High speed “broadband” internet access is no longer the sole domain of dot coms and high-tech companies. Today, fast access to the web is a critical tool for smaller enterprise, from architects and animators to freight forwarders and food manufacturers. Broadband's fast, always-on connection lets companies reach vast pools of customers, as well as take full advantage of e-mail, videoconferencing and other web-based applications that can make them more efficient. These benefits can't be overstated at a time when businesses in nearly every industry are facing intense competition from around the block and across the globe. Especially for businesses operating in high-cost locations like New York City, broadband can help level the playing field and give firms the competitive edge they need to thrive.
Yet, in New York, thousands of businesses–particularly small and mid-sized firms located outside of Manhattan's office districts–are still using superslow dial-up connections to access the internet, and many are not hooked up to the web at all. In some of the city's most important commercial districts, far too many businesses that do have access to broadband struggle to receive service that is reliable and affordable.
A new digital divide has thus emerged in New York, one that could have profound implications for the city's future economic growth. “It's in the city's interest to have broadband available to all the businesses that need it,” says Allan Dobrin, former commissioner of the city's Department of Information Technology and Telecommunications (DoITT). “It's tough to have a thriving business without internet access.”
The paradox is that parts of New York City possess some of the world's most advanced telecommunications infrastructure and are home to some of the globe's most technology-savvy businesses. The vast majority of buildings in Manhattan's two central business districts are wired with some form of broadband. Most companies located in midtown or lower Manhattan can choose between a host of service providers and multiple forms of high-speed internet service–from T1 and T3 lines that run over state-of-the-art fiber-optic cables to less powerful digital subscriber lines (DSL). And in every borough, businesses that are located in residential neighborhoods or mixed-use districts are now likely to have access to broadband service.
But in many of the industrial parks and other low-density commercial areas around the five boroughs, businesses continue to have extremely limited options for obtaining broadband and often find it downright impossible to access a reliable high-speed connection.
The broadband gap threatens to diminish the city's economic competitiveness, at a time when some of the city's brightest prospects for economic growth lie outside of Manhattan's central business districts.
As a general rule, the larger a firm is, the more likely it is to have broadband. Virtually every large business utilizes high-speed connectivity as a matter of course. But for companies with fewer than 100 employees, the picture is mixed. Only 65 percent of businesses in the U.S. with 20 to 99 employees have broadband, according to a 2002 study by the Yankee Group, a telecommunications research firm. For businesses with between 2 and 19 employees, the figure falls to 40 percent.
Data on broadband's penetration among businesses in the New York City market is hard to come by. Verizon, which is the primary provider of DSL service, guards its numbers closely. So do the cable companies serving the five boroughs: Time Warner, Cablevision and RCN.
The limited information Time Warner Cable of New York was willing to share with the Center for an Urban Future indicates both the recent growth of the small business market for broadband and the constraints on its further expansion. Time Warner's Road Runner service nearly tripled its number of business customers in just the past two years, most of them outside Manhattan.
Yet Road Runner still doesn't reach into several industrial neighborhoods in Time Warner's franchise area, including much of Williamsburg, DUMBO and Red Hook. In the Brooklyn Navy Yard, Time Warner is just now wiring two buildings, but company officials acknowledge that they do not currently have plans to provide service to any of the more than 40 other buildings in the complex.
In Sunset Park, cable modems are available to businesses located east of Third Avenue in the residential part of the neighborhood, but service remains elusive for most of the several hundred firms located in Sunset Park's industrial zone. “Nobody down here can get cable,” says Leah Archibald, executive director of the Southwest Brooklyn Industrial Development Corporation. “Because there's no residential down here, you just can't get it. Some businesses have tried.”
In most cases, small companies are left with just one option: DSL. In theory, DSL should be more than sufficient, and its lower cost makes it a first choice for many small firms. But service interruptions and systematic problems–ranging from antiquated telecommunications infrastructure to an absence of real competition among providers–render DSL a constant source of headaches. “Our DSL line is inherently unstable,” says Dennis Sanford, a manager at Legion Lighting, an East New York–based firm that manufactures fluorescent lighting. “I'm bumped off-line several times a week. Bad weather seems to affect it a lot.”
DSL transmits high-speed data over the same copper wires that provide phone service. Generally, customers simply have to be located within roughly three miles of a phone company's central office; in New York, most firms are. But in many industrial neighborhoods and other isolated business districts, the copper phone wires are a century old and in bad shape. Numerous companies in these areas say that their DSL service goes down several times a week, a disruption that is both annoying and costly.
