Telecommunications and the future of cities
First presented in the 'Landtronics' Conference
in London, June 1985.
Summary
This article examines the impact of new telecommunications technologies
on urban growth and development. Contrary to the conventional wisdom,
the author argues that new technologies are strengthening large
'world cities' that are centers for international finance and information
services. The author describes the emerging telecommunications infrastructure
in the US and analyses the distinctive roles of government and business
in the planning and development of this infrastructure. Drawing
upon data from major financial institutions, the author analyses
the location of corporate headquarters and information processing
centers. The conclusions suggest that there will be growing disparities
between urban and rural telecommunications systems and the consequences
for office development.
1. Introduction
The deregulation of the telecommunications industry, in conjunction
with recent technological advances, is transforming the telecommunications
infrastructure in the US. This paper will assess the implications
of the emerging telecommunications infrastructure for cities and
metropolitan regions. Three basic issues will be addressed: (a)
What is the form of the emerging telecommunications infrastructure
in the US? (b) What role will cities play in planning and developing
the new information infrastructure? and (c) How will the emerging
telecommunications infrastructure affect the pattern of urban development
in large metropolitan regions?
2. The emerging telecommunications infrastructure
There are three main components to the new telecommunications infrastructure
in the US: (a) long-distance or inter-city systems; (b) regional
or local distribution systems; and (c) intra-building or intra-complex
communications systems, such as local area networks (LANs) or 'smart
building' systems. To date, there has been a great deal of speculation
about each component of this infrastructure, but relatively little
research on the relationship of these communications systems to
each other and to the overall pattern of urban development. Far
more attention has been given to specific technologies than to the
interaction of technology with the fundamental organization of work,
time and space in urban society. This intellectual gap is particularly
striking, since
the size and importance of a city is determined by the amounts
and kinds of information flowing into and out of it, and by the
way it is interconnected with other cities in the national information
flow network. (Abler, 1970).
2.1. Long distance fiber optic systems
At the national level, competition in long-distance service is
leading to the construction of several fiber optic networks that
will provide high-speed, long distance communications across the
country. These networks are supplementing the existing grid of microwave
relay systems, satellites, and earth stations currently in use.
The major long-haul fiber links are remarkably urban-based; in certain
cases, the fiber routes utilize railroad rights of way and follow
old transportation lines. For example, US Telecom's 23 000 mile
fiber system runs parallel to the tracks of six railroads, the Kansas
Turnpike and a Wisconsin State bicycle path, while MCI's 18,000
mile route runs partially along Amtrak's right of way. The fiber
systems planned and in place, including those of AT&T, MCI,
United Telecom, Lightnet, LDX Net, Litel, and Lasernet, are designed
to serve heavy traffic and thus must reach the large metropolitan
regions that are the information hubs of modern society.
New York, Atlanta, Miami, Chicago, Kansas City, Dallas-Fort Worth,
Cleveland, Pittsburgh, Denver, Washington, DC, San Francisco, Los
Angeles, Houston, and New Orleans are among the cities that will
be served by three or more of these fiber networks. Although many
communities will have access to fiber systems, it is clear that
the new networks will, as Goddard has stated
serve a restricted number of locations, usually the largest cities
. . . there is little to indicate that developments in telecommunications
networks are likely to disadvantage the largest cities relative
to small towns and rural areas in any national urban system. The
incremental modernization of networks and the logic of density
will ensure that the inner parts of large cities will have an
initial advantage. (Goddard, 1986).
The rush to build fiber optic systems in the US resembles the rush
to build railroads in the 19th century; whoever can build the first
integrated network expects to capture much of the long distance
business (Johnston, 1985). Ultimately, as with all new technologies,
there will be a shake-out, and only a few of the proposed fiber
optic systems will survive. In addition to the fiber optic systems,
there are several new long distance services that depend upon a
mix of new technologies, such as Equatorial Communications Company's
satellite network that links computer terminals by using small satellite
dishes that can send and receive data and thus totally bypass telephone
lines (Business Week, 1985). Furthermore, several firms are planning
to build nationwide paging networks that would allow individuals
carrying beepers to receive signals anywhere in the US; at the present
time, paging systems are restricted to short distances, usually
within metropolitan areas (New York Times, 1984).
