IT and Telecom Sector Analysis

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 Executive Summary NYC Snapshot Pre-9/11 Baseline Impact Assessment Actions Methodology and Assumptions 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 • 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 • 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 • 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 • 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 Imperatives Key Actions Rebuild World-Class Infrastructure • Accelerate restoration of communications infrastructure • Reimburse/finance rebuilding of damaged infrastructure • Leverage opportunities to deploy “leapfrogging” technologies • Build the broadband infrastructure to support multiple centers of business around New York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan) • 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) Collaborate for the Future • Establish new business development zone(s) throughout NYC • Identify and prioritize prospective areas for development • Deploy advanced technology infrastructure, targeted toward small-business requirements Make NYC Better for Small Business • 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) 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 Information Technology Revenue, Jobs, and Companies (2000) Telecommunications Revenue, Jobs, and Companies (2000) $11.6B 52,867 1,174 $26.2B* 43,922 524 *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 IT Industry Pre-9/11 Projected Annual Growth Telecom Industry Pre-9/11 Projected Annual Growth Annual IT Revenue Growth Annual Telecom Revenue Growth (%) Source: IDC, Gartner Group, Economy.com, BAH Analysis • New technology purchases drive the IT Hardware market, creating greater sensitivity to slowing corporate IT spend and a general economic downturn • Outsourcing, maintenance, and other short-term fixed IT spend areas support the service sector, limiting its exposure to economic downturns • Emphasis on security systems (e.g., virus protection, intruder detection) drove any software growth in 2000-2001 • Decreased growth in wireless and data was expected as penetration increased • Local voice maket expected to remain flat, with long distance services seeing declines due to price competition • Hardware will experience a rebound with the roll out of new technologies such as 3G and 802.11b

9. In addition, industries that are historically large consumers of IT and Telecom (e.g., Financial Services) were reducing their spending levels US IT and Telecom Spendas Avg % of Firm Revenue by Industry Observations • Technology has become an integral part of business operations and firms have to spend on technology upgrade and maintenance every year • Reduction in spending as percentage of revenue is offset by overall increasing corporate revenues • Slower growth is driving down stock prices, however long-term forecasts indicate double-digit growth • Potential risk in New York City market as key local industries plan to reduce technology spend US IT Spend by Industry (2000) $ 59 B $ 112 B $ 151 B Technology Spend as a % of Revenue $ 379 B $ 67 B (1) (1) Other industries include Agriculture, Mining, Construction, Transportation, Utilities, IT, Petroleum, Services, Healthcare, Manufacturing, Transportation and EducationNote: 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

10. Estimated $2B in communication and utility cable/equipment repair -- $70% attributed to communications Based on $600/sq. ft. value estimate for 140 West Street property (Verizon) Includes replacement of cellular towers and other small replacement requirements 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 … other sectors lost ~$10B of technology infrastructure

11. Lower Manhattan saw a direct loss of 16 sector companies and 1,123 sector jobs Sub-Sector # Co.’s Jobs Listing of Sector Businesses Lost in Lower Manhattan* IT Hardware 3 49 Pre 9/11 Lower Manhattan IT and Telecom Sector IT Services 159 8,525 • Avesta Computer Svcs • Bridge Fixed Income Svcs • Careerengine Network • Espeed • Lindatech • Metiom • SRA America • Thor Technologies • Financial Technologies • Lava Trading • Optech Systems • Temenos USA • Thebeast.com • Ati Telecom • Ingress Net • Interoute Telcommunications IT Software 107 5,122 Telecom Hardware 2 468 Telecom Services 92 3,944 Total 363 18,108 Sub-Sector # Co.’s Jobs IT Hardware 0 0 Business Loss in Lower Manhattan IT and Telecom Sector IT Services 8 800 IT Software 5 238 Telecom Hardware 0 0 Telecom Services 3 85 Total 16 1,123 *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

12. Looking forward, planned technology spending has been postponed by six to twelve months STAGE 1 STAGE 2 STAGE 3 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 IT Spending ILLUSTRATIVE

13. The current downward trend in revenue growth will likely be extended for 2-3 quarters Quarterly NYC IT Revenue Quarterly NYC Telecom Revenue Revenues ($ BN) Revenues ($ BN) • Replacement of $12B technology infrastructure will be a source of revenue for the national technology sector • New York City will see 2.3% (of $12B) over 6-8 quarters Source: Gartner Group, IDC, Economy.com, Dun & Bradstreet, BAH Analysis

