New York Isn't Just New York Anymore

It has become a commonplace that new technologies overcome traditional geographic boundaries by achieving communication electronically rather than by face-to-face interaction. Because they permit the dispersal of activities, new information technologies have largely been seen as threats to the economic well-being of cities, rather than as supportive and complementary communications sytems. As British geographer Jean Gottmann has noted, "the basic question . . . is whether in the present evolution toward an information society, the gathering of people in cities is still necessary. As telecommunications improve, could the massive and dense concentration in large urban centres, and the nuisance this concentration entails, he done away with and replaced by a scattered habitat held together by networks of wires and cables?"(1)

The Telephone and the Skyscraper

Telecommunications technologies have clearly facilitated the movement of economic activity out of cities. The telephone has enabled firms to separate headquarters physically from manufacturing functions. while still maintaining control over production. Communications technologies enable firms to shift industrial activities to locations where the costs of land, labour or raw materials are low while still centralising command and coordination functions. For example, computer-aided design permits fashion designers to work in mid-town Manhattan while their products are manufactured in other parts of the United States and in other countries.

The use of telecommunications systems to transmit messages over long distances has not, however, reduced the value of the face-to-face transactions that occur in the world's leading cities. Proximity is still a vital element in corporate decision making. New communications technologies have reinforced rather than weakened the importance of information capitals. This paper examines the relationship of telecommuni- cations to urban development, focusing upon events and issues arising in the New York-New Jersey metropolitan region.

The role of telecommunications in the decentralisation of cities has been given far more attention than the contribution of communications technologies to the centralisation of economic functions. The telephone. for example, was critical to the development of the tall office building, the hallmark of architecture in central cities. Prior to the telephone, human messengers were the primary means of bringing information into and out ototfice buildings. As one observer wrote in 1908, "Suppose there was no telephone and every message had to be carried by a personal messenger. How much room do you think the necessary elevators would leave for offices' Such structures [skyscrapers) would he an economic impossibility."(2)

By allowing firms to enlarge their geographic and functional scale, telecommunications has also reinforced the need for control and coordination from a central managerial perspective. As firms become larger and more diffuse in terms of goods and services. the need for overall coordination also increases, and telecommunications facilitates both processes. As Gottmann has argued, "the telephone's impact on office location has thus been dual: first it has forced the office from the previous necessity of locating next to the operations it directed: second, it has helped to gather offices in large concentrations in special areas."(3)

Telecommunications are a predominantly intra- urban and inter-urban phenomenon. In 1977. the 16 largest metropolitan areas in the US accounted for one-third of all interstate business message loll service (MTS) and wide area toll service revenues. Furthermore, the top 32 metropolitan areas were responsible for half of all such revenues.(4) Telephone traffic demonstrates the intense communications patterns among those metropolitan areas where the majority of individuals and firms are located. Although hinterland areas have been made more accessible with telecommunications, it is important to recognise the urban basis of most telephone messages. Dale Hatfield, in testimony to the US House of Representatives, has pointed out that "Most business machine communications travel only a short distance. Only about 8% of communications traffic travels more than 500 miles. Thirty two percent travels between facilities less than 500 miles apart. The remaining 60o is intrafacility."

A strong case can be made that telecommunications serve both centralising and decentralising functions. The conventional wisdom that telecommunications are a substitute for human physical interaction ignores the fact that telecommunications and transport are mutually-reinforcing systems. In a study after the energy crisis of 1973, the late Ithiel de Sola Pool found that when air travel was reduced, so was telephone traffic. Indeed, it has been sungested that "telecommunications, at the very least complements rather than substitutes for the physical movement of people. Indeed, it is not unlikely that one stimulates the other and that they may have a symbiotic relationship."(5)

Advanced communications systems will become even more significant for cities, such as New York and London, that have undergone the transition from an industrial to an information economy. For example. New York City's economic strength is derived from the ability of its individuals and firms to connect bits of information into profit-making services and to produce decisions that result in the production of goods and services across the globe. During the past 25 years. New York City's economy has shifted from one of production and handling of goods (i.e., manufacturing, trade and transport) to an economy characterised by the prominence of information-handling activities. In 1958, the information sector, which comprises 18 of the 51 private non-agricultural industries, accounted for 35% of the city's private employment. By 1982, the information sector had grown to 54% of the city's private employment. Furthermore, the information sector accounted for 41% of the city's income in 1958 and 56% of the city's value added in 1982. These figures do not include federal, state and local government which also have a high information component. Banking, securities and business services together accounted for almost 23% of total city value added in 1982, more than double that in 1958. Information handling and processing activities are the fastest growing sectors of the city's economy.