Fiber-optic lines are far more reliable, and they can be used for T1, T3 and even bigger-bandwidth communications services, as well as DSL. But while pervasive in midtown and downtown Manhattan, fiber is virtually absent in the boroughs. According to a 2003 study by the City Council, of the roughly 3,400 “fiber lit” buildings across the city, only 54 are in Queens, 205 in Brooklyn, 140 in the Bronx and 40 in Staten Island. While fiber-optic cables do run under main streets throughout all five boroughs, it typically costs between $50,000 and $200,000 to dig under streets and extend fiber over the “last mile,” to a company's office. In midtown and downtown Manhattan, telecom companies and property owners usually end up swallowing this cost because most buildings have scores of potential customers. But elsewhere businesses tend to be more spread out. As a result, most of the fiber in the other boroughs is “dark.”
So copper remains the main option in much of the city. Even then, many businesses can't use it. In industrial areas from Red Hook to the Brooklyn Navy Yard, some firms still have difficulty getting hooked up to DSL or can get service only on a few lines. These problems exist even in up-and-coming areas like Long Island City. “Many buildings in Long Island City are not close enough to a central office to get DSL,” admits one Verizon official.
Small businesses report Verizon is often slow to make the needed changes–if it does so at all. Just ask Dan Chase. The owner of Chase Office Supply, located in the Brooklyn Navy Yard, Chase has spent more than two years trying to get DSL service from Verizon. Finally, in mid-September, Verizon told him that his company is clear to receive DSL. Verizon wouldn't, however, guarantee that it will work. “They're saying it's a 50-50 chance that it will be functional,” says Chase, who had yet to install the necessary equipment by the time this article went to press.
Chase needs the service badly since his business does all its ordering online. But he's had too many bad ezperiences with Verizon to get excited prematurely: “We've been trying to get [DSL] for a long time. They just say, 'It's not available. It's not available.' Now they say it might be.” Verizon did not respond to calls for comment.
For telecom companies, the economics of wiring business areas outside of Manhattan just don't add up. Peter Rust is the president of Con Ed Communications, a company that has been building its own fiber-optic networks around the city and, according to Rust, now delivers T1 service to more than 125 buildings around the region, mostly in Manhattan. While the company has wired a handful of buildings in Brooklyn, Rust says that it has largely chosen to avoid the small-business market. “The issue in Brooklyn is finding buildings with enough businesses to justify [the investment],” Rust says. “When you're investing in infrastructure, you need a certain return. It takes about six small- to medium-sized businesses in a building to break even.”
Investors' caution marks a big change from the boom years of the late 1990s, when it looked as if fiber-optic technology would be universally accessible. That was a period of unbridled optimism in the financial markets about the growth of new technologies, and telecom companies were flush with investors' money, eager to spend a large chunk of it building out fiber-optic networks and confident that demand would arise to justify the expense. At one point, about two dozen telecom companies were laying fiber around the city and, in some cases, wiring buildings speculatively. Not surprisingly, the bulk of the fiber deployment occurred in the densest parts of the city, although some companies looking for niches in the market targeted small businesses and underserved areas.
A considerable amount of fiber was laid underground outside of Manhattan's central business districts. But before most was connected to offices and homes, the stock market's bubble burst and the telecom industry was among the hardest hit. A number of telecom providers declared bankruptcy. The handful of firms in New York that survived have been considerably more cautious with their capital investments.
Cable companies like Time Warner, Cablevision and RCN have been looking to fill some of the gaps in New York's broadband market, but today's economic realities make it very difficult to justify the necessary infrastructure investments in lower-density areas. “It's very expensive to build a fiber network,” says Gary Lindemann, director of alternate sales channel development for RCN. “Five years ago you could get a lot of people to lend you money to do it. You can't get anybody to lend you the money now.”
That's certainly true for the vast low-rise areas of the city, where businesses, even when they're clustered together, tend to be spread out over larger distances and housed in small buildings that rarely have more than a few tenants.
What's more, when the telecoms consider making investments in these areas, what they see is a lack of demand. Even as more and more companies across the city are awakening to the benefits of broadband, many small businesses and old-economy firms are still way behind the technology curve. The CEOs of some of the city's industrial businesses still don't even use a computer or have e-mail. Many other business owners realize the value of the internet but aren't yet able to justify the additional cost associated with making the leap from dial-up to broadband service.
For the same reasons that cable companies haven't extended their fiber networks to isolated commercial areas, Verizon has been reluctant to repair or replace its aging copper telephone infrastructure in these neighborhoods. Verizon also has little incentive to upgrade copper wires when they believe, understandably, that within a few years' time fiber-optic technology will render copper wiring obsolete.
