Lectronic Toll Collection



lectronic Toll Collection

• Market Structure

• Market Development Issues

• Market Forecast

• Summary of Research Findings

MARKET STRUCTURE

Sector Description

Electronic toll collection (ETC) is a success story in the intelligent transportation industry. Significant new and retrofitted electronic toll facilities are springing up in the United States and Europe, with nationwide activities in Japan soon to follow in force. Traditional toll collection (including coin, magnetic card, and manual toll payment) already represents a multibillion dollar business worldwide and will likely see positive growth within the next several years. Because ETC technology is profitable and efficient and has the potential to eliminate congestion on existing and new toll facilities and to minimize fraud, most new major toll road projects around the world will begin routinely implementing ETC systems in the near term.

Unlike many other ITS technology markets, ETC is not dependent upon the implementation of new, advanced technical systems or an integrated infrastructure to find market success. Even some modest ETC systems have been efficiently processing basic transactions for several years. However, ETC will benefit greatly from the synergistic development of advanced technologyó such as smart cards and wireless telecommunicationsóoutside the ITS sector that will enhance the functionality of ETC and other ITS systems. Together with ATMS, ETC will also pave the way for the integrated traffic management systems that glean information from a wide range of sources, including roadside sensors, and transmit the information via in-vehicle devices to drivers.

Market Categories

ETC generally makes use of removable, contactless, radio-frequency-based tags that communicate with roadside readers. The readers detect an identification number on the invehicle tag and either bill the account associated with the number or deduct the appropriate toll from the tag as the driver passes through a specially equipped toll lane. Tagsótransponders in more sophisticated systems can either be passive (without batteries) or active (powered by batteries). Type I systems, which use removable passive read-only tags, currently dominate the market because they are inexpensive and compact, operate on low power, and exhibit fewer environmental problems (such as the emission of electromagnetic fields). Type II systems with removable read-writeóor activeótags, can exchange information such as updates of a customer's balance after a transaction has been made. A new generation of Type III system using read-write vehicle-mounted transponders is now under trial in nonstop tolling envirouments; it incorporates a removable smart card with an integrated-circuit chip, enabling increased services, ranging from dedicated ETC to electronic purse functionality, encrypted information, billing specifications, and personalized transportation schedules and data.

All ETC systems rely to a greater or lesser extent on sensors, communications equipment, and data processing.

• Sensors. Sensing technology is used both to detect the presence of a vehicle either at a toll plaza or at the start of a tolled roadway and to classify vehicles according to type. In a monolane system, it is necessary to ensure that vehicles have paid the correct fee in order to activate the barrier. In nonstop systems, it is important to capture details of any vehicles violating the system for later enforcement. The type of sensors in use include in-road inductive loops, video and CCTV cameras, and piezoelectric and infrared sensors.

• Communications equipment. One-directional communications are used in simple read-only systems, whereas bidirectional communications are essential for read-write functionality. Communications equipment includes in-vehicle transponders and roadside readers and smart cards, as well as the means to transmit this information to a central processing center via wireless or cable networks.

• Data processing and distribution. A variety of data needs to be processed in an ETC system, ranging from payment transactions, if postpayment or direct debit payment options are in place, to collecting and storing video enforcement data.

Market Description

The market for ETC systems in all geographic regions is boing driven by opportunities to raise revenues through tolls on roads currently with no tolls, to increase revenue-collection efficiency on current toll roads, and to reduce congestion on many existing toll bridges, highways, and tunnels. Long queues at selected toll plazas, combined with the physical (and environmental) restrictions that are preventing the addition of new booths, have encouraged toll operators to implement ETC on existing toll infrastructure as a means of increasing throughput, generating additional revenue, reducing operating costs, and improving customer service. On both new and retrofit facilities, ETC provides the opportunity to collect toll revenue in a nonstop environment.

At present, the market for road tolling falls into two categories: toll facilities on highways and freeways and those facilities on local urban roads, for example to control access to bridges and tunnels. In terms of future market assessment, a distinction needs to exist between systems that are being designed to upgrade existing toll infrastructure and those which are being proposed for new tolling facilities. ETC technology has moved forward to the point where for both new and existing toll facilities an opportunity exists to provide nonstop traffic conditions. This nonstop tolling market divides into systems that cater to separation between individual lanes and those that provide multilane capability and systems that still provide barrier enforcement and those that do not.

So far, the majority of installed ETC systems are read-only systems with simple but effective enforcement barriers that will not raise unless the correct toll is paid. In these configurations' patrons must stop or slow down. These fairly basic but cheap systems have been and will continue to be successful where a reasonably high percentage of daily traffic is local and the toll facility is isolatedóthat is, where no obvious requirement exists for the system to be interoperable with an adjacent toll facility.

However, as new tolling facilities become necessary and as existing implementations need replacingóthe average life of a toll infrastructure is some ten yearsóthe trend will move toward nonstop systems that incorporate read-write and smart card functionalities. Despite the higher cost of these technologies , they are in creasingly essential to provide the sophisticated mechanisms necessary for exchanging and storing information as traffic management infrastructures and services grow. The timing of the implementation of new installations and the level of sophistication of these systems will depend on the balance of a number of market development issues.