In an information-based economy, the economic viability of a city depends upon its communications infrastructure: its ability to send. receive and process messages. New York City's growth as an information capital has been made possible, in part. by the advent of telecommunications systems which allow financial and other headquarters functions to be concentrated in the Manhattan central business district and facilitate the dispersal of manufacturing and sales activities. While goods-related activities such as manufacturing may occur outside the central business district (in the outer boroughs, elsewhere in the region and around the world), key decisions about those activities are nonetheless made within New York's corporate headquarters complex. Thus, the capacity to transmit information efficiently and rapidly in, through and out of the city is vital to the city's economic well-being. Information is the engine that drives the city's economy and generates demand for a sophisticated and advanced telecommunications plant.

New York City is currently the leading U.S. departure point for international communications traffic. In 1982, New York City alone accounted for more than 20% of all overseas message units emanating from the U.S. (this excludes calls to Mexico and Canada).

Table 1: Overseas Message Units (1982)

Area Code Units New York City - 212 22,718,027 Los Angeles - 213 9,310,028 San Francisco - 415 4,535,474 Chicago - 312 4,028,709 Northern New Jersey - 201 4,639,122 Connecticut - 203 2,129,146 Westchester, Putnam, Orange and Rockland Counties, NY - 914 1,879,576 Nassau-Suffolk, Long Island, NY -516 1,705,740 Total (USA): 115,001,763

Source: AT&T Communications

More than twice as many overseas message units were generated by New York City as by Los Angeles. When New York City, northern New Jersey, Long Island and the four New York State counties to the north of New York City are added together, the New York metropolitan region accounted for almost 30% of the nation's overseas message units.

New York City's predominance as an international financial centre is reflected in the fact that in the decade from 1972 to 1982, the number of foreign banks with offices in New York has doubled to 336. The concentration of information and financial service firms in New York City has led to the development of a diverse set of telecommunications facilities and services. The city's central business district represents the equivalent of a "telecommunications park" with extensive webs of coaxial cable, optical fibre, and readily available microwave transmission facilities. It is the only city in the US with coaxial cable extending through the central business district, an optical fibre link running on the perimeter of the central business district, and a planned optical fibre link to a major communication satellite and office park project.

New York City has more telephones than any other city in the US or Europe, and there are more word processors in Manhattan than in all of Western Europe. New York City's two cable television systems are among the largest systems in the country with a combined total of over 225,000 subscribers. One New York cable operator, Manhattan Cable TV, is a leader in the use of cable for two-way data transmission for corporate and government applications.

Table 1: Overseas Telephone Traffic From New York City (1982)

Destination Percentage United Kingdom 37.4% France 11.9% Italy 9.5% Germany, FR 9.3% Israel 6.6% Switzerland 6.4% Japan 5.3% Colombia 5.0% Greece 4.5% Brazil 4.3%

Source: AT&T Communications

New York Telephone's recently completed 48,000-circuit optical fibre ring around Manhattan (RAM) links 12 major switching centres in Manhattan. The dominance of information handling activities in the New York City economy, the advent of communications deregulation, and the dynamic state of telecommunications technology will generate even further changes in the city's telecommunications infrastructure over the next decade.

New York City is also the key link in several new inter-city fibre optic networks including AT&T's fibre link to Washington, D.C., and MCI's planned fibre route from New York to Miami. In addition, New York City's extensive terrestrial microwave facilities include systems used for broadcast television networking and for relays to satellite earth stations outside the city. Microwave technology is also being used for intra-city communications services such as microwave multipoint distribution services and cellular mobile radio services.