2.2. Regional telecommunications systems
At the metropolitan level, the regional holding companies, created
through the divestiture of AT & T, remain the predominant communications
carriers and are gradually shifting from twisted pairs of copper
wires to fiber optics for intra-city communications. New York Telephone
has built a 48 000 circuit Ring Around Manhattan fiber optic network
that links twelve major switching centers in Manhattan and has recently
launched an inter-borough fiber network (IFN) that will link the
counties adjacent to Manhattan. More than one-third of all the Bell
System's optical fiber has been installed in New York Telephone's
service area, a consequence of the demand for advanced communications
systems within the largest American city and its surrounding metropolitan
area (Liv and Vaselkiv, 1984). In Southern California, the fiber
network built for the 1984 Olympics provides an advanced regional
telecommunications infrastructure that reflects the intense communications
activities of the Los Angeles area.
Large firms with extensive and specialized communications needs
are facing an increased set of telecommunications alternatives and
are often choosing to build their own communications systems, thus
'bypassing' the 'facilities of the local telephone companies available
to the general public' (FCC, 1984). Citicorp has created a Metropolitan
Network called MICRONET that links five Manhattan sites in New York
City by fiber or microwave with a connection to Citicorp's satellite
network. Westinghouse has linked its plants in the Pittsburgh region
with a separate network, and the Boeing Corporation is considering
a 70 000 line private network in the Seattle region.
Just as companies with large computer systems have found it profitable
to sell their technical expertise and excess capacity to other users,
we are beginning to see a similar pattern in which large users of
telecommunications become sellers as well. The traditional boundaries
between vendors and users of communications services are becoming
blurred and, in some cases, no longer exist, Irwin has noted, 'a
buyer today may become a seller tomorrow and a rival the day after'
(Irwin, 1984).
2.3. Teleports: public and private initiatives
Perhaps the most innovative example of public sector involvement
in the development of regional telecommunications infrastructure
is the Teleport project initiated by the Port Authority of New York
and New Jersey. The teleport was based upon the belief that the
public sector should provide a facility, similar to airports but
for access to communication satellites. The large volume of electronic
communications in New York City led the Port Authority to believe
that access to communication satellites would be crucial to maintain
the health of the region's economy. Microwave congestion within
New York City reinforced the need for an alternative local distribution
system and led to the creation of a fiber optic network linking
the Teleport on Staten Island to New York City and New Jersey. A
100 acre office park was incorporated into the project, since the
Staten Island site offered access to a skilled labor force, low-cost
energy sources, plus land for back-office facilities.
Responsibility for the Teleport is divided among the City of New
York which leased the land to the Port Authority, and to the Port
Authority which developed the land and leased the buildings on the
site. Merrill Lynch and Western Union were brought in as partners
to form Teleport Communications, Inc, a new company with responsibility
to manage and market the communications systems; the City of New
York and the Port Authority of New York and New Jersey receive a
percentage of the net profits of Teleport Communications, Inc (Merrill
Lynch initially owned 60% of Teleport Communications, Inc and Western
Union owned 40%, today Merrill Lynch owns 95% and Western Union
has a 5% share.)
Teleport is designed to ultimately serve seventeen earth stations;
two are currently operated by Merrill Lynch and one by Comsat. Several
major firms, including Dow Jones, Bankers Trust, Citicorp, and Satellite
Business Systems are hooked into Teleport's fiber optic cable. The
provision of local telecommunications service within the New York-New
Jersey region 1}as been Teleport's most striking achievement. AT
& T intends to use Teleport's fiber optic system to provide
long distance to Merrill Lynch, thus 'bypassing' New York Telephone's
local network. Teleport's fiber cable provides an important telecommunications
infrastructure, at low cost, to major users in the City of New York
and surrounding region that will probably emerge as the most valuable
aspect of the entire project, although the initial logic of the
project was based upon the need for access to communications satellites.
Whether the public sector should be providing a competitor to the
publicly switched telephone network is a policy issue that has yet
to be fully addressed; however, it is possible that Teleport's success
in the local distribution business could contribute to lower revenues
for New York Telephone and eventually lead to higher rates for residential
and small business users.
The popularity of teleports can be seen in the speed with which
other communities have launched efforts to build their own teleports.
In the US, there are twenty different teleport facilities in twelve
different states; eleven of these facilities are operational, two
are under construction, seven are planned, and one is proposed.