14. 60,000 50,000 40,000 30,000 The employment downturn will also be extended and a turnaround will lag revenue recovery Quarterly NYC IT Employment Quarterly NYC Telecom Employment 60,000 50,000 40,000 Employees Employees 30,000 0 0 • Rebuild efforts and temporary outsourcing service requirements limit additional layoffs • 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 • New employment recovery expected in late 2002, approximately three quarters later than originally forecasted • Service reconnection efforts and new service connections limit additional layoffs • 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 • Long term recovery now planned for late 2002, early 2003, approximately three quarters later than originally forecasted

15. Overall, the incremental impact on IT and Telecom from the 9/11 attacks is minimal relative to other sectors Key Drivers • 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 Net Incremental Impact Nearly zero incremental impact -- overall economic trends continue to drive the NYC IT and Telecom sector

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 Areas of Potential Contribution Examples Provide robust levels of redundancy and survivability Develop and deploy new technologies to drive business forward 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 Investors are reluctant to fund high-risk ventures Newly uncertain environment restricts access to new venture capital Dangers for the remainder of the economy Available funds have been used for recovery  • 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 Technology companies cannot support cutting edge efforts Communications companies in particular are short of cash for new projects Customers feel insecure and vulnerable … Sense of vulnerability (on both individual and corporate levels) heightens concerns about redundancy, security … 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

18. To address any potential issues we developed eleven joint public and private sector actions Action Impact on NYC Primary Support 1.) Reimburse/finance the efforts of key players to rebuild while upgrading 4 Combined public and private sector 2.) Help companies with capacity find customers with needs 1 Private sector 3.) Upgrade capacity and capability of communications infrastructure 4 Combined public and private sector 4.) Improve customer service, satisfaction, and customer options for communications service options 2 Combined public and private sector 5.) Establish demand-side and supply-side consortia to address key infrastructure requirements 4 Private sector 6.) Establish new business development region with advanced technology infrastructure 2 Combined public and private sector 7.) Provide mechanisms to help small technology sector companies take advantage of rebuilding spend 2 Combined public and private sector 8.) Enable small companies to refocus and/or diversify to accommodate shifts in company priorities 1 Private sector 9.) Support competition in communications services by educating businesses on available service alternatives 1 Combined public and private sector 10.) Channel investments to technologies critical to native NYC industries 3 Private sector 11.) Establish NYC as center of technology R&D by fostering climate for new technology venturing 2 Public sector Low Impact High Impact 0 4

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

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

21. NYC Snapshot

22. The New York IT and Telecom sector includes a number of familiar names, along with plenty of smaller players Sector Sub-Sector SIC Code - Description Examples IT Hardware • 357 - Computers, Peripherals, Office Equipment • Human Scale Corporation • Dot Hill Systems Corporation Software • 7371/2 - Computer related software • Nutech Integrated Systems • Aegis Software Services • 7373 to 7379 - Computer related services • AMC Computer Corporation • Netik Inc. Telecom Hardware • 366 - Communications Equipment • L3 Communications • Loral Space Communications Voice (Local & LD) • 4812 - Wireless Telecom Services • 4813 - Telecom Services • 4822 - Telegraph and other Communications • 4899 - Telecom services, not elsewhere classified • Verizon • RSL Communications • Arbinet-thexchange Wireless Data

23. The technology sector generated $37.8B* and employed nearly 97,000 people throughout New York City Information Technology Revenue, Jobs, and Companies (2000) Telecommunications Revenue, Jobs, and Companies (2000) $11.6B 52,867 1,174 $26.2B* 43,922 524 *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 NYC IT & Telecom Industry by Firm Size $100B $37.8B* 96,789 1,698 *Note: Only includes revenues generated in New York City. Verizon generates an additional $61B outside of New York City Source: Dunn & Bradstreet, BAH Analysis

