SUPER CABLE, SUPER NEWS

How according to some, the arrival of "top of the bill" digital infrastructure could lead to new concentration patterns

· Short lead

· Does the arrival of the information age mean new location patterns for ICT companies?

· Is the quality of the digital infrastructure a location factor of importance in this?

Full Paper

In medieval times, high transport costs and a lack of communications made large-scale conurbations a practical impossibility. As countries industrialised, transport costs fell and economies of scale became more important. Companies also needed to be near factors of production such as coal. As the benefits started to outweigh the costs, towns and industrial regions formed.

Now, the theory goes, advances in technology are making agglomeration unnecessary. Companies no longer need to locate them selves near a coal mine to get a good supply of power. E-mail and videoconferencing mean that distance and time are no longer barriers to communication.

As the reasons for companies to locate themselves near each other disappear, so expensive congested cities and industrial clusters should wither. Eventually the result should be new patterns of concentration and de-concentration of economic activity around the world.

As with every theoretical insight, not everybody agrees. Opponents of the just described death of distance theory argue that even though it is possible for companies to locate anywhere, they still prefer to locate close to each other This is the so called face to face theory. The most important reason being that in spite of advances in communication technology, the most effective way to communicate is still face-to-face. New ideas are better discussed in the pub or over a cup of coffee than through more formal channels. People who know each other personally are more likely to swap ideas than those whose only contact has been via e-mail. And in this age where information becomes more and more essential to a company's performance the need to locate there where one can meet others is even more important than before.

Because the information age has just recently "arrived" it is not yet clear who is right. Will everything stay the same or will new patterns of concentration and de-concentration emerge?

The aim of this paper is to contribute to the above outlined debate by looking at the case of Groningen. This is a relatively deprived and underdeveloped region in the North of the Netherlands, where local politicians believe that the arrival of a digital super cable will attract many ICT companies and thus a new concentration of economic activity will emerge [1] .

· Does the information age mean that new concentration or de-concentration patterns emerge or will everything stay the same?

· Does the quality of digital infrastructure play a role in determining what shape the new patterns will take (i.e. is digital infrastructure a location factor of importance in the information age)?

· Can digital infrastructure be used as a panacea against regional deprivation?

To explore these issues, this paper will first describe the problems Groningen has been facing. In the second section, the characteristics of the digital super cable are summarised. The third and fourth section of this paper are based on fieldwork carried out by 6 final year students of the University of Groningen. This section describes the results of numerous expert interviews and a survey of ICT companies in the Netherlands and abroad. All with the aim to find out more about the role this cable can play in the regional economy. Finally this paper ends with some conclusive thoughts and hopefully some building stones to take the theoretical debate about the loss of time and space constraints a step further.

Due to its remote and isolated (according to- Dutch standards [2] ) location Groningen has always been lagging behind the rest of the Netherlands.

Map 1 The Netherlands

Thirty years ago the Groningen economy was characterised by very labour intensive industries such as textiles, metal and agriculture. During the Eighties when recession hit Europe, Groningen suffered more than other regions in the Netherlands. The recession accelerated the process of labour intensive industries (that once dominated the economy) moving to lower wage countries and unemployment plummeted.

The lack of employment meant that many young inhabitants of the region tried their luck elsewhere, resulting in an absolute population loss and a greying population.

Many initiatives have been launched to turn around this negative spiral. From TV-commercials and financial incentives for companies to the "forced" movement of governmental institutions to Groningen city, all the standard solutions where tried. Some worked a little others did not. Overall, most companies preferred the central location of the Randstad agglomeration (Amsterdam, Rotterdam, The Hague and Utrecht).

More recently Groningen and especially Groningen-city has started to focus on the ICT sector. Most importantly because this is the fastest growing sector in the Dutch economy and Groningen wants to share in this growth. In 2000, the Dutch ICT sector was responsible for 25% of annual economic growth (CPB, 2000), and the total annual investments amounted to 35 billion US dollars (EZ, 2000, p.10).