With the exception of the New York and Ohio teleports which are
public-private partnerships, all are privately owned projects. The
diffusion of teleports is partially a result of the renaming of
existing satellite antennae farms equipped with microwave transmission
linkages, rather than a result of any evidence that teleports can
stimulate economic development.
A variety of other telecommunications systems are also used at
the local or regional level, such as microwave, coaxial cable, digital
termination systems, and cellular mobile radio. In New York City,
Manhattan Cable Television provides data transmission service for
banks and government agencies over its trunk lines; however, such
institutional uses of cable are rare in most American cities since
cable television systems are primarily oriented to the residential
market and are non-existent in the central business districts of
most large cities. Cellular mobile telephony represents a growing
sector of the regional telecommunications infrastructure that extends
the office into the car and truck and could generate increased use
of roads and highways.
2.4. 'Smart buildings" and local area networks
'Smart' or 'intelligent' buildings are receiving a great deal of
public attention. A smart building has three different meanings:
(a) it can refer to an integrated management system for elevators,
energy, security and other building services; (b) it can refer to
an integrated telecommunications network for local, long distance
and enhanced services; or (c) a smart building can provide integrated
telecommunications and building services. With regard to telecommunications,
a 'smart building' provides a private branch exchange, telephone
equipment, access to the public switched network, long distance
service, and enhanced services, such as voice messaging and teleconferencing.
A local area network (LAN) provides a communications link, within
a single building or among a number of buildings, for personal and
mainframe computers, data storage banks, printers, and other computer
and telecommunications equipment. The LAN can be provided by coaxial
cable, copper telephone wire, or fiber optic cable, depending on
the particular design and use.
The growth of 'shared tenant services' makes it possible to provide
sophisticated telecommunications services within buildings that
offer economies of scale and 'one-stop' convenience to small and
middle-sized firms. For real estate developers, shared tenant services
can provide a service to tenants and a potential source of revenue,
and many developers have formed partnerships with telecommunications
firms to offer building-based communications services.
The leader in this evolving industry has been Olympia and York,
the largest real estate developer in North America. Olympia and
York has formed a joint venture with United Telecommunications,
Inc, to create OlympiaNet, a telecommunications network that will
offer advanced data, voice and video services to all its tenants.
The development of OlympiaNet's teleconferencing network highlights
the incremental way in which new telecommunications services are
first offered in major urban markets; the OlympiaNet teleconferencing
facilities will be initially available in New York City and Toronto
with other cities to follow.
The smart building reflects the growing capital investment in the
information worker: in 1977 businesses were investing only half
as much in equipment to support white collar workers as compared
with blue collar workers; by 1982 the size of these two categories
had become equal (Jonscher, 1985). The growth of smart buildings
and LANs builds upon this heightened investment in information technology
by facilitating intra- and inter-office communication. Although
the extent of the market for shared tenant services is still unknown,
it is no longer sufficient to consider buildings solely in terms
of their capacity to accommodate people; a building is also a resource
for transmitting information as indicated by the increased use of
satellite and microwave dishes on the rooftops of office buildings.
Access to the roof is now a critical part of all office leases;
in many buildings, the rooftop has replaced the ground floor in
terms of real estate value.
2.5. The telecommunications infrastructure within cities
The emerging telecommunications infrastructure is an overwhelmingly
urban-based phenomenon. Although most discussions of new communications
technologies emphasize the opportunities presented for decentralization,
large cities are the hubs of the new telecommunications systems
in the US and are the sites for the most advanced applications of
information technology. As Brooker-Gross has stated
the technologies are likely to be found first in the largest
markets. Advantages in communication already possessed by large
metropolises will be reinforced before the advantages diffuse
to smaller places. (Brooker-Gross, 1980).
Although new communications technologies permit geographic dispersal,
the economics of the new infrastructure are oriented towards those
urban regions that are major information centers.
Moreover, the changing regulatory framework in the US is substantially
altering the telecommunications pricing and investment criteria.
Until 1984, the principle of 'universal service,' in which every
household was provided with low-cost telephone service, was the
guiding philosophy of the Bell System. This was largely accomplished
with cross-subsidies from urban to rural users and from business
to residential customers. However, competition is leading to a reduction
in such cross-subsidies and to user-based telephone rates and investment
criteria.