25. Most sector companies reside within Manhattan -- Lower Manhattan hosts approximately 20% of the employment New York City IT and Telecom Employment (2000) Overall Distribution of IT/Telecom Firms, Jobs, and Revenue by NYC Region Lower Manhattan Other Manhattan Other Boroughs $30.9B IT Hardware 49 501 956 1,131 Software 8,525 24,626 2,543 60,554 Services 5,122 10,025 520 Telecom Hardware 468 432 616 Services 3,944 24,970 13,492 Total 18,108 60,554 18,127 Firms Jobs Revenue Other Manhattan New York City IT and Telecom Revenues (2000) Lower Manhattan Other Manhattan Other Boroughs 363 18,108 $4.0B IT Hardware $0.02 $0.5 $0.1 18,127 206 Software $1.1 $3.1 $0.07 $3.0B Firms Jobs Revenue Services $1.1 $5.4 $0.2 Lower Manhattan Firms Jobs Revenue Telecom Hardware $0.3 $3.9 $0.2 Other Boroughs Services $1.4 $18.0 $2.4 Total $4.0 $30.9 $3.0

26. Pre 9/11 Baseline

27. Pre-attack trends for IT and telecom showed slowing growth rates, with an anticipated rebound in Q4 2002 IT Industry Pre-9/11 Projected Annual Growth Telecom Industry Pre-9/11 Projected Annual Growth Expect steady 8-10% long-term growth for wireless Annual IT Revenue Growth Annual Telecom Revenue Growth (%) Source: IDC, Gartner Group, Economy.com, BAH Analysis • New technology purchases drive the IT Hardware market, creating greater sensitivity to slowing corporate IT spend and a general economic downturn • Outsourcing, maintenance, and other short-term fixed IT spend areas support the service sector, limiting its exposure to economic downturns • Emphasis on security systems (e.g., virus protection, intruder detection) drove any software growth in 2000-2001 • Decreased growth in wireless and data was expected as penetration increased • Local voice maket expected to remain flat, with long distance services seeing declines due to price competition • Hardware will experience a rebound with the roll out of new technologies such as 3G and 802.11b

28. Prior to the 9/11 attacks, the IT hardware subsector was on a downward trend, with software and services experiencing slowed growth Subsector Trend Drivers Hardware • Corporate IT spending trends play a major role • Key consumers of technology were slowing overall capital expenditures • Slowdown in consumer spending affects PC market Software • Shift in spending was away from discretionary software • Security was already a priority for many companies • Spending levels are maintained by long-term contracts and need to upgrade Services • Outsourcing services benefited as companied sought to reduce costs • Companies delivering discretionary services (e.g. customer software development) saw the greatest slowdown Company Size Trend Drivers Small • Smaller firms felt disproportionately large impact from economic slowdown • Funding for new ventures had become scarce Large • Many large firms had begun to lay off workers to maintain profitability • 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 Trend Drivers Hardware • Slowdowns in corporate spending limited once-high growth • Large providers that had planned for continued explosive growth faced an inventory glut • Failures/bankruptcies in several sectors (e.g., CLECs) placed strains on vendor financing activities Wireless (voice) • Trends from Europe and Japan indicated wireless services would weather the economic slowdown well • Slowdown in growth was a consequence of increased penetration rather than economic conditions • Increasing ARPU offset slowdown in new subscribers Wireline voice (LD&IXC) • Markets were nearly 100% saturated and facing cutthroat price competition • Growth was extremely limited Data • Growth in high-bandwidth services was driven by constantly increasing data requiremens and advanced internet applicaitons • CLEC and competitive player failures were becoming increasingly common, but incumbents continued to perform well Company Size Trend Drivers Small • Smaller firms felt disproportionately large impact from economic slowdown • Funding for new ventures had become scarce Large • Large telecom firms (e.g., Verizon) experiencing increased profit margins • Medium size wireless carriers were having trouble accessing capital for growth • Voice continued to experience margin pressure • 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 • 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 • 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 • 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 • 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. Estimated $2B in communication and utility cable/equipment repair -- $70% attributed to communications Based on $600/sq. ft. value estimate for 140 West Street property (Verizon) Includes replacement of cellular towers and other small replacement requirements The immediate capital loss from the 9/11 attack is estimated at ~$2B, comprised primarily of facilities & equipment Source: Morgan Stanley estimates, NYC Comptroller Report, news articles, BAH Analysis … Other sectors lost ~$10B of technology infrastructure

33. Overall, the incremental impact on IT and Telecom from the 9/11 attacks is minimal relative to other sectors… Key Drivers • 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 Net Incremental Impact 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

34. … but limits on the IT and Telecom sector’s ability to drive innovations could impair the remainder of the NYC economy Investors are reluctant to fund high-risk ventures Newly uncertain environment restricts access to new venture capital Dangers for the remainder of the economy Available funds have been used for recovery  • 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 Technology companies cannot support cutting edge efforts Communications companies in particular are short of cash for new projects Customers feel insecure and vulnerable … Sense of vulnerability (on both individual and corporate levels) heightens concerns about redundancy, security … 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