MARKET DEVELOPMENT ISSUES

Benefits | Funding | Project Plans | Public-Private Partnerships | Interoperability and Standards | Marketing & Public Acceptance | Political Issues | Technology | Privacy and Legal Issues | Societal Changes

The implementation of simple read-only electronic systems for isolated facilities has grown where low-cost tolling solutions are the most suitable solution. On tolled freeways and highways, in urban locations, and on newly constructed toll roads, nonstop monolane systems using readwrite technology are seeing gradual and successful introduction to improve traffic flow. However, the implementation of more sophisticated multilane systems for new facilitiesó especially previously untolled freewaysówill continue to be constrained by such factors as the lack of political commitment to the principle of road use charging in some countries, a lack of common communications standards, no agreement on data protocols, unresolved legal issues, lack of government funding, minimal cooperation between suppliers, and the technical limitations of enforcement systems. On the positive side for the development of the industry are such factors as the commitment in the United States, Japan, and Europe to the adoption of common national standards; the European Union' s commitment to implement ETC for trucks by the turn of the century and its funding for a variety of ETC projects; a political commitment in some countries to the use of ETC for traffic demand management, particularly in urban environments; significant improvements in traffic flow for drivers when ETC is in operation; and a genuine need for toll operators of existing facilities to reduce their operating costs, combined with their interest in improving services to customers.

Benefits

Toll collecting agencies are moving toward the implementation of ETC systems in order to obtain substantial cost benefits. On a new road, the ETC equipment portion of a highway construction contract is often relatively quite small. Retrofitting an existing toll facility with ETC is even more cost-effective. Often, basic components such as a computer and concrete infrastructure to house ETC equipment are already in place. For example, an existing manual or coin-operated toll lane might have a lane controllerówhich is typically a general-purpose, 486type computer with an Ethernet networking card and specialized features such as power surge suppressersóalready up and running. A toll collection authority can thus retrofit an existing toll lane with ETC electronicsóincluding a reader, antenna, computer interface, and electronic cablesófor a reasonable amount (an average $100 000 per lane, and often much less).

Because ETC toll lanes are more efficient to operate than are other forms of toll collection, a toll authority can also maximize ongoing revenue for an implementation cost that will see early return. Operating a purely free-flow ETC lane is far less expensive than operating a manual toll collection lane, a coin-operated lane, or even a lane that contains a mixture of automatic vehicle identification (AVI) and other methods . For example, transportation authorities in the United States estimate that the annual cost of operating a manual lane can be some $150 000 to $180 000 per lane, whereas a dedicated AVI lane costs less than $5000 to operate per year. A lane with coin and AVI systems costs some $50 000 to operate, and a lane that includes all options (which is a frequent configuration on retrofit projects) costs some $120 000 per lane to operate. Even the mixed lane reduces costs for the toll operator in comparison with costs of a manual lane.

Dedicated ETC lanes can process toll transactions more quickly than can manual or coin systems; thus, ETC lanes can improve the speed and efficiency of traffic flow. A manual lane generally processes 300 to 500 vehicles an hour. An automated coin lane processes 600 to 900 vehicles per hour. In contrast, a dedicated AVI lane can average 1000 to 1500 vehicles per hour. Improving lane capacity by 100% to 200% results in benefits such as increased efficiency of roads, reduced accident rates, improved service, reduced congestion and pollution (because of reduced idling times while waiting in toll lines), and improved fuel economy. Politically, the ancillary benefit of reducing exhaust emissions by 30% can often gain the toll authority support for ETC from environmental groups, assuming that the toll project does not infringe upon an environmentally sensitive area.

However, the most persuasive benefit to toll operators is that ETC enables authorities to collect more tolls in less time. Also, efficiently operated roadways may encourage additional users while still maintaining reduced congestion. When combined with congestion pricing schemes that charge drivers more for using the toll road during peak times rather than off-peak times, the toll collection business can beóif managed properlyólucrative. Currently, the global annual toll business (including non-ETC facilities) amounts to several billion dollars. Eventually, toll collection information may yield additional benefits when authorities integrate it into traffic management systems. In addition to providing ETC, future ITS systems will likely communicate traffic patterns and travel information to drivers via a display-based smart transponder.

Funding

Significant regional differences are under adoption in the funding for ITS systems. For example, ITS applications receive far greater government and public support in Japan and many European countries than they do in the United States. Japan will soon devote substantial funding to implementing a nationwide ETC infrastructure, with national pilot implementations due to start at the beginning of 1997. Tolls already figure prominently on Japanese roadways, with 100% of freewaysóincluding major inter- and intracity thruwaysódesignated as toll roads, compared with less than 10% in the United States and an average of more than 75% in those European countries with toll freeways. Once the Japanese government approves and implements electronic toll collection equipment, that country will operate the largest ETC system in the world. In contrast to Japan where the government provides financial support for ETC, the United States and Europe increasingly are relying on private funding to supplement the shortfall in government funding for the introduction of ETC.

