The Big Idea: The Underground Railroad

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For Doug Power, broadband internet connections aren’t just wires and cables, or just for downloading music and videos at lightning speed. In the digital age, he argues, broadband is the lifeblood of a city’s economy.

It’s much like the impact the railroad had on the West in the 19th century, or the way New York’s subways opened up new areas for development. “In the old days, if your town lay along the railroad, you prospered. You had access to commerce,” Power says. “But today the railways are high-speed broadband–that’s what’s bringing in the high-tech companies and the jobs.”

Power ought to know. As an assistant commissioner at Chicago’s Department of General Services, he’s heading up a project called CivicNet, which is aiming to blanket the entire city with super-fast broadband. It will, he predicts, kickstart the city’s poorer neighborhoods–such as the South Side–where businesses vanished during bad times in the 1970s and 1980s and which have yet to completely come back.

“We’ve got a ton of warehouses around the city that are rusting and empty,” Power adds. “But for start-ups, they don’t want to pay downtown rent. If we can wire them, this could get all sorts of activity and jobs out there.” Data storage and service, telemarketing call centers, a neighborhood graphics shop–any business that uses information technology could benefit.

The advantages aren’t just economic. CivicNet will also hook up fast bandwidth to every school and public hospital in the city, improving the quality and reliability of public services.

Most impressively, though, Chicago is planning to build this network without spending a single penny of new government money. Instead, they’re convincing private companies–successfully, judging from initial interest in submitting proposals for the project–that constructing an entire chunk of the city’s infrastructure is a profitable move.

If Power can pull this off, CivicNet’s innovative piece of policy could become a blueprint for how major cities everywhere could rev up their economies, for next to nothing. All of which made the project much easier for the city’s politicians to green-light, he notes: “Since this is all contingent on us not spending any money, we didn’t have to do all the work proving how much we’d get out of it.” Chicago’s non-gamble allows the city to dream–to build a public resource that will be there (for a fee) for businesses and organizations to grow into as they integrate technology into their work.

It’s an interesting concept for New York to observe. Certainly, New York’s bandwidth companies and urban-development bureaucrats agree that New York’s digital landscape ought to be spread more widely; broadband still isn’t easily and cheaply available outside big-money commercial areas and rich residential neighborhoods. Nationally, only 13 per cent of households earning less than $15,000 a year even have normal phone-line access to the Internet.

These days, though, prosperity is no guarantee of service. The attack on the World Trade Center knocked out significant parts of downtown’s telecommunications backbone. Not only does that area need major rebuilding, but some in the real estate and technology businesses are contending–with a healthy amount of self-interest–that the entire city ought to receive extra wiring to make sure future incidents don’t stop business or government data from flowing. In an economic analysis of the attack’s impact, the New York City Partnership noted that downtown’s telecommunications proved to be “surprisingly fragile,” and that rebuilding should include more redundancy, building extra layers of wiring so that if some are knocked out, others will keep going. “If we do not do this, Lower Manhattan will become a ghost town,” John Gilbert, executive vice-president of the real estate firm Rudin Management, told a meeting of security officials in November.

To information magnate-turned-mayor Mike Bloomberg, government technology must look like it’s in a time warp. Most municipal workers don’t have access to the web or email, and city agencies didn’t have a coordinated email system until just last year. The city is still working on projects to integrate computer networks; when the information starts flowing, reliable connections will be essential. Indeed, the city intends to pay companies to thread fiber-optic wiring through unused water supply pipes.

“From a policy perspective, what the city needs to do is to support anyone with an idea that increases the diversity of how we bring broadband to New York,” says Marc Josephson, founder and chairman of Advanced Digital Internet, a New York-based company that provides fast broadband connections to residential buildings, and who served on the Mayor’s Council on New Media under Giuliani. Companies like his would benefit from a broadband boom, of course, but Josephson also agrees that it’s a matter of economic necessity. “It’s not just about rebuilding the city from the attack,” he says. “This stuff creates jobs.” He’s been pitching MTA officials the idea of putting wires through subway lines, a measure that could protect the conduits from damage and would provide high-quality service to business districts in the outer boroughs.

But the question in any broadband project is, who’ll pay for the work? In Chicago, the key to attracting private-sector attention is the city’s own lucrative broadband needs. The city is promising to buy its own connectivity–worth $31 million of business annually–for 10 years from the company that submits the successful bid to create CivicNet. As a result, the winning private company has a guaranteed level of income, making the project much less risky.

Mind you, it’s not without risk: Power says it could cost anywhere from $80 million to $250 million to wire the city, so the winning contractor will need to drum up much more business than just the government. But here, the upside might be significant–a study by the consultant KPMG showed that Chicago has a potential $2.4 billion market for broadband services. And the winner will actually own the cable, much of which will be wired through train lines and other public rights-of-way, making it unnecessary to tear up streets. “It’s a ripe, ripe market,” Power says.

All signs suggest firms will jump at the chance to build CivicNet. Last fall, when Chicago sent out a request for qualifications, 40 interested companies responded, including communications giants such as Nortel Networks, Marconi and EDS. Half received a request to submit a formal proposal by December, and the winner will be selected by the end of 2002, with the project likely launching the following year.

Chicago isn’t alone in pursuing innovative private-public broadband partnerships. The province of Alberta in Canada is developing a similar project called SuperNet, in which the provincial government will be the anchor client of a privately built fiber-optic network. In this case, the province itself will own the network, shouldering almost two-thirds of the project’s $200 million (in U.S. dollars) cost. But once the network is built, it will lease the pipeline at inexpensive rates to any company that wants to use it, while ensuring that remote rural areas of the province have cheap high-speed connections, too. Indeed, these are places where the market would otherwise never bring broadband, points out Drew McNaughton of Axia Supernet Ltd., part of the private consortium building the project: “I mean, there’s one town out there with only one school, with 30 kids total. And they’re going to have 20 megabits per second connection, as good or better than stuff in major cities.”

So are any of these models suitable for New York? Some observers aren’t as confident of the numbers as Chicago or Alberta boosters are. Josephson suspects the private sector here might face higher costs, given expenses that include New York’s “last mile”–where wiring buildings often requires expensive punching through walls or roads to attach to the fiber-optic network running through ducts underground. “The economic payback, I’m not sure it’s there for private companies,” he speculates.

New York is already undertaking municipal build-outs, albeit smaller and less organized, in which individual private companies are shouldering lesser risks. The New York City Housing Authority, for example, is accepting private proposals to wire all 2,400 of its buildings. The city will share the costs and revenues of the project, and the winning contractor will make the money back by leasing the infrastructure to service providers like Verizon or Time Warner Cable. “It’ll bring a lot of connectivity to a lot of places,” says Howard Marder, NYCHA’s director of communications. But the projects’ low-income tenants will carry the cost; the city is not asking the companies for discount rates.

Meanwhile, the city’s Economic Development Corporation has been attempting to launch a project that builds more bandwidth for economic stimulus of specific neighborhoods. Digital NYC wires up buildings in targeted areas and then leases them to companies looking for good bandwidth.

But for Power, the economic case for bigger plans is there. Once the winning bidder has rewired Chicago, he expects that the company will be able to use the model with any other urban center. “You could take this plan,” he says, “and bring it to any major city and do the same thing.”

Clive Thompson is a technology columnist for Newsday and a Brooklyn-based freelance writer.