Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues n Provide forum to develop future disaster recovery plans Feasibility n High n 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 n Allows greater redundancy to be built without public-sector intervention n High n 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 n Allows greater redundancy to be built without public-sector intervention

80 6.) HIGH-PRIORITY ACTION – Establish new business development region with advanced technology infrastructure Implementation Actions Key Costs Key Benefits n Identify candidate regions for establishment of business development area, based on value to city, existing infrastructure, business demand n Identify key sector companies to understand key technologies available/feasible for deployment; work with them to prioritize n Develop staged implementation plan for selected areas and technologies n Incorporate needs of small business (technology and non-technology) in development zone n Identify candidate regions for establishment of business development area, based on value to city, existing infrastructure, business demand n Identify key sector companies to understand key technologies available/feasible for deployment; work with them to prioritize n Develop staged implementation plan for selected areas and technologies n Incorporate needs of small business (technology and non-technology) in development zone n 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 n Variable deployment costs depending on number of areas to be established and scale; should be less than ~$50M for establishment of single small zone n Overall Cost Estimate: $30-50MM n Source of funds: Private sector in partnership with public sector funding n 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 n Variable deployment costs depending on number of areas to be established and scale; should be less than ~$50M for establishment of single small zone n Overall Cost Estimate: $30-50MM n Source of funds: Private sector in partnership with public sector funding n Allows small companies to leverage leading technologies in operations and/or service offerings n Provides key selling point for NYC to potential small business community members, vs. other regions n Encourages development/testing of innovative technologies on limited basis within NYC n Allows small companies to leverage leading technologies in operations and/or service offerings n Provides key selling point for NYC to potential small business community members, vs. other regions n Encourages development/testing of innovative technologies on limited basis within NYC Feasibility n Moderate n Scope must be managed to keep costs reasonable n Determination of appropriate locations for establishment of new zones may ultimately be more political than economical n Moderate n Scope must be managed to keep costs reasonable n Determination of appropriate locations for establishment of new zones may ultimately be more political than economical Action Establish new business development region (or regions) within New York City, with advanced technology infrastructure (e.g., 802.11B system) -- focus on supporting small businesses

81 7.) Provide mechanisms to help small technology sector companies take advantage of rebuilding spend Implementation Actions Key Costs Key Benefits n Establish “NYC hometown provider” (or similar) network of rebuilding service providers to enable small providers to demonstrate quality n Provide screening based on financial health, customer satisfaction, etc. to ensure quality of service providers n Provide customer companies with financial incentives for the use of “hometown providers”; e.g., tax benefits discounted rates service bundling opportunities n Publicize availability and legitimacy of program to customers, integrate cross-marketing into member companies’ sales efforts where possible n Establish “NYC hometown provider” (or similar) network of rebuilding service providers to enable small providers to demonstrate quality n Provide screening based on financial health, customer satisfaction, etc. to ensure quality of service providers n Provide customer companies with financial incentives for the use of “hometown providers”; e.g., tax benefits discounted rates service bundling opportunities n Publicize availability and legitimacy of program to customers, integrate cross-marketing into member companies’ sales efforts where possible n ~1 mgmt-level FTE to set up and administer program, coordinate activities between members, certify and review membership applicants n Small (~$0.5M) budget to launch program with small administrative staff n Overall Cost Estimate: $.5-.75 MM n Source of funds: Public sector and/or industry consortium (perhaps through membership fees or shared profit pool) n ~1 mgmt-level FTE to set up and administer program, coordinate activities between members, certify and review membership applicants n Small (~$0.5M) budget to launch program with small administrative staff n Overall Cost Estimate: $.5-.75 MM n Source of funds: Public sector and/or industry consortium (perhaps through membership fees or shared profit pool) n Preserves viability of small companies that may lack brand recognition and/or marketing muscle of larger players n Ensures competitive market for services, reducing time and cost for customers requiring extraordinary services to execute rebuilding process n Preserves viability of small companies that may lack brand recognition and/or marketing muscle of larger players n Ensures competitive market for services, reducing time and cost for customers requiring extraordinary services to execute rebuilding process Feasibility n Moderate n Costs appear to be relatively low n Determining appropriate certification criteria, as well as coordinating members effectively, may prove to be difficult political obstacle n Moderate n Costs appear to be relatively low n Determining appropriate certification criteria, as well as coordinating members effectively, may prove to be difficult political obstacle Action Provide mechanisms to help small technology sector companies take advantage of rebuilding spend; allow smaller firms to compete more effectively with larger established corporations