Just as airline deregulation has weakened air service in small
towns and outlying communities, telecommunications deregulation
may lead to a greater disparity in communications service between
large metropolitan regions and rural area. As Noll has noted
Some investment in rural service probably is uneconomic. Rural
residents may be unwilling to pay for telephone service that is
priced at its accounting cost. Moreover, copper-wire technology
is not the cheapest way to serve rural areas. Instead, recent
technical advances probably make over the air technologies, such
as cellular radio, cheaper in some areas than the book value of
a rural non-traffic sensitive (NTS) plant. (Noll, 1985).
3. The role of business and government
Contrary to much of the popular folklore, new communications technologies
have not led to the decline of cities. Rather, new communications
technologies have enhanced those cities that serve 'the important
function of hosting transactional activities' (Gottman, 1983). Although
many so-called futurists argue that the electronic cottage will
replace the office building and that teleconferencing will replace
the in-person meeting, such speculation merely demonstrates a poor
understanding of urban functions, a willingness to assume that technological
feasibility is equivalent to technological acceptability, and a
disregard for the incremental and evolutionary process of technological
innovation in organizations.
Public policy for telecommunications in large cities has been predominantly
oriented toward the regulation of cable television systems and has
largely ignored the private sector's role in the design and construction
of the new urban telecommunications infrastructure. Most local governments
have been consumed with visions of two-way cable television in every
household and have focused their attention on cable, thereby ignoring
other technologies, such as fiber optics, mobile communications,
and microwave transmission, that will be far more important in shaping
communications patterns in cities. After decades of predictions
about the 'wired city,' cable television has yet to arrive in most
large American cities (Moss, 1984). The 'wired city' has arrived,
but it is oriented to the office, not the home; it is based upon
a diversity of transmission systems, not just coaxial cable; and
it has been built outside the domain of local regulatory and policymaking
entities.
The experience in the US highlights the changing roles of government
and business in the development of urban telecommunications systems.
There are genuine limits to public intervention in a technologically-driven
industry. Advances in technology are so rapid that it is essential
that government not be fixated on a single technology or a single
type of communications facility. The public sector has an important
stake in assuring that the individuals and firms within a city have
access to advanced telecommunications systems; however, unlike other
critical components of the urban infrastructure, such as highways
and water supply, the private sector has been the primary instrument
for the construction of the telecommunications infrastructure in
large American cities.
4. Telecommunications and urban development
The growing use of advanced telecommunications systems has had
both centralizing and decentralizing effects on cities. New communications
technologies have enabled firms to extend their geographic reach,
to create new products and services, and to send, receive and process
information from points throughout the world. However, telecommunications
has not reduced the value of the face to face transactions that
occur in large urban centers. In fact, as telecommunications has
facilitated the rise of the multinational firm and the increased
concentration of headquarters' functions in a handful of cities,
one can argue that the few cities provide the opportunities for
face to face transactions are even more important. Communications
technologies have allowed a small number of cities to emerge as
international information and financial capitals, such as New York,
Los Angeles, London, Tokyo, Singapore and Hong Kong. As Table I
indicates, New York City and Los Angeles account for approximately
30% of all overseas telephone emanating from the US (Moss, 1984).
Langdale has noted that
financial institutions operating in currency markets on a global
basis have offices located in various regions so that the closing
of operations in one market overlaps with the opening of the market
in the next region. (Langdale, 1985).
| Table 1. Overseas message units (excluding Mexico and Canada) |
|
Area Code
|
1982
|
New York City (212)
Los Angeles (213)
San Francisco (415)
Chicago (312)
|
22,718,027
9,310,028
4,535,474
4,028,709 |
| Total-USA |
115,001,763 |
|
|
Source: AT&T Communications
|
When the Tokyo market closes, Bahrain opens, and it closes when
the New York market opens.
Friedmann and Wolff(1982) argue that
world cities are closely interconnected with each other through
communications and finance, and these regions constitute a worldwide
system of control over market expansion.
In the US, New York and Los Angeles are clearly the centers for
international banking and finance. From 1972 to 1982, the number
of foreign banks in New York doubled to 336. In California, more
than two-thirds of the foreign agents for international banks are
based in Los Angeles.
4.1. Banking and electronic funds transfer
The growth of electronic banking is intricately related to the
new telecommunications infrastructure in cities. At the retail level,
the 'branch bank' has virtually been replaced by the automatic teller
machine; telecommunications systems have replaced 'bricks and mortar'
as the means to reach customers. As Wriston, the former Chairman
of Citicorp has said
the most valuable piece of real estate in the world is your desk.