In the United States, state highway authorities build most highways with fuel-tax funding or with funding from state and local government-owned toll authorities. Toll authorities may raise funding through high-grade bonds that are paid back using toll revenues. Funding is generally not a significant inhibitor of toll projects. Most toll authorities in the United States that want to launch ETC facilities can raise funds from private and public initiatives. Project funding for implementing ETC ranges from a few million dollars for a retrofit project to $100 million or more (including basic infrastructure costs such as laying concrete) for implementing new, exclusive ETC roadways. A limited amount of support can also come from national programs. For example, in 1994, the New Jersey Garden State Parkway, the New Jersey Turnpike Authority, and Atlantic City Expressway were granted $25 million by the U.S. Department of Transportation (DOT) under ISTEA to fund ETC systems planned for launch in 1997.

The 1991 passage of ISTEA was a milestone in the funding of the transport sector in the United States because it enabled the use of some federal funds to finance public-private highways. The result has been local governments' working with private groups to enact laws and propose creative financing packages for new toll projects. For example, the California legislature passed a bill authorizing the awarding of four demonstration projects to private groups. Some 12 additional states have enacted similar legislation. Typically, public-private financing schemes include a combination of bonds, loans, and other state government financing contributions. Assuming that current privatization efforts are successful, such alternative sources of funding will increasingly play a role in implementing ETC in the United States and Canada.

In Europe, funding for research into ETC technology is a key element of the European Union's Transport Telematics Applications Program. Of the total budget of $282 millionóof which $165 million is available for road-related ITS projectsómore than $13.6 million has so far been allocated to projects that are either totally dedicated to or that incorporate research on toll collection. This figure will likely increase as budget allocations continue. The EC is also playing a fundamental role in securing agreements on the key issues of interoperability and standards and is funding one project, MOVE-IT (Motorway Operators Validate EFC for Interoperable Transport), and one initiative, CARDME (Concerted Action for Research on Demand Management in Europe), which will prepare the groundwork for the requirements of the 93/89/EC Directiveórequiring Member States of the EU who intend to introduce electronic toll systems to bear in mind the desirability of interoperability between systemsóto be met by 1998.

At a national level in Europe, funding for ETC varies from country to country, and in countries with no history of road use charging, funding availability is very often influenced by political considerations. It is commonplace for the funding of ETC systems to form part of a local government decision to build a new road, bridge, or tunnel, where tolls then generate the revenue to repay long-term loans. The right to collect this revenue is sometimes granted on the understanding that the tolls will cease as soon as the loan for the facility has been repaid. In Sweden, this process is being proposed for ETC systems on ring roads around Stockholm and Gothenburg. In Norway, which is already at the forefront in Europe for using road pricing systems to finance new road infrastructure, an ETC system has been in operation since 1990 for motorists entering Oslo. And in the United Kingdom, several bridges and tunnels have been built and financed in this way.

In countries such as France, Italy, and Portugal, with an established freeway tolling infrastructure, the decision to implement ETC is made by the toll operators, primarily as an aide to reducing operating costs, increasing toll revenue by maximizing throughput at toll plazas, and providing improved customer service. Funding for retrofits or upgrades is normally made by the toll operators from toll revenue. The status of toll operatorsógovernment backed, semigovernment, and privateóvaries from country to country. In Spain, all the toll authorities are private companies, whereas in France only one (Cofiroute) is a private company - the rest are quasi-government operations. In France, although the toll operators are responsible for the implementation and funding of ETC installations, the government is particularly keen for them to implement a standard national system - TÈlÈpÈage Inter SociÈtÈ (TIS). Under this initiative, one lane - possibly two - on the French freeway network will be equipped with an ETC system by the year 2001. In other European countries, toll operators operate as private companies, but receive the majority of their capital from the State in order to function.

Several European countries with no history of road tolling are beginning to show interest in funding some level of ETC deployment. Governments in Belgium and the Netherlands have announced their commitment to road pricing, although they have not yet allocated funds for its implementation; the Swiss government recently made a decision to implement ETC for trucks in excess of 3.5 tonnes in weight by the year 2001, and so far has allocated $3.3 million for an ETC trial, although it has not yet decided on a start date. And the Austrians have also announced plans to introduce some form of ETC for trucks starting in 1998.

Although the United Kingdom has earmarked funding for road tolling for the introduction of ETC on freewaysóthe estimated contract for equipping all or part of the frceway network is $120 millionóthe government is also taking the view that private industry should be prepared to invest substantial sums in the generation of lucrative end markets from which it will benefit. However, the introduction of tolls on U.K. freeways is highly politically sensitive, and implementation will be slow, at best. Germany has similar funding and political issues to resolve, and although it has scrapped plans for a national specification for a dedicatod ETC system on the freeway network, it has approved funding for a pilot operation of a free-flow multilane system for ETC for heavy goods vehicles by the year 2000.