New York is also the centre of the nation's broadcasting industry. The three major television networks headquartered here reach over 96% of US households. The 36 local radio stations and nine local broadcast television stations serve over eight million households - the largest broadcast market in the US. In addition to its role as the leading site for the production of television advertising, industrial films and corporate video. New York is rapidly becoming a major production centre for cable TV programming. Many cable television programming services are based in the city as are two leading multiple systems operators.

Two major satellite projects, the Teleport in Staten Island, N.Y., and the Hughes Spring Creek satellite station in Brooklyn, N.Y., will add dramatically to the number of satellite earth stations in New York City and assured unparalleled access to communication satellites for New York City firms. Moreover, a new generation of communication satellites employing the ku-hand will also greatly increase the number of salrilitc-acressible sites within the city.

Integrated Telecommunications

Several major firms have built or are in the process of building their own telecominunications systems to serve local and regional communications needs within the New York-New Jersey region. Enhanced telecommunications infrastructure "can he used by a developer to attract tenants and to generate additional revenues, by marketing such services as video security monitoring, teleconferencing, high-speed data channels, and satellite television distribution - all carried on a coaxial cable or fibre optic local area network."(6) Office buildings, for example, are being designed to provide advanced telecommunications infrastructure for integrated video, voice and data services.

Citicorp has created a metropolitan network called Micronet, which links five Manhattan sites by optical fibre or microwave. There is also a link to Citicorp's satellite network. Micronet offers advanced voice, video and data services and is being marketed within Citicorp and to other corporate users as well. Olympia & York own and manage more than 14 million rentable square feet of prime office space in New York City. By 1985 they will have another 10 million square feet in major complexes in New York City and throughout the U.S. O&Y recently formed a joint venture with United Telecommunications, the second largest US non-Bell telephone company, and together they are developing a network that will link each O&Y office complex. The O&Y network will offer advanced telecommunications services such as electronic mail. teleconferencing and high-speed data transmission to small and medium sized tenants: services that are currently available to large corporations only.

In midtown Manhattan, United Technologies is installing an optical fibre cable in Tower 49, an office building located at 49th Street between Fifth Avenue and Madison Avenue. Tenants will be able to engage United Technologies to provide telephones, electronic mail and other telecommunications services. Satellite Business Systems (SBS), a joint venture of Comsat, Aetna and IBM has formed SBS Real Estate Communications Corporation (Relacom) to market telecommunications services to real estate developers and owners while AT&T and United Technologies are engaged in a joint venture to provide communications services to commercial buildings and tenants. For existing office buildings, a major challenge involves the installation of advanced communications services. Duct space for new coaxial cable or optical fibre is often limited in older buildings and the cost of rewiring office structures can be very high.

Twenty-Four Hour Operations

The enormous capital investment in computer and communications equipment in conjunction with the international character of New York's financial operations has led many institutions to run their operations on a 24 hour basis. A facility which operates round the clock requires access by safe and reliable transport on a 24 hour basis as well. Although New York's mass transit system runs 24 hours a day, several mass transit lines are not perceived to be safe after daytime hours. By contrast, suburban locations are accessible by car and equipped with private parking facilities. Large financial institutions in lower Manhattan currently pay the cab fare home for employees who work late in the evening. This reflects the limited commuter rail and subway service at off- peak times, and highlights the flexibility of automobile travel for access to round-the-clock facilities.

The growing use of telecommunications technologies in finance, insurance, real estate and services is of particular importance for the location of hack office operations in the New York-New Jersey metropolitan region. Back office operations typically include cheque processing, security processing and clearance, claims payment, and other support services. Back office operations which once were defined by their lack of direct client contact, now include customer service operations that provide telephone- based contact with bank and credit card customers. Certain banks and credit card companies, in fact. use back office rather than front office personnel to handle routine enquiries and information requests. Back office personnel are equipped with computer terminals that allow them to carry out more functions and with greater speed than tellers or other managerial personnel.

Each sector of the financial resource industry handles back office activities differently. Insurance carriers, for example, have evolved from labour intensive to capital intensive industries and have typically established large regional processing centres across the country. In 1983, New York City insurance carriers accounted for 74,000 employees, the securities industry for 100,000 and banking for 173,000.