The aim of the local government is for Groningen City to become one of the top five ICT- cities in the Netherlands. In a huge marketing campaign, the city portrays itself at Thé ICT-city of the Netherlands. The campaign focuses on communicating the benefits of locating in Groningen, rather than the Randstad (Amsterdam, The Hague, Rotterdam and Utrecht). In Groningen there is much more space so house and land prices are relatively low, Groningen has no shortages in the labour market, an abundant energy supply, a good university and last but not least the quality of life is much better than in the Randstad.

So far their efforts seem to have been quite successful. In the past three years employment in the sector has grown by 29% per year. It is not clear whether this is really thanks to the active efforts of the local government or whether they are just benefiting from the general trend of growth in the ICT-sector as a whole.

Despite these positive figures, the contribution of the ICT-sector to the regional economy is still very small. In total 10.000 people are employed by ICT companies, this a mere 2% of the total labour force.

Since January 2001 another bonus of locating in Groningen has been added to the Groningen ICT-city campaign: the quality of the digital infrastructure. The local politicians believe that by becoming a hub in a global digital infrastructure network Groningen possesses a clear advantage over other regions.

When the mayor and the secretary of Economic Affairs of Groningen found out that TyCom the American cable-builder was looking for a "landing" place in Europe for their ultra speed transatlantic cable, they immediately started an intensive lobbying campaign. They convinced TyCom that Groningen with its energy supply and space, low land prices and a good university was the best possible landing place for the cable. The cable will arrive, in the fourth quarter of 2001.

The TyCom global network is (TGN) is planned to be the most extensive and technologically advanced under sea fibre optic network in the world. The cable can transport 3.84 terabits a second, which means that 750 CD's or 1 million books with an average of 200 pages can be downloaded from the internet per second.

The TGN system will be built in phases over 10 years. Ultimately it is expected to reach over 250,000 under sea kilometres and link to terrestrial networks on all 6 inhabited continents.

In the first phase 35 cities will be connected to the Global Network. Groningen city is one of them (figure 1). In total TyCom will invest 100 million dollars in the region.

Figure 1 TyCom Global Network, phase 1

The sea cable will come ashore 40 km North of Groningen city. From there the cable will continue over shore to the science park next to the university campus in the city. Here a TelExchange will be built: the nodal point where the sea-cable is connected to the terrestrial cable. Figure 2 shows how the capacity of the sea cable reaches the end users. A handful of big providers -the so called carriers- buy capacity from TyCom at the TelExchange. These carriers sell their capacity to private (ICT) companies on the recently built Groningen Intern Exchange (GN-IX) based near the TelExchange on the university campus. From the Internet Exchange the signal will run to the end user via the already existing glass fibre network. In addition, the Internet Exchange will be connected with new fibre cables to Amsterdam and Hamburg.

Figure 2 How does the cable come to the end-users?

To gain more insight into the possible effects of the arrival of the TyCom Cable, a selection of 15 civil servants, academics, local ICT businesses, region promoters and an employee of the regional development board were interviewed. The results of the interviews show a wide range of opinions. Varying from very sceptical ("they 're wasting their time and money") to extremely positive ("the cable will mean 10.000 new jobs for the region"). This paragraph looks at the arguments the respondents used to support their opinion.

Arguments used to support the growth scenario (the cable will benefit the region)

· Big names looming over the region: a few multinationals have shown interest in Groningen. If one of them decides to locate here many others will follow.

· "Comparable situation" in Amsterdam: When the Amsterdam Internet Exchange opened 3 years ago on a site, which was not easy to reach by car and public transport they only had 3 clients. Now, they have 80 clients and in the fields around the Internet Exchange many ICT companies have popped up. "This will happen in Groningen as well".

· Good digital infrastructure means no need for face to face contacts: Face to face contacts are no longer necessary if you make use of the new digital interaction technologies the internet has to offer. These technologies only work well if they run on high quality digital networks. Before the cable, Groningen lacked a high quality network and companies rather located in the Randstad near their clients and partners. "Now, companies don 't need to worry about the somewhat remote location of Groningen, they can communicate with the help of interactive technologies just as if it was face to face interaction".