82 8.) Enable small companies to refocus and/or diversify to accommodate shifts in company priorities Implementation Actions Key Costs Key Benefits n 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 n Analyze/understand company (or company groups if appropriate) situations to develop possible refocusing/diversification opportunities on case-by-case basis n Determine extent/type of funding and assistance available vs. required (e.g., professional services, direct funding, networking assistance) n Communicate assistance program options to relevant companies, help to coordinate delivery n 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 n Analyze/understand company (or company groups if appropriate) situations to develop possible refocusing/diversification opportunities on case-by-case basis n Determine extent/type of funding and assistance available vs. required (e.g., professional services, direct funding, networking assistance) n Communicate assistance program options to relevant companies, help to coordinate delivery n Total refocusing costs variable depending on level of assistance required by identified companies and extent to which leveraging of economies of scale is possible n ~2 management-level FTEs over 12-24 months to develop and administer program n General administrative costs for program (small office of 3-5 FTEs), including external resource coordination n Overall Cost Estimate: $400K - $500K n Source of funds: Private Consortium n Total refocusing costs variable depending on level of assistance required by identified companies and extent to which leveraging of economies of scale is possible n ~2 management-level FTEs over 12-24 months to develop and administer program n General administrative costs for program (small office of 3-5 FTEs), including external resource coordination n Overall Cost Estimate: $400K - $500K n Source of funds: Private Consortium n Provides key temporary/transitional resources to small and medium sized companies, allowing them to survive and potentially expand into higher-growth areas n Provides clients of new high-priority services with more service options and greater provider competition n Enables companies within the region to better exploit new market opportunities long-term through increased networking and diversification of skill set n Provides key temporary/transitional resources to small and medium sized companies, allowing them to survive and potentially expand into higher-growth areas n Provides clients of new high-priority services with more service options and greater provider competition n Enables companies within the region to better exploit new market opportunities long-term through increased networking and diversification of skill set Feasibility n Low n Direct benefit to city is unclear n Ability to raise significant funds is questionable n Cost and complexity appear to be unreasonably high n However, certain professional and/or business associations may find this attractive n Low n Direct benefit to city is unclear n Ability to raise significant funds is questionable n Cost and complexity appear to be unreasonably high n However, certain professional and/or business associations may find this attractive Action Enable small companies to refocus and/or diversify for short- to medium-term, as a result of new shifts in company priorities (e.g., shift toward increased security spending)

83 9.) Support competition in communication services through education of businesses on available service alternatives Implementation Actions Key Costs Key Benefits n 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) n Coordinate with industry leaders to develop/understand key benefits of various technologies to typical small-business owners -- leverage existing marketing efforts n Develop resources (company-sponsored or otherwise) to communicate all available options and key benefits -- may be print materials, online, broadcast advertising campaign, etc. n Identify key undeserved geographic areas within NYC for relevant technologies n Establish guidelines for private investment and public-sector subsidies to expand/accelerate infrastructure deployment n 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) n Coordinate with industry leaders to develop/understand key benefits of various technologies to typical small-business owners -- leverage existing marketing efforts n Develop resources (company-sponsored or otherwise) to communicate all available options and key benefits -- may be print materials, online, broadcast advertising campaign, etc. n Identify key undeserved geographic areas within NYC for relevant technologies n Establish guidelines for private investment and public-sector subsidies to expand/accelerate infrastructure deployment n ~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) n Basic administration costs n Costs to create educational campaign; these can include: Printing and distribution costs Technology support and maintenance costs Media campaign creative and production costs n Overall Cost Estimate: $100-110MM n Source of funds: Public sector or private consortium n ~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) n Basic administration costs n Costs to create educational campaign; these can include: Printing and distribution costs Technology support and maintenance costs Media campaign creative and production costs n Overall Cost Estimate: $100-110MM n Source of funds: Public sector or private consortium n Existing small ventures in NYC are provided with key information to enable their survival and success n New technology ventures may be attracted to NYC area due to marketing/education infrastructure in place to communicate new technology benefits to potential customers n Existing small ventures in NYC are provided with key information to enable their survival and success n New technology ventures may be attracted to NYC area due to marketing/education infrastructure in place to communicate new technology benefits to potential customers Feasibility n Low n Challenge/political conflicts in identifying key technologies to espouse, and evaluating their true benefits vs. costs, is significant n Costs, however, should be minimal compared to other initiatives n Low n Challenge/political conflicts in identifying key technologies to espouse, and evaluating their true benefits vs. costs, is significant n Costs, however, should be minimal compared to other initiatives Action Support competition in communication services by educating businesses on available service alternatives