35. Although Lower Manhattan is home to 363 sector companies, their business base was not severely impacted by 9/11 Sub-Sector # Co.’s Jobs Listing of Sector Businesses Lost in Lower Manhattan* IT Hardware 3 49 Pre 9/11 Lower Manhattan IT and Telecom Sector IT Services 159 8,525 • Avesta Computer Svcs • Bridge Fixed Income Svcs • Careerengine Network • Espeed • Lindatech • Metiom • SRA America • Thor Technologies • Financial Technologies • Lava Trading • Optech Systems • Temenos USA • Thebeast.com • Ati Telecom • Ingress Net • Interoute Telcommunications IT Software 107 5,122 Telecom Hardware 2 468 Telecom Services 92 3,944 Total 363 18,108 Sub-Sector # Co.’s Jobs IT Hardware 0 0 Business Loss in Lower Manhattan IT and Telecom Sector IT Services 8 800 IT Software 5 238 Telecom Hardware 0 0 Telecom Services 3 85 Total 16 1,123 *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

36. Rebuilding efforts support the technology sector – estimates indicate $8B of technology infrastructure must be replaced by former WTC occupants 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 UNKNOWN: Who will leave NYC? Companies with greater than 500 employees within WTC Source: NYC Comptroller Report

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 Imperatives Key Actions Rebuild World-Class Infrastructure • Accelerate restoration of communications infrastructure • Reimburse/finance rebuilding of damaged infrastructure • Leverage opportunities to deploy “leapfrogging” technologies • Build the broadband infrastructure to support multiple centers of business around New York City (e.g., Lower Manhattan, Brooklyn, Queens, Upper Manhattan) • 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) Collaborate for the Future • Establish new business development zone(s) throughout NYC • Identify and prioritize prospective areas for development • Deploy advanced technology infrastructure, targeted toward small-business requirements Make NYC Better for Small Business • 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) 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 Imperative Description Potential Benefits • Replace one-time capital losses suffered by the industry as a result of the 9/11 events • Drive the NYC infrastructure forward by upgrading it where possible • Provides short-term financial support to sector companies experiencing significant infrastructure damage • Restores IT/Telecom services and infrastructure while instituting higher levels of customer service Rebuild World-Class Infrastructure • 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 • Potentially, provides valuable precedent for greater cooperation between supply-side sector companies and demand-side industries for future issues Collaborate for the Future • Develop ongoing mechanism to determine technology requirements of different industries and NYC economy as a whole • Establish cooperative environment for technology players to work with customers to provide best solutions to address requirements Make NYC Better for Small Business • Provide resources to ensure the viability of small businesses within NYC, both within and outside of the technology sector • Allows small companies to leverage leading technologies in operations and/or service offerings • Provides key selling point for NYC to potential small business community members, vs. other regions • Encourages development/testing of innovative technologies on limited basis within NYC Nurture Innovation and Foster Competition • Facilitate the development of new technologies on an ongoing basis • Create an environment to encourage the exploration of new products and services • Provides continued funding to high-growth areas, to ensure industry is not “left behind” by faster players elsewhere • Helps to retain skilled high-tech talent pool within NYC area

41. Eleven actions emerged across the imperatives Imperatives Actions 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 Rebuild World-Class Infrastructure 5a.) Establish demand-side consortia to address key infrastructure requirements 5b.) Establish supply-side consortia to address key infrastructure requirements Collaborate for the Future 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 Make NYC Better for Small Business 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 Nurture Innovation and Foster Competition

42. Four actions stand out as the highest priority, with potentially enduring benefits and high feasibility Imperatives Actions Highest-Priority Actions 1.) Reimburse/finance rebuilding … 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 Rebuild World-Class Infrastructure 2.) Help companies with capacity find … 3.) Upgrade capacity and capability … 4.) Improve customer service, satisfaction … 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 … Collaborate for the Future 5b.) Establish supply-side consortia … 6.) Establish new business development … 7.) Provide mechanisms to help small … 6.) Establish new business development region with advanced technology infrastructure Make NYC Better for Small Business 8.) Enable small companies to refocus … 9.) Support competition in communications … 10.) Channel investments to technologies critical to native NYC industries Nurture Innovation and Foster Competition 10.) Channel investments to technologies … 11.) Establish NYC as center of … Each of the actions is discussed in detail in Appendix C