· Many location benefits: The location of the TelExchange is ideal, close to the university and the Groningen Internet Exchange in a business / science park with an access of space and low land prices: "The ideal place to locate a company".

· Image: By getting this cable, Groningen has positioned itself as a city, which moves with modern times. In addition, "it is another benefit we can add to the row of benefits Groningen possesses".

· Interest is enormous: Since the cable was announced the interest in the booklet "ICT-sector in Groningen" a guide for companies and investors has quadrupled. With in two months more than a 1000 copies were ordered. A lot of the orders came from companies in the Randstad. "Clearly, they are exploring their options".

· Potential to tap into (international) markets: Until now it was impossible for ICT companies in Groningen to either host applications for foreign clients (f.e. a web site) or for Dutch companies with an international audience. This was simply because the connection was too slow and vulnerable whilst clients want fast and trustworthy web sites. With the arrival of the cable this problem disappears and thus ICT companies can expand their markets. This also means the disappearance of a factor, which might have stopped companies locating or starting up in Groningen.

· Price: Before the cable prices for internet connections where much higher in Groningen than in Amsterdam. This was due to the fact that Groningen was so far away from an internet hub. With the arrival of the cable, this negative aspect of the Groningen region will disappear. "Nothing can stop companies from wanting to locate in Groningen now"

· Spinn-off: First the cable will attract companies, which are very telecom intensive such as ISP, ASP, data-hotels etc. They will move from the Randstad, where they have problems with energy supplies and high prices, to Groningen. These companies -in their turn- will attract specialised companies etc.

· Stop the brain drain and stimulate local growth: Before the cable, quite a high number of graduates used to move to the Randstad to work in IT. The cable could stop this brain drain by creating jobs but also by creating the right circumstances for local start-ups.

Arguments used to support the "zero growth" scenario (the cable won’t benefit the region)

· Accessibility by car and location near clients are key: Research into the location factors of ICT companies has shown that accessibility and closeness to clients are the most important location factors ("Something Groningen doesn't have.").

· Advantage is only temporary: With the growth of internet more and more infrastructure and hubs are needed. In a few years time most big cities in the Netherlands will be connected to high speed, high capacity infrastructure.

· Digital infrastructure is good everywhere: There are no regional differences in the quality of digital infrastructure in the Netherlands. In fact, the quality is of a very high standard and at the moment only a very small percentage of the total capacity is used. "There is no urge for normal ICT companies to move somewhere, where even more capacity is generated they can stay put."

· ICT companies are not footloose: research has shown that the location pattern of ICT companies is the same as any other "old economy" company. Therefore, ICT companies will stay in the Randstad: "there where it happens."

· No networking options: Face to face contacts are essential for the success of ICT companies. Because Groningen only a few relatively small ICT companies the chances of building up an interesting network of people with whom you can exchange insights and ideas are slim.

· No spin-off: only ASP 's will move from the Randstad to Groningen due to the bad circumstances over there. However, these companies employ only very small numbers of unskilled labourers and are stand alone in the sense that they won't trigger any spin off effects.

· Starters don 't think infrastructure is important: 75% of the starting ICT companies indicate that ICT infrastructure doesn't play a role in the location decision.

It might not come as a surprise that most arguments in favour of the growth scenario came from the respondents that were involved in getting the cable to Groningen! It seems that they really want to believe in its benefits. One of the key issues, which arose, is whether the super cable provides real added value technology for ICT companies. Or does it only offer advantages for telecom intensive industries such as APS’s and datahotels? Do such companies provide spin offs? The other key issue is the importance of face-to-face contact in the way companies conduct their business. In the next section we turn to the ICT companies themselves.

Clearly, the interviews don’t offer an answer to the question what will really happen to Groningen after the arrival of the cable. In fact, the opposing views of the experts seem to be nothing more than a continuation of the theoretic debate around the “death of distance” as outlined in the introduction of this paper. The answer probably lies with the ICT companies themselves. Therefore 1200 Dutch ICT companies were invited to participate in a short survey about their location behaviour and their knowledge of the TyCom cable. In total 250 companies participated, 71 companies from Groningen, 84 from other cities in the North of the Netherlands, and 94 from Utrecht and Amsterdam.