In Japan, toll collection is undertaken by public corporationsóthe expressway authoritiesó that, in addition to their toll revenue, receive a small percent of their income from the governmentófunded by treasury investment and loansówhich is adminstered by the Japanese Ministry of Contruction. In 1992, $39 billion was allocated by the MOC from a special account for a Five-Year Road Improvement Plan. Of this sum, approximately $5 million was designated for ETC trials that took place between June 1995 and March 1996. On the basis of the outcome of these trials, the MOC aims to introduce ETC on those toll roadsósome 83%óadministered by the four largest expressway authorities: the lapan Highway Public Corporation, the Metropolitan Expressway Public Corporation, the Hanshin Expressway Public Corporation, and the Honshu-Shikoku Bridge Authority. The aim is to have one specification that will be implemented on all Japanese toll roads.

The total cost of implementing ETC on the toll roads administered by these four authoritiesówe estimate an infrastructure cost of $3 billion dollars over the next 20 yearsówill be funded mainly by toll revenues, together with the treasury loan capital. From 1997, each toll authority will prepare a budget that will include the introduction of ETC on its toll network. If the budget is approved by the MOC, each authority will then receive the necessary funding, which it will use in addition to its toll revenue to implement ETC. Although the MOC has stipulated that existing tolling infrastructure should be used where possible as the basis for ETC, our research indicates that this stipulation will likely prove unrealistic, resulting in significantly higher implementation costs than the government currently anticipates.

Contrary to the situation in the United States and Europe, funding for the in-vehicle unit in Japan is unlikely to come from the toll operators. Japanese drivers will be expected to equip their vehicles with in-vehicle units that will allow them to access electronic toll collection facilities. Initially, the estimated retail cost of these units is $300 per unit, falling to $100 dollars per unit within 15 years. Authorities in Japan believe that users will be willing to buy the units in order to benefit from the reduced traffic congestion that ETC will provide.

Project Plans

Despite the lack of common standards or protocols to promote the development of interoperable systems, considerable activity is taking place in all regions regarding the implementation of varying levels of ETC, with many toll operators, particularly in Europe, taking the view that an incompatible system is better than no system at all. Where interoperability is apparently beneficial, many operators are simply choosing their system according to what has been installed on a neighboring facility.

Currently, U.S. government authorities have targeted 75 metropolitan areas for implementing ETC facilities. Of the 75 areas, 23% have already launched ETC systems. An additional 15% are considering implementing an ETC system. Of the 234 toll facilities in the United States, 93 either have implemented an ETC system or are actively making plans to do so. Several major toll authorities in the United States have been operating ETC for a number of years. For example, the Crescent City connection and the Lake Pontchartrain Causeway near New Orleans, Louisiana, have been operational since 1989 and 1990, respectively. Other installations include facilities in Texas, Georgia, Kansas, Colorado, Maine, and Oklahoma. The Texas Turnpike Authority, for example, began using a system from Amtech in 1989. The Harris County Toll Road in Houston, Texas, installed an Amtech system in 1992 and has recently made significant upgrades to the installation. The E-470 Public Highway Authority in Denver, Colorado, originally lannched an electronic toll and traffic management (ETTM) system from X-Cyte in 1991. The K-Tag ETC system on the Kansas Turnpike became operational in 1995.

Project development in the United States has been particularly strong along the northeastern seaboard. Seven major toll authoritiesóincluding the New York State Thruway, the New Jersey Turnpike, the South Jersey Transportation Authority, the Pennsylvania Turnpike Commission, the Port Authority of New York and New Jersey, the Metropolitan Transportation Authority, and the Delaware River Port Authorityóhave formed the Inter-Agency Group (IAG), which is responsible for deploying interoperable ETC systems in the region. The group's combined toll facilities encompass 200 toll plazas, 2400 kilometers of roadway, four tunnels, and 14 bridges. Regional tolls account for $2 billion of the $3 billion total annual tolls collected in the United States. In the interests of interoperability, the group has selected Mark IV's E-ZPass equipment for its installations, and recent estimates by the International Bridge, Tunnel, and Turnpike Association (IBTTA) show that the northeastern toll facilities using this system now account for some 40% of the total number of toll transactions in the United States and 67% of toll revenue.

In the Virginia area outside Washington, D.C., near Dulles International Airport, two major projects include the interlinked Dulles Toll Road and the Dulles Greenway project. The Virginia State Department of Transportation had the Fastoll system retrofitted on the Dulles Toll Road using Mark IV technology. The Fastoll system is available on the newly constructed extension, the Dulles Greenway project, which a private consortium built, owns, and operates. The goal is to integrate the accounting systems on the state and private roads and apportion toll payments according to use across systems. Initial utilization of the Greenway road was disappointing. Some industry watchers believe that poor marketing and unrealistic projections are responsible for Greenway's low turnout (see Marketing and Public Acceptance in this section). Recent efforts to reduce toll prices and increase speed limits appear to have paid off. Ridership nearly doubled between March and June 1996, when the temporary price cut took effect, with toll road traffic averaging some 100 000 vehicles per day. The private consortium running the operation would like to increase ETC ridership to a 70% penetration. This goal may be somewhat optimistic should the return to normal toll prices deter ETC participation. Still, if this projectóas well as the privately constructed project SR-91 in Orange County, Southern Californiaóproves profitable, it could launch a chain reaction of similar public-private electronic toll projects across the country.