Once a bank's terminal is on it, and if the customer is happy with
the service, then it becomes very difficult for a competitor to
dislodge. (The Economist, 1984).
The availability of on-line access to bank funds has revolutionized
bank accounts. In 1970 the turnover of demand deposits of New York
City banks (i.e. the ratio of debits to deposits) was 155 times.
By 1980 that increased to 814 times, and in 1984 exceeded 1800 times.
(Horvitz, 1985).
4.2. The location of back offices
While communications technologies have fostered the increased centralization
of headquarters and financial services, there has been a simultaneous
shift in the location of information processing functions out of
central city locations. The back office functions of banks, insurance
companies, and retail stores typically involve routine functions
that do not require direct client contact. Back office activities
have evolved from labor to technology intensive operations and have
distinctive spatial and energy requirements. Data processing systems
require large floor areas, typically of 40,000 sq. ft. or more,
to accommodate mainframe computers and support personnel. Such facilities
also need high energy loads for air conditioning, raised floors
for communications ducts and wires, and access on a 24-hour basis,
conditions that are not easily met in traditional, central city
office buildings.
There has been a gradual decoupling of front and back office operations
in most information intensive firms. The back offices, with their
specialized spatial requirements, have been moved out of prime central
city real estate to lower cost locations, either to the periphery
of metropolitan areas or to regions that offer comparative advantages
in labor, energy, taxes and/or amenities. The locational choice
is frequently a product of corporate strategy; some firms want to
avoid white collar unions; other firms want computer operations
to be in close proximity to headquarters in order to have easy access
to technical staff. In the US, access to a major airport for postal
delivery and a branch of the Federal Reserve Bank is essential for
the rapid delivery and clearing of checks.
In certain cases, decisions about the location of back offices
are used as a bargaining chip to achieve other organizational objectives.
Citicorp recently announced plans to establish a back office facility
in economically depressed Hagerstown, Maryland. As a result, the
State of Maryland has granted Citicorp the right to establish twenty
full-service branches in that state, thereby giving Citicorp access
to the affluent Baltimore-Washington market. (Nash, 1985). In New
York City, the leading commercial banks have traditionally located
their operations centers on Long Island while the leading securities
firms have kept their back office operations in Manhattan, but they
are increasingly situated on the perimeter of Manhattan, away from
corporate headquarters. As Figure 1
and Figure 2 show, only two of the
top ten securities firms have their front and back offices in the
same building in Manhattan. As securities firms become part of fully
integrated national financial service organizations, the information
processing activities of stock brokers will be less likely to remain
in lower Manhattan's financial district.
The separation of front and back offices can only occur when there
is substantial routinization of information processing and a reliance
on electronic systems, rather than conventional paperwork. Many
stock brokerage firms still depend on a mix of paper and electronic
systems and are not as automated as other financial service firms,
such as banks and insurance companies. Consequently, the movement
of back offices out of cities has varied within and among different
industries. However, just as central business districts were incompatible
with mass assembly plants, and as traditional urban ports could
not accommodate containerization, information processing activities
will continue to move out of expensive, central city real estate.
It is ironic that we know far more about the location of agricultural
and industrial activities than about the location of information-based
activities. (Abler, 1974).
Conclusions
The preceding discussion has presented three fundamental themes:
(a) The new telecommunications infrastructure is based in large
metropolitan centers and will favor urban rather than hinterland
areas.
(b) The private sector, rather than government, has been responsible
for the design and development of a highly diverse information infrastructure
in American cities.
(c) Advanced telecommunications systems are strengthening cities
that serve as headquarters and financial capitals while also facilitating
the spatial dispersion of routine' information processing activities.
The impact of new information and telecommunications systems on
cities 'will be mediated and fundamentally modified by economic,
social, and cultural processes'. (Castells, 1985). The challenge
is. to determine under what conditions centralizing or decentralizing
processes will dominate, the types of cities likely to benefit or
be damaged by the deployment of advanced telecommunications systems,
and public policy alternatives for cities seeking to harness this
technology to their economic growth. In view of the fact that cities
are the information centers of advanced industrial society, it is
critical that we improve our understanding of how new communications
technologies are influencing the structure of services, land use,
and jobs in metropolitan regions.
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Originally published in Land Development
Studies
Number 3, 1986