84 10.) HIGH-PRIORITY ACTION – Channel investments to technologies critical to native NYC industries Implementation Actions Key Costs Key Benefits n Assemble industry consortium to identify key key support technology support areas in which to channel investments n Selectively invest -- on individual company basis, aggressively utilize available funds to pursue these areas (shift away from low-growth but potentially higher-revenue areas) n 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.) n Assemble industry consortium to identify key key support technology support areas in which to channel investments n Selectively invest -- on individual company basis, aggressively utilize available funds to pursue these areas (shift away from low-growth but potentially higher-revenue areas) n 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.) n Lower investment in low-growth but proven areas may decrease ongoing cash position and flexibility n No direct incremental costs n Source of funds: Individual companies, Public sector (if provides incentives) n Lower investment in low-growth but proven areas may decrease ongoing cash position and flexibility n No direct incremental costs n Source of funds: Individual companies, Public sector (if provides incentives) n Provides continued funding to critical support technology areas, to ensure NYC industries are not “left behind” by more technologically advanced players elsewhere n Helps to retain skilled high-tech talent pool within NYC area n Provides continued funding to critical support technology areas, to ensure NYC industries are not “left behind” by more technologically advanced players elsewhere n Helps to retain skilled high-tech talent pool within NYC area Feasibility n Moderate n Key high-growth areas may vary significantly from company to company; investments may be so different as to not provide tangible benefits n Costs should be relatively small, as includes primarily incremental additions to investments that would have been made otherwise n Moderate n Key high-growth areas may vary significantly from company to company; investments may be so different as to not provide tangible benefits n Costs should be relatively small, as includes primarily incremental additions to investments that would have been made otherwise Action Channel investments to the technologies critical to native NYC industries, establishing an industry- wide commitment to forward-looking areas that will advance these industries

85 11.) Establish NYC as the center of Finance and Media technology R&D by fostering a climate for new technology venturing Implementation Actions Key Costs Key Benefits n 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 n Provide public sector-supported financial incentives (tax, loans, etc.) for R&D spending by companies, with clear incentives to participate in NYC-wide programs n Develop and implement program to ensure access to home-grown capital through private-sector financial institutions n Identify technology priorities which have significant relevance to NYC industries and develop a set of venturing initiatives n Establish ongoing relationships and program to coordinate development with research talent pool/resources in local area (e.g., research universities) n 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 n Provide public sector-supported financial incentives (tax, loans, etc.) for R&D spending by companies, with clear incentives to participate in NYC-wide programs n Develop and implement program to ensure access to home-grown capital through private-sector financial institutions n Identify technology priorities which have significant relevance to NYC industries and develop a set of venturing initiatives n Establish ongoing relationships and program to coordinate development with research talent pool/resources in local area (e.g., research universities) n 2 FTEs over 12 months to determine key improvements areas, design and administer program; 1 FTE ongoing n Ongoing administration and coordination efforts will have to be provided through permanent group of public-sector and/or private- sector staff n Overall Cost Estimate: $300-400K n Source of funds: Private companies and/or public-sector n 2 FTEs over 12 months to determine key improvements areas, design and administer program; 1 FTE ongoing n Ongoing administration and coordination efforts will have to be provided through permanent group of public-sector and/or private- sector staff n Overall Cost Estimate: $300-400K n Source of funds: Private companies and/or public-sector n Positions NYC as technological focal point, bringing in individuals and companies with innovative ideas/solutions n Provides NYC with a continuously improving technology infrastructure, attracting new businesses and helping retain existing businesses n 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 n Retains entrepreneurial talent pool n Provides existing NYC small ventures an advantage over other regions n Positions NYC as technological focal point, bringing in individuals and companies with innovative ideas/solutions n Provides NYC with a continuously improving technology infrastructure, attracting new businesses and helping retain existing businesses n 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 n Retains entrepreneurial talent pool n Provides existing NYC small ventures an advantage over other regions Feasibility n Low n Costs may be prohibitive (especially wrt physical R&D centers) without significant public-sector participation n 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 n Low n Costs may be prohibitive (especially wrt physical R&D centers) without significant public-sector participation n 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 Action Establish NYC as center of Finance and Media technology R&D (e.g., foster a climate for new technology venturing, facilitate R&D investment and development of local talent, provide incentives to companies/entities conduction NYC centric technology R&D activities)

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

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

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