Significant ETC activity is also under way in large or heavily populated states such as Massachusetts, New Jersey, and Florida. For example, MassPike awarded a contract in 1995 to implement ETC compatible with Mark IV's E-ZPass in Boston's new Third Harbor Tunnel, which only commercial vehicles will be allowed to use until 2001. The tunnel is the first phase of a statewide project to implement ETC across the Massachusetts Turnpike Authority's system of 216 kilometers of roadways and tunnels. The South Jersey Transportation Authority plans to equip 52 toll lanes on the Atlantic City Expressway, with an automated toll collection system scheduled for completion in 1996.

The Orlando Orange County Expressway also selected Mark IV for an ETTM system in Florida. Seven of ten toll plazas have the E-Pass system, and the remaining three will go online soon. Florida transportation officials plan to implement fully Florida's SunPass system sometime during 1998. The Florida department of transportation (FDOT) is working with the Orlando Orange County Expressway Authority on eventual compatibility between SunPass and the EPass system in Orlando. Current plans say that when the statewide SunPass system becomes operational, Orlando will convert to the SunPass standard. The FDOT plans to convert 580 toll lanes in Florida to ETC systems.

A number of projects also waiting in the wings will increase the size and scope of the U.S. toll business. Projects in Pennsylvania, Illinois, and California are poised for development. For example, Illinois has issued a request for proposals for a statewide extension of its I-Pass system. Authorities in California are in the process of outfitting the state's 9 CALTRANS-managed bridges with ETC equipment, although some political resistance has delayed implementation (see Political Issues in this section). Still, the completion of large-scale systems in these states will result in widespread penetration of ETC into existing toll facilities in the United States within the next few years.

Activity in Mexico and Canada is also gathering momentum. A Mexican government agencyóCaminos y Puentes Federales de Ingresos y Servicios Conexos (CAPUFE) - operates the CAPUFE roadway system, which runs from Tijuana to the border of Guatemala. Amtech installed ETC equipment on selected limited portions of the roadway beginning in 1993. CAPUFE now operates more than 130 lanes with Amtech equipment' which appears on some 14 toll roads and 32 bridges. Authorities have distributod more than 10 000 tags for the project.

Cooperation under the North American Free Trade Agreement (NAFTA) will likely spur development of international ETC systems between Mexico and the states of California and Texas. Of particular interest will be projects facilitating trucking and passenger border crossing. Legislation approving four toll roads along the California-Mexican border recently passed. Analysts estimate that some 5000 trucks per day could be crossing the border within the next few years. Toll roads on highways 7, 78, 111, and 905 would likely materialize in the event of insufficient funding from federal programs.

In addition, Mark IV is working with the U.S. Immigration and Naturalization Service to launch an ETC system on the border of California and Mexico in Otay Mesa. Tagged, preregistered drivers and passengers can cross the border (after swiping a card through a reader) without an inspection. Surveillance systems monitor the vehicles to catch violators. Tests reveal that the prototype system is working well. A division of MFS Network Technologies has also implemented a toll collection system on the Pharr-Reynosa International Bridge, which connects Reynosa Mexico, with Pharr, Texas. Under consideration also are ten new toll bridges in Texas cities such as Brownsville, Mission, Hidalgo, Laredo, El Paso, and Socorro, and in Sualand Park, New Mexico.

The largest project in Canada is the Ontario 407 roadway, which Hughes Aircraft of Canada, Ltd., is managing. The company expects to have the first 32 kilometers of the 69-kilometer road up and running by 1997. The ambitious project, which uses license plate readers as well as transponders, will function as a free-flow closed toll road with no toll booths. The system will use ETC equipment to determine a driver's entry and exit points onto the toll road and will collect funds according to distance traveled. Also under consideration in Canada are a number of other toll projects, but none of them will likely be as ambitious or as complex as the 407 project in the near term. The Tunnel Corp. which operates the Detroit-Windsor Tunnel linking Detroit, Michigan, and Windsor, Ontario, released a bid for a $500 000 contract to supply AVI equipment. The system will likely accept currency from both countries, because drivers cross the border. The tunnel will pro'cess some 25 000 cars per day. The next major installation in Canada will likely emerge in Vancouver. The Lion Gate bridge will require replacing, and an upgraded installation may implement a toll facility. ETC equipment manufacturers are also beginning to field inquiries about potential toll projects in Quebec, Nova Scotia, and New Brunswick. In place also are small ETC projects such as the Hands Free Vehicle Access system operating in New Brunswick, Canada, on the St. John Harbor Bridge, which sees 9 million vehicles annually. Success of the St. John Harbor Bridge project may spur ETC implementation in neighboring areas such as Prince Edward Island.