Dispersal of Back Offices

The back office operations of the major securities firms have traditionally been situated in lower Manhattan, near the New York and American Stock Exchanges. The back office operations of New York City's large commercial banks - Chemical, Chase Manhattan and Manufacturer's Hanover - have long been located on Long Island, while Citicorp has back office facilities in South Dakota and Florida, as well as in New York City and on Long Island. As banks, brokerage firms, and insurance companies become integrated national operations, the distinctions among them will fade. As a result, the location of their back office operations may increasingly be dispersed across the country rather than being based in New York City or the surrounding region.

The major factors that influence the location of back office operations in New York City are:

• the costs of occupancy.
• labour skills needed.
• taxes and transport.
• the technological requirements.

The average office employee occupies approxi- mately 150 square feet: the cost of space in New York's central business district has risen from $10 (£7.60) a square foot in 1974 to approximately $40 (£30.50) a square foot in 1984. The clerical worker who required $1,500 worth of space in 1974 requires $6,000 (£4,600) worth of space in 1984. Although Manhattan is the preferred location for many back office operations, it is possible to obtain equivalent office space at almost half the cost on Long Island and in New Jersey. Thus, as leases expire (and approximately 10-15% of office leases expire annually), firms are considering alternative locations where rents are cheaper than Manhattan's prime office space.

One of New York City's traditional assets has been access to an enormous, skilled workforce. As back office operations have been transformed from paper to electronic systems, the requisite labour skills have been upgraded. The ability to gain access to an educated female suburban workforce has been one factor contributing to the movement out of cities. College-educated women seeking part- and full-time employment close to their homes are a significant part of the suburban back office workforce. In addition. certain employers deliberately do not concentrate large numbers of clerical workers in one location for fear of unionisation.

The mass transit system which links New York City's central business district to the outer boroughs and the rest of the metropolitan region is a powerful advantage in attracting a skilled and diverse workforce in Manhattan. However, breakdowns, delays and safety on the region's mass transit system pose genuine impediments to attracting and retaining back office employment in New York City.

Finally, commercial banks in New York City are subject to a combined city and state tax rate on earnings of 24.23%. This rate exceeds that of every other state and is especially high in comparison with Delaware's 2% to 6% tax rate. Although New York holding companies have established banking subsidiaries in Delaware, only a modest portion of their operations have been transferred to Delaware so far. However, it is possible that once such banking subsidiaries are successfully established in Delaware. additional banking activities will be transferred. There are approximately 400 million square feet of office space in the tri-state region, consisting of New York City. Westchester and Rockland Counties in New York State, Fairfield County, Connecticut and nine New Jersey counties. Approximately 280 million square feet are in New York City and 120 million in the surrounding region.

Manhattan West

Within this region, there is considerable diversity and specialisation. In the late 1960s and early 1970s, Fairfield County, Connecticut and Westchester County, New York were perceived to be the threats to the corporate headquarters located in New York City. During the same period, Nassau and Suffolk Counties on Long Island blossomed as back office sites for the large commercial banks, many of which then functioned under New York State charters. Today, New Jersey is regarded as the threat to the New York City back office market.

New Jersey's riverfront communites of Jersey City, Weehauken, and Hoboken, are currently the sites for large scale office and commercial development. Commercial real estate development in these communities builds upon several distinctive advantages:

• relatively low cost energy and construction.
• good automobile and commuter rail access to Manhattan.
• close proximity to Newark International Airport.
• access to a diverse, affordable housing market in New Jersey.
• spectacular waterfront vistas of New York City.

The Mayor of Jersey City has referred to his commu- nity as New York's "sixth borough" while real estate advertisements label Hoboken as "Manhattan West." On the other side of the East River, back office sites in downtown Brooklyn offer close proximity to tower Manhattan, subway and commuter rail linkages. access to a large labour force, and the availability of two sources of electrical energy.

Rather than being viewed as a threat to New York City. the proposed office developments in New Jersey may more accurately reflect the strength of the New York-New Jersey region and the strong market' preference for office locations close lo the Manhattan central business district.