In addition, 70 ASP’s [3] were sent a short questionnaire via e-mail. Only 5 companies replied but their answers were so interesting they are discussed here separately.

ICT companies

Importance of digital infrastructure

To gain insight in the importance of the digital infrastructure, the companies were asked whether they are in need of a faster Internet connection. A large majority of respondents (63%) answered that they were in no need of a better connection. In addition almost three-quarters of the respondents (70%) said that they were (very) satisfied with their current location and that they had no plans to move in the coming two years. Apparently, the experts that said the digital infrastructure in the Netherlands is of a good enough quality wherever you go and therefore those companies can stay put, are right.

Nevertheless, these results don’t mean that digital infrastructure is not important to ICT companies. This is underlined by the results of the question where the respondents where asked to rank fifteen location factors according to importance. The top 5 of most important location factors showed the following:

Seemingly, for ICT companies on the one hand old economy location factors play a role like accessibility and nearness to customers. This supports the argument used by one of the experts that "old economy" location factors like accessibility by car and location near clients are key for ICT companies. Evidently, if ICT companies worry about something like accessibility they are not that footloose. But, the results of the survey show that the experts that say that ICT companies behave in similar ways as old economy companies are not completely right. ICT infrastructure is an important location factor for ICT companies. Yet, it is more of a necessity that needs to be in place then a factor that determines where companies locate. So it seems that ICT companies still prefer old economy locations but only if the quality of the digital infrastructure is of a high enough standard.

Even though the local politicians attach such great value to the cable not more than two fifths of the respondents (43%) knew about the cable and a same percentage of respondents was aware that it would come to Groningen. Looking at the current location of the respondents it is shown that especially companies from the North are familiar with the cable (88%) and not the companies from Amsterdam and Utrecht (12%). It is clearly a local phenomenon.

More than a third of the respondents (36%) replied that for them a connection to the TyCom cable was far from necessary. Another quarter of the respondents (24%) did not know whether the cable could mean anything for their company. Still, relatively most respondents were of the opinion that a connection to the cable could mean something to their company (40%). However, 89% of the respondents did not regard Groningen a more interesting location now the cable has arrived. So, they see the advantages but these advantages are not big enough to consider a move to Groningen.

One of the key issues that arose from the expert interviews was whether the supercable really provides added value technology for ICT companies. The results of this survey show that even though data infrastructure is important but not so important that all of a sudden less popular and non traditional locations like Groningen become interesting.

Another key issue that arose from the expert interviews was the importance of face-to face contacts in the way companies conduct business. The ranking of location factors shows that nearness to clients and customers is still an important factor in the location decision. Apparently, digital communication cannot replace that.

At the end of the day, digital infrastructure is a new factor in the location equation but it does not result in different location patterns.

ASP 's

Many experts mentioned the possibility that the cable would attract ASP's. To assess whether this is true, international ASP ‘s were asked about their intentions to move, the factors that play a role in selecting a location and their opinion about the cable and Groningen.

The most eye catching results were that all of the respondents declared that the capacity of the digital infrastructure was of uttermost importance to their company and that Groningen immediately seemed an interesting location after they heard that the TyCom cable would land there. Even though they had never heard of Groningen. Clearly, digital infrastructure is really important to these companies. This is confirmed by the answers to the location factor ranking exercise. The location factor, which was ranked first was the presence of a high capacity cable (like TyCom). Other important factors where The presence of an Internet Exchange, The proximity of suppliers and the low price level. Least important where accessibility and expansion space.

These results show that –if the local council of Groningen makes an effort to attract ASP ‘s there is a large likelihood that they actually would move to Groningen. However, it is a known fact that these companies only employ very low numbers of mainly unskilled personnel (security guards) and it remains unclear whether this would generate spin off effects. One of the experts referred to the case of Amsterdam, where the Internet Exchange attracted many companies to a relatively inaccessible bit of Amsterdam. Could this happen to Groningen as well? Fact remains that that was good old Amsterdam and now we’re taking about boring old Groningen….

Further research into these issues is necessary. Perhaps by looking at comparable cases in the world.