Tables 1 and 2 show commercial ETC installations in Europe in 1996 and those planned for implementation by 2001.

========= Table missing here ==========

Despite the lack of common standards, two European countriesóPortugal and Italyóhave already made substantial investments in ETC for freeway tolling. Although a small country, Portugal has a very high implementation of ETC, with approximately one-third of the toll lanes on its 480-km freeway network serving as dedicated ETC lanes with no barriers. Nearly 40% of users already use these dedicated lanes. Both the original system, which operated on the 2.45 GHz communications frequency, and the upgrade, which uses 5.8 GHz, were supplied by Norwegian manufacturer Micro Design A/S. Under current plans, the toll highway network will be extended to 780 km by 1997, and 1300 km by 2001, with the same system operational across the whole country. Officials at the national toll operator (BRISA) are anticipating that congestion for nonequipped vehicles will increase the market for tags. In Italy, 542 lanes of the freeway network are currently fitted with the ETC, with more than 350 000 stored-value tags in regular use. Toll operators are planning to upgrade the system to incorporate smart card technology by 1997.

Other European countries with existing toll infrastructure are continuing to implement ETC on an as-needed basis. Two of the Spanish toll authorities have introduced systems covering 7% of the network, as have toll operators in France, where 33% of the tolled freeways are fitted with some form of ETC. In France, the national initiative TIS has formulated plans for at least one lane of all toll plazas to be equipped with ETC equipment by 2001, although the implementation date will depend on the resolution of the European standards issue. And in Slovenia, a pilot system is in place on the freeway at one toll plaza 20 kilometers to the north of the capital Ljubljana that is compatible with the system currently on trial in neighboring Austria. However, the Slovenian national toll operator Druzba za Avtoceste v Republiki Sloveniji (DARS) has confirmed that in the interests of interoperability, full implementation will not proceed before the resolution of the European standards issue.

Although the majority of installed systems are read-only technology, upgrades or new installations are tending to favor read-write technology with smart card functionality in nonstop monolane configurationsówhere the lanes are separatedówith barrier enforcement. If appropriate, these systems could be upgraded to free-flow multilaneówith no lane separationó systems when the technical and administrative issues are resolved.

Several other European countries are proposing the installation of ETC systems. In Sweden, ring roads around Stockholm and Gothenburg have been proposed that will incorporate ETC technology, delayed trials are still due to start in the United Kingdom for an ETC system on the freeway network, pilot schemes are in operation on the Brenner and Tauern freeways in Austria, pilot schemes for ETC for trucks in Germany and Switzerland are being planned , and road-use charging schemes are being proposed in Belgium and Holland for traffic demand management.

In Japan, the Five-Year Road Improvement Program set up in June 1992 by the MOC designated electronic toll collection as one of the main themes of the Advanced Road Traffic Systems program. Within this program, collaborative technology trials to assess microwave communications at 5.8-GHz and 2.45-GHz frequencies were conducted at five toll gates between June 1995 and March 1996 by the Public Works Research Instituteópart of the MOCóand a group of ten teams comprising Japanese and U.S. manufacturers.

The purpose of these field trials was to establish a common specification by the end of 1996 that could be used initially on those toll freeways administered by the four major Japanese toll authorities. The specification has to cater to transactions in open and closed tolling environments, because both types of system are currently in operation in Japan. To be acceptable, the system must also provide near-perfect levels of accuracy and reliability. Pilot implementation is planned at selected locations on the toll network in early 1997, with full implementation scheduled to begin in 1998. Although results of the field tests have recently been published, no specification has yet been established. Although a final decision will not occur before early 1997, industry observers believe that the specification for the system will likely comprise nonstop monolane ETC using read-write/smart card technology and video enforcement. The adopted communications frequency is likely to be 5.8 GHz, although with a 30-MHz bandwidthówhich is 20 MHz wider than the bandwidth specified in the current European draft standard. Although the Japanese government has stated that the specification will ensure that the market is open to a number of suppliers with toll authorities free to choose which system they wish to implement, it is too early to say if this freedom of choice will be the likely outcome or whether one or two suppliers will be in a dominant position.

Public-Private Partnerships

In Japan the funding of ETC is entirely at the government level, with no requirement for financial involvement from the private sector other than during the trials. However, in the United States and Europe, an increasing trend has been toward supplementing dwindling government support with financing from private sources. In Europe, given the success of such initiatives as the Dartford river crossing in the United Kingdomówhere the operators anticipate that the existing loan will be repaid several years ahead of scheduleóand the Oslo ring road in Norway, this trend is likely to continue. In the United States, although privatization of government functions has met with mixed success, with a much slower uptake of roadway privatization than anyone initially anticipated, tight government budgets and the lure of lucrative ETC projects are moving the practice back to semiprivatization. The current trend in public-private toll roads, however, is too new to allow an assessment of average payback time frames. Most analysts agree that toll road investment and operation is a long-term commitment that can be a gamble amid changing consumer patterns. The success of current experiments in public-private ownership and operation of toll roads will determine the near-term fate of similar deals throughout the United States and Europe.