Few cities approach the scale and scope of New York City's information sector, but the issues and policies confronting the New York metropolitan region are similar to those which other urban regions must address. Major cities in the U.S., Western Europe and Asia are actively involved in considering the use of telecommuncations as an economic development tool. Anne W. Branscomb has discussed the possibility that communications technologies will be the focal point for future urban growth: "The cities of the future may cluster around satellite 'up links' rather than at the mouth of rivers. Alternatively, small low-cost satellite saucers may free populations from the cluster syndrome and equalise communications opportunities for rural residents. The industrial parks of the future may advertise free satellite saucers rather than railroad spurs as a major attraction - especially since they are more likely to be "communications campuses" rather than industrial parks."(7)

The experience of New York City highlights the strategic relationship between telecommunications and urban economic life. New York City is clearly the financial and information capital of the US. It is the headquarters of 72 of the Fortune 500 largest industrial firms. 11 of the nation's 50 largest commercial banks, 14 of the nation's 50 biggest diversified financial firms and six of the 'big eight' accounting firms. Moreover. New York's 11 largest commercial banks control 42% of the assets of the nation's largest banks. These information-intensive businesses generate demands for new and more specialised forms of voice, data and video communications. An elaborate telecommunications infrastructure has been created to provide high-speed communications within office buildings located in Manhattan's central business district; to permit corporate coordination of dispersed manufacturing and back office facilities; and to link New York City with international capital markets round the clock.

The design, construction, and operation of this network of wires, cable ducts, pitches, repeaters, structures and channels has largely been the work of tly private sector, with local government playing a passive or reactive role. New York City's primary involvement with telecommunications has been as a regulator of cable television. Ttie city's influence over other communications systems occurs indirectly. through its land use regulations, building codes, and tax policies.

As telecommunications have become a pervasive factor in the city's economy and in the provision of public services, the public sector is taking a more active role in fostering the development of new telecommunications systems. After several years of planning, the municipal government has authorised the construction of 70-channel cable systems in the four outer boroughs of Brooklyn, Queens, Staten Island and the Bronx. These cable systems will include an institutional cable designed to serve public agencies and businesses. The City of New York and the Port Authority are also involved in a joint venture with the private sector to build the Teleport on Staten Island which will consist of 17 satellite dishes, an office park and optical fibre link lo New York and New Jersey.

The public sector has become a major user, regulator, and developer of communications facilities in the New York-New Jersey region. Perhaps the greatest challenge for local and regional agencies will be the deployment of new telecommunications technologies to improve the productivity of public services. New York City, for example, leases 2,000 telephone lines for traffic signalisation; alternative technologies are available to do the same job at lower cost.

New telecommunications technologies are transforming the function, but not the form. of the New York-New Jersey metropolitan region. Communications technologies alone are not responsible for decisions by individuals or firms on where to locate. New telecommunications technologies reinforce existing economic forces and preferences for centralisation and decentralisation. Much of our thinking about telecommunications technologies ignores the existing social, economic and organisational constraints within which new technologies are used. The strength of the New York- New Jersey region is increasingly linked to the application of new computer and information technologies in the service and financial sectors. Such technologies are enhancing New York City's role as an international information centre while contributing to the dispersal of routine office functions to other parts of the region and the nation.

References

1. Jean Goltrnann, 'Megalopolis and Antipolis: The Telephone and the Structure ot the City', in Ithiel de Sola Pool. ed. The Social Impact of the Telephone. MIT Press. 1977, p. 306.

2. Ithiel de Sola Pool, Forecasting the Telephone: A Retrospective Technology Assessment. Ablex, Norwood. New Jersey, 1983. p. 43

3. Gottmann, Ibid, p. 311.

4. John Lungdale, "Competition in the United States' Long- Distance Telecommunications Industry," in Regional Studies. Vol. 17. no. 6, p. 398.

5. Thomas Mandeville. "The Spatial Effects of Information Technology," in Futures. Vol. 15. no. 1. February 1983, p. 66.

6. Walter S. Baer. "Telephone and Cable Companies: Rivals or Partners in Video Distribution." Times Mirror. March 1984.

7. Anne W. Branscomb, "Beyond Deregulation: Designing the Information Infrastructure," in The Information Socieiy Journal. Vol. 1. no. 3. 1982. pp. 182-185.

 

Originally published in Intermedia
Volume 12, Number 4/5, July/Sept. 1984.