43. Methodology and Assumptions

44. At each stage of analysis, we validated hypotheses with multiple credible sources Description Section • Leveraged Dun & Bradstreet database of NYC companies identified by SIC code • Gathered key information for these companies including employee and revenue figures • Isolated Lower Manhattan companies by zip code • Developed profile of the technology sector, segmented by size and subsector NYC Snapshot • IDC • Gartner Group • Economy.com • Projections based on external sources and overall economic drivers • Key factor is planned IT spend at major companies Pre 9/11 Baseline • Incorporated interview results (industry executives, analysts, investment experts) where possible • Utilized three forecast scenarios (Base, Pessimistic, Optimistic) • Incorporated interview results (industry executives, analysts, investment experts) where possible • Developed and incorporated subsector-specific assumptions where appropriate (discussed within Impact section) Impact • 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 • Added to and refined this set based on interview feedback Initiatives

45. Organization Name Title/Level Accenture Bill Andrews Associate Partner Lucent President, Worldwide Svcs Accenture Steve Phillips Partner Lucent Product Management VP Accenture Mark Tillinger Partner, Capital Markets Group Leader Lucent Global Program Mgmt VP Aegis Software Inc Andrew Serrel Senior Vice President Lucent Executive Vice President AMC Corporation Mark Romanowski Chief Financial Officer MSDW Managing Director Arbinet-thexchange Mike Lemberg Director MSDW Managing Director AT&T Michael Armstrong CEO Netik Inc Executive Vice President AT&T Reed Harrison Senior VP, Local Service & Network Nutech Integ. Sys. Controller Avaya Don Peterson CEO Probe Research Analyst, Telecom Bear Stearns Rich Lukaj Senior MD RCN VP, GM Manhattan Ops CIBC Gary Rabin Senior MD RRE Ventures Director ConEd Communications Peter Rust CEO Siemens Corporation COO CSFB Todd Raker Managing Director Verizon President, Bus. Solns. Grp. Global Crossing David Carey Senior VP, Global Network Verizon Corporate Economist IBM Gus Maikish Managing Director Verizon President, Retail Markets Inforocket.com Susan N. Executive Vice President Verizon Group President, NY & CT John Heindel Warburg Pincus Senior MD 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 Our sources included interviews with over 30 individuals, including large and small companies as well as sector experts Interviewees

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

47. … in the context of the three standard scenarios established by the Core Team Impact Scenarios Scenario Assumptions Implications • Unclear implications of conflict • Recession in Q3 and Q4 2001 due to declining consumer confidence • Recovery in Q1 2002 • Market expectations of industry growth rates over the next few years considering the impact of 9/11 attacks • Further reduction in growth rates following the 9/11 attacks but recovery time is expected to be the same Base Pessimistic • Economic depression with 4 consecutive declining quarters • Plunging consumer confidence stays low • Escalation of hostilities with lingering fear • Deeper plunge in growth rates followed in some cases by a longer wait time for the growth rates to turn around Optimistic • “Best-case” scenario • Conflict primarily resolved and/or clarified in short term • Consumer confidence rejuvenated • Downturn subdued • Technology sector demonstrates immediate comeback • 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 STAGE 1 STAGE 2 STAGE 3 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 IT Spend ILLUSTRATIVE

49. New York City’s historically close tracking of national growth rates guided the sector trajectories US and New York City GDP Growth Rates Observations • 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 • This rise is expected to arrive after a 3 or 4 quarter time lag as the rebuilding spend trickles throught he economy • 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 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 Description Drivers • Demand to create additional redundancy infrastructure drives most technology sub-sectors (hardware, software, services) exception being telecom services • Industries like postal services, airlines will increase their technology spending on security and redundancy needs • Industries which have traditionally been high consumers of technology will also re-evaluate their budgets to increase their spend on security/redundancy Additional Security/Redundancy • Drive to decentralize key information will lead to increased implementation of remote communications solutions • Some larger players may acquire small companies with proprietary technologies -apply marketing $ supported by brand name to grow the market for these services • Increase in telecommuting needs will increase demand for services like home offices and video conferencing New remote communication needs • $10-12B flowing into technology sector -- $230-275 MM in New York specific companies • 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 Rebuilding Activities