However, political opposition in states such as Washington and Arizona makes the privatization of toll roads across the United States far from assured in the near term (see Political Issues in this section). Private enterprises must contend with considerable hurdles before receiving construction approval. Operators report that some of the highest costs of an ETC project can result during preconstruction phases. Tasks such as lobbying for passage of privatization legislation, acquiring land, raising investment capital, and conducting detailed environmental studies can cost of millions of dollars over several years.

Two high-profile projects under scrutiny are the SR-91 project in southern California and the Dulles Greenway road in Virginia. California will likely undertake several other projectsó including SR-125 in San Diego (scheduled for completion in 1996) and SR-57 in Orange Countyóthrough private backing. The California Private Transportation Company (CPTC) that operates SR-91 is a limited partnership that includes Peter Kiewit Sons Inc., Cofiroute Corp. (a subsidiary of the French private toll road operator), and Granite Construction Inc. Under the terms of the public-private agreement, the consortium will collect tolls on the road for 35 years, after which the project may revert to the State of California.

The SR-91 project involved constructing a free-flow, ETC-only additional roadway that parallels the heavily congested SR-91 highway in Orange County, California. The FasTrak system in use on SR-91 processes some 2500 vehicles per hour. The operators have distributed tens of thousands of tags and have launched a congestion pricing scheme that varies in cost from 25¢ during off-peak times to $2.50 during rush hour. Officials are optimistic that the intensive premarketing efforts that they conducted (see Marketing and Public Acceptance in this section) in combination with the congestion pricing scheme will eventually result in a healthy profit for the road's operation, although initial traffic on the ETC portion of the road was light. Officials predict that expanded congestion (some 400 000 vehicles a day are likely to traverse the area by 2010) will make the SR-91 ETC alternative increasingly attractive for local commuters. If the SR-91 ETC concept does prove successful, it is highly likely to spawn similar projects, not only in California, but elsewhere in the United States.

The $326 million Dulles Greenway ETC projectówhich is the first privately financed toll road in Virginia since 1814 has faced considerable difficulty in attracting ridership. Several alternatives to using the project exist, albeit at additional time loss. Many analysts see poor marketing, inflated demographic growth projections, and omission of effective congestion pricing as the culprits for the 22-kilometer road's initial use shortfall (see Marketing and Public Acceptance in this section). Since the road's opening in September 1995, Greenway has attracted only some 10 500 vehicles per day, which translates into a scant $7 million revenue base that barely meets operating costs and falls well below the company's original projections of $27 million. The lack of sufficient daily operating revenue placed the Toll Road Investors Partnership IIówhich includes the Shenandoah Greenway Corporation, the Italian Autostrade International SpA, and general contractor Brown and Rootóon the verge of bankruptcy. However, recently announced congestion pricing schemes and future increased demand for the road indicate that Greenway will likely be economically viable in the long term.

Public-private activity is also occurring in states such as South Carolina, Delaware, and Minnesota. The South Carolina Deptartment of Transportation (SCDOT) selected Interwest Management Group to build a $220 million, 22-kilometer toll road in Greenville County. SCDOT is also considering three other toll projects that would require private financing. In addition, the Minnesota Department of Transportation is reviewing proposals for five new privately financed projects, including a $1.3 billion truck route from Duluth to Winnipeg. The projects would create the first toll roads in Minnesota, which adopted legislation in 1993 to build toll roads through public-private partnerships. However, citizens can still veto legislation that enables tollway privatization. Governments will likely need to address public concerns before large-scale toll projects in states lacking a traditional toll infrastructure will support publicprivate ETC measures.

In Europe, an increasing trend is toward using private finance to support infrastructure development. The proposed new ring roads in Stockholm and Gothenburg will be financed by government-backed loans, as have several transport infrastructure developments in Norway. And in the United Kingdom, private-sector financing has been instrumental in the construction of a number of urban infrastructure projectsóbridges and tunnelsóseveral of which use ETC for tolls.

For electronic tolling on the freeway network, the U.K. government is taking the view that its own investment in the R&D, demonstration, and deployment should be limited, believing instead that private-sector industry should invest in bringing its own products to market. However, this philosophy may have backfired because six of the eight consortia selected for ETC trials have already chosen to withdraw. The broad consensus among the participating companies was that because the high cost of the trials to the participants estimated by one of the consortia to be in the region of $3 millionówas not backed by any government commitment to the implementation of widescale ETC, the risks were too great. Contracts for systems are unlikely to be awarded before 2004.

