How ICT Affects Your Site Decision | SONET, site selection

Availability of advanced ICT Services ranked eleventh in the 2007 Corporate Survey conducted by Area Development. A high 82.2 percent of the survey respondents identified it as an important site selection factor. So what is ICT and why is it important in site selection?

ICT is simply stated as Information and Communication Technology, a blanket term that includes equipment or technology involved with the communication of information. The U.S. Census Bureau released a study March 6, 2008 that states U.S. businesses spent a total of $250.7 billion on ICT equipment in 2006 - and one can reasonably assume an even greater amount in 2007 and into 2008 given its vital importance to nearly all aspects of modern business and life.

The connectivity provided by ICT is the fabric of modern life. It is how information is shared and it is vital to how global business is conducted. It is not uncommon for a typical company to have R&D in the United States, manufacturing in China, sales and marketing across the United States and Europe, and a supply chain stretching around the globe. Real-time information sharing has become the standard and has opened up the competitive landscape. The World Bank views ICT advancements as crucial in developing countries. Communication and connectivity have made the global marketplace a reality for even the smallest businesses.

In selecting a geographic region or a specific site, ICT services become very important for three primary considerations. First is the availability and architecture of ICT infrastructure to the site. The second consideration relates to the taxation of ICT activities; and third is the presence of economic incentives to offset any challenges in infrastructure or taxes. Each plays an indispensable role in site selection and ultimately the success or failure of the location decision.

Architecture of ICT
Historically, a phone line was all the ICT connectivity most businesses needed to operate. As technology advanced and more information was being sent over the line, greater capacity and speed were required to keep pace with evolving business needs.

One of the first breakthrough methods developed for communicating digital information involved using laser or LEDs over fiberoptic cables. This is called synchronous optical networking or SONET. SONET was developed to transport large amounts of telephone and data traffic between equipment from different vendors. Like most new technologies, its design followed a natural evolution to overcome early-stage shortcomings. For example, the information density of SONET could potentially result in vast amounts of data being lost downstream from a single damaged line.

Thus, in order to avoid potentially catastrophic service interruptions, network engineers developed the SONET ring; this has been described as self-healing network technology, the availability of which now plays a significant role in the site selection decision. These multipath rings drive SONET to reach the "five nines" availability level.

However, in site selection, the mere presence of a ring does not automatically mean five nine availability. Ring security is optimized in a multidirectional architecture, but in some cases, a ring is merely two lines (a loop) in the same trench - redundant but not necessarily robust. Given the critical nature of data transmission to today's businesses, the ability to increase reliability via a truly redundant architecture, be it SONET or others like ATM or Gigabit Ethernet, is a key criteria for site selection.

While many sites have access to multiple SONET rings, multiple points of connection to the SONET ring are equally important. Often called the "last mile," the final lines from a provider's SONET ring to the individual site cannot be overlooked. The length of this line and its installation can be expensive and time-consuming. Ultimately, a good site could be worthless without feasible multipoint fiber connections. Site selectors often rank development sites according to their last mile communications architecture, and those who have such infrastructure in place or the ability to subsidize these improvements are at a distinct advantage.

Taxation of ICT Services
Every business carefully considers its tax situation and the possible taxes associated with a new location or new equipment. ICT equipment, services, and users are all affected by the unique taxation of ICT. Two primary taxes impact ICT: property tax and sales tax. The high cost of ICT investment has made both property and sales taxes a big capital hit for corporations seeking technology improvements.

However, there's a hidden tax that can be even more crucial for review: tax on IT services. Take for example a typical financial trade completed over a computer network. In some jurisdictions, the point of taxation is the location of the data server. Thus, if there is a trading firm in New York City, a client in Dallas, and a server farm in Arizona, Arizona collects tax on the trade just because the technology resides in that state. These taxes on ICT services are gaining interest throughout the country.

Economic Incentives
In an effort to spur investment and offset the slowing economy, The Economic Stimulus Act of 2008 provides the opportunity for small businesses to increase the amount of capital expenses they can deduct under Section 179 of the tax code to $250,000 and also allows bonus depreciation on qualifying tangible property. In order to initiate investment this year, qualifying property can be depreciated 50 percent of purchase cost in the first year rather than over several years.

The unintended consequence of the federal depreciation bonus is that most states have a policy of "rolling conformity" with the federal tax code. The Center on Budget has identified 22 states that could face revenue loss from the bonus. In addition, 16 other states are expected to face shortfalls in FY2009. Why does this matter for ICT and site selection? As states continue to experience revenue shortfalls in conjunction with rising budgets, many will have no choice but to look toward new methods of taxation, which may ultimately deter infrastructure development in certain states.

Economic incentives abound to offset taxes and capital investment. These incentives can take the form of an exemption, rebate, forgivable loan, grant, accelerated depreciation, or infrastructure improvements. Two key points to remember when talking about incentives on ICT equipment: (1) ICT equipment and software is replaced frequently, and incentives should be structured to cover replacement every 3-5 years; and (2) school taxes (when part of personal property tax) are not frequently included in any tax exemption structure.

As the global economy has shifted from the production of physical goods (the Industrial Age) to the manipulation of information (Information Age), there has been an increasing emphasis on ICT services. ICT services were often taken for granted in business development, but this can no longer be the case. As technological advances have taken place and the business economy has shifted to the global stage, ICT issues have become important criteria in the site selection process and decision.