The aim of this paper was to contribute to the "death of distance" debate by looking at the case of Groningen. Here, local politicians believe that the arrival of a digital super cable will attract many ICT companies and will thus signify the end of a period of deprivation.

To gain more insight into the possible effects of the cable, a selection of 15 (local) experts was interviewed. The results seemed to be a continuation of the theoretical debate rather than an answer to that debate. Half of the experts (mainly local politicians) expect that the arrival of the super cable will mean that Groningen will become an attractive location for ICT companies. The other half of the experts do not believe in the powers of the cable. They are of the opinion that companies in the information still prefer "old" age locations like the Randstad (Amsterdam, The Hague, Utrecht and Rotterdam). Two key questions caused the divide between the experts:

· Does the super cable really provide added value technology for ICT companies?

· How important are face to face contacts in the way companies conduct their business?

The results of the quantitative survey amongst 250 Dutch ICT companies showed that even though the super cable offers added value technology (relatively most companies think it could men something for their company), this does not mean that companies consider a move to Groningen. It can be concluded that data infrastructure is important for companies, but not so important that all of a sudden less popular and non-traditional locations like Groningen become interesting.

With regards to question two, a ranking exercise of location factors indicated that the potentiality for face-to face contacts is still an important location factor for ICT companies. Therefore, ICT companies tend to follow traditional location patterns.

In contrast to this, the results of an email survey amongst five ASP 's showed that these companies don not follow the traditional location patterns. The reason being that their existence is entirely depended on the quality, capacity and speed of digital infrastructure. To them it does not matter where they locate as long as there is top quality infrastructure present.

Taking all this into account the three central questions of this paper can be answered as follows:

Does the information age mean that new concentration or de-concentration patterns emerge or will everything stay the same?

In the case of the Netherlands, things will stay the same. However, if the local council of Groningen succeeds in attracting ASP 's a different story could enfold but this all depends on the spin off powers of such companies. This is a question, which needs to be researched in more detail.

Another issue in this context is that we are only standing at the beginning of the information age, therefore it could be argued that is only logical that "old" location patterns predominate. Maybe, the current location preference of ICT companies will change as time goes by. An interesting parallel can be found in the sceptical attitude companies used to have towards mobile phones. Five years ago, companies used to declare that they did not need mobile phones. Nowadays, many companies' success actually depends on the wide usage of the mobile phone. Maybe the same could happen to digital infrastructure.

Does the quality of digital infrastructure play a role in determining what shape the new patterns will take (i.e. is digital infrastructure a location factor of importance in the information age)?

For now, digital infrastructure does not determine the shape of location patterns. However, the research show that digital infrastructure is very important to ICT companies and has an influence on the location decision but only as a basic condition that needs to be fulfilled. An otherwise attractive location with no or poor digital infrastructure will not be considered by ICT companies.

For telecom intensive companies like ASP 's, digital infrastructure is the only factor that is important. Their location behaviour is entirely depended on the quality, capacity and speed of the infrastructure. However, there are less then 100 ASP 's in Europe and therefore their "new" location behaviour will not affect location patterns as a whole (unless they generate enormous spin off effects, that is).

It is not a panacea, but because it is a basic condition for ICT companies, it is certainly something that needs to be considered by local planners. Because, if there is no or poor digital infrastructure ICT companies will not even consider the location as an option.

Finally, this paper attempted to get more clarity in the "death of distance" debate by looking at the case of Groningen. This proved to be more difficult than first thought. The debate does not evolve around straightforward questions with straightforward answers. It is a complex puzzle, which cannot be solved by looking at isolated cases. To be able to really know the shape location of patterns in the information age a lot of patience is required. Because only time will tell……

CPB, ICT van groot belang voor economische ontwikkeling, persbericht 18 mei 2000

[1] The cable will arrive in the fourth quarter of 2001, therefore this paper is of an explorative nature. Only time will tell what really is going to happen.

[2] Groningen is two hours by train from Utrecht Central Station

[3] Application Service Providers such as data-hotels and switch houses: wholesalers of data capacity and data. Very telecom intensive.