To cap it all off, Verizon feels little pressure from competitors to improve service in these parts of the city. It still controls much of the telephone infrastructure from its days as the city's state-sanctioned monopoly phone company. Competitors offering DSL have to lease the phone lines that Verizon owns, an arrangement that makes it difficult for them to offer lower rates and gives them little leverage to improve infrastructure. A recent court ruling makes it even tougher for other broadband providers to compete, by allowing Verizon and other companies controlling the wires to charge more.
All of this spells trouble for the thousands of small businesses in New York that are now getting by with a spotty DSL connection. The speed and reliability of broadband will only become more crucial in the years ahead, as companies begin to use broadband for Voice over Internet Protocol service–an alternative to traditional phone lines–and other new money-saving technologies.
Since the market alone isn't taking care of many companies' technology infrastructure needs, some business leaders are looking for local government to spring into action. After all, in New York City, government runs much of the infrastructure and regulates the rest. Public transit, bridges, street maintenance, sewers–we've managed to make sure that New York residents and businesses have access to all of them. So can City Hall lend a hand?
It can, and should, but it won't be easy.
The federal Telecommunications Act of 1996 sharply limits the ability of municipal governments to make demands on broadband providers. Since the law passed, cities have been unable to require telecom companies to provide universal coverage for high-speed internet services, a standard that cities like New York were able to insist on for the rollout of cable television in the 1980s and 1990s.
So policymakers in New York City will have to be more creative. They can work with industry associations to get more small businesses to recognize the value of broadband, or they could dangle incentives in front of telecom firms and building owners to make infrastructure upgrades in underserved areas. Or they could push for the development of more multi-tenant buildings where a cluster of similar firms can share resources, including broadband. One idea on which many telecom experts agree is that the city should be aggressive in promoting a broad rollout of wireless internet technologies.
Wireless is significantly cheaper to install than fiber wires, and it is also free from many limitations of the 1996 Telecom Act. It can draw upon existing city assets, such as lampposts and the rooftops of municipal buildings. In addition, it doesn't rely as intensively on the existing telecom infrastructure and can thus be brought more easily to areas currently underserved by major telecom providers.
Thus far, wireless deployment in New York has largely been limited to public/private initiatives to make WiFi, the wireless fidelity standard, available in city parks, coffee shops and other public spaces, predominantly in Manhattan. But next generation wireless technologies like WiMAX and MobileFi offer extraordinary potential to penetrate much deeper into all five boroughs. Offering connectivity over distances up to 10 miles–considerably farther than WiFi, which is limited to about 100 feet–these technologies can penetrate indoors, eliminating the need for antennas on the roof of every building.
“WiMAX, more than any other technology, including WiFi, has huge potential to enable the service of all sorts of underserviced areas to get real internet connectivity,” says Dana Spiegel, a technology consultant and member of the board of directors at NYCWireless, a nonprofit group that seeks to expand access to wireless technology. “There's no reason why you couldn't take the same model and beam service from a central office in Brooklyn 10 miles out, which should cover just about every part of the borough.”
Even proponents like Spiegel, however, concede that wireless companies probably aren't going to reach out to underserved areas without some combination of carrots and sticks from the government.
A recent initiative from the Bloomberg administration suggests a model. In August, the city's Department of Information Technology and Telecommunications (DoITT) announced an agreement to lease 18,000 city lampposts–10 percent of all lampposts in the city–to six cellular phone companies that want to use them to improve cell phone coverage. The plan includes an incentive to boost phone coverage in underserved areas: The city will lower the costs of renting lampposts in wealthier areas coveted by cellular companies if the firms agree to offer inexpensive WiFi telephone service to neighborhoods where less than 95 percent of residents have a phone in their homes. Unfortunately, the project only explicitly covers phone service, not broadband.
Other cities have put forth more ambitious plans to take advantage of wireless technologies. For instance, in August, Philadelphia mayor John Street unveiled an ambitious plan to make the entire city a wireless internet hot spot. The plan, which would involve installing wireless transmitters on lampposts across Philadelphia, aims to bring extremely low-cost internet access to all parts of the city.
Perhaps the Bloomberg administration will take notice. The city's Economic Development Corporation recently assembled a task force of telecom experts and business leaders to advise the agency on how to address some of the five boroughs' key telecom infrastructure challenges. The agency subsequently hired a consulting team to examine the issue more closely and make recommendations that ensure the city “will be capable of maintaining and attracting new businesses and residents…and of providing cost effective broadband telecommunications infrastructure to the greatest number of people in New York City.” The consultant's report is expected later this year. •
This article was adapted from “New York's Broadband Gap,” a report from the Center for an Urban Future. For a full report and recommendations, visit www.nycfuture.org.