Despite delays in the start of the freeway tolling trials, some piecemeal introduction of ETC on freeways will occur in the United Kingdom as a result of the private finance initiative. Under this initiative, the private sector is invited to design, build, finance, and operate roads for a set period. Contractors obtain finance to build the roads, which they repay from toll revenue. Two methods of toll collection are proposed for the contracts awarded to date: shadow tolling and ETC. Shadow tolling is an alternative to ETC, not to generate additional revenue from users, but as a reasonably cost-effective way of providing road use data from road sensors, in order that the government can reimburse a private contractor a set fee per road user. The use of shadow tolling is one way in which the government can bring in privately financed road building without resorting to the politically sensitive issue of road charging. And, if successful, it could delay the introduction of electronic systems. ETC is proposed, however, on a freeway link road that is due to open in2001.

Following the recent decision not to proceed with electronic tolling for private cars on its freeway network, the German Ministry of Transport is also considering the option of private finance for major highway construction and operation. This option could lead to initial piecemeal introduction of ETC for cars, similar to the practice in the United Kingdom.

Interoperability and Standards

In spite of the unwillingness so far of major suppliers to cooperate on the development of interoperable systems, ETC facilities are technically able to provide either reader interoperability or tag interoperability. Interoperable readers can communicate with tags of different communications modes, protocols, data formats, and codings, and interoperable tags can communicate with a variety of different readers. However, the practical implementation of such systems is proving difficult to achieve, not least because of the interests of suppliers who have invested heavily in the development of incompatible products. Currently, the ETC industry in the United States and Europe comprises a patchwork of ETC systems from about half a dozen different vendors who would like to see their proprietary systems predominate. Pockets of interoperability exist, particularly for adjacent facilities, but in general, systems have been developed with no thought to providing users with interoperable systems.

Ideally, the ultimate standard will be an open protocol enabling multiple vendors to participate and manufacture ETC equipment. Drivers especially truckersówould have a single transponder tag to access ETC systems across a country or region. Although it is true that, in areas where commuters regularly traverse only a single ETC-equipped road and interoperability concerns are not yet a high priority, requiring customers to carry around several different tags and maintain multiple billing accounts will dampen enthusiasm for ETC and perhaps even general ITS applications. For many drivers, including interstate commercial vehicle operators, tag interoperability will be critical for market success.

Hopes of achieving a global standard for ETC communications are slim in the near term, however, despite the obvious advantages such a move would have in terms of global markets and international travel. At present, the three regionsóthe United States, Europe, and Japanóare each developing systems using different communications frequencies, bandwidths, and protocols and are unlikely to come to any common agreement in the short term.

In the United States, government groups and trade organizations such as the U.S. Department of Transportation and ITS America are working on a nationwide, interoperable standard that officials would like to see materialize by 1998. However, such a standard may be difficult to enforce from the top down, and so a de facto standard could eventually emerge from a successful vendor. For example, Mark IV is seeing substantial penetration in key E-ZPass projects across the northeastern IAG states, such as New York, New Jersey, and Delaware. In addition, Mark IV has extended the open time division multiple access (TDMA) protocol from Hughes to create Mark IV's new Fusion system. The Fusion approach enables both TDMA readers from Hughes as well as E-ZPass readers to communicate with Mark IV tags, presenting an interoperable solution to the consumer. The ETC industry is also under pressure from the U.S. Congress to develop national standards for interoperable systems, and the U.S. Senate Appropriations Committee has also directed the U.S. DOT to make inroads into the developments of ITS standards if federal support for ITS is to continue. A tremendous push for interoperable systems is also coming from commercial enterprises that have launched several cooperative projects such as PrePass and I-75, which aim to outfit truckers with interoperable tags that eliminate the nuisance of carrying several tags with different account balances across interstate, long-haul trips.

Even though it has no current intention to do so, the U.S. Federal Communications Comrnission (FCC) could significantly alter the landscape of the ETC market in the United States if it mandated that ETC equipment operate on frequency bands in addition to the current 902-MHz to 928-MHz band. At the time that the FCC originally allocatod the 900-MHz frequencies for ITS applications, ETC manufacturers had little frequency-interference competition. The situation has changed significantly, and the crowded band now competes with a multiplicity of devices and services, including forthcoming new advanced cellular systems. Previous attempts to shift the industry from its current location to the higher frequencies met with considerable resistance. U.S. manufacturers that offer equipment at the lower frequencies did not want to see the market absorbed by European manufacturers who supply sophisticated equipment operating on the 5.8-GHz band. Although the FCC has previously backed down, it may have to reevaluate spectrum allocation issues soon because of overcrowding. A critical concern in the development of national standards will also include an assessment to ensure that no manufacturer's patents are being infringed.

The advantage of using high frequencies is that they permit a much higher rate of data exchange than on tags using the lower frequencies. High data exchange rates will also facilitate the transmission of other information such as real-time traffic data collection and dissemination. One U.S. companyóRaytheon Co. (Tewksbury, Massachuseus) has developed a new 35-GHz tag the size of a postage stamp with a communications range of more than 300 meters that may find use in ETC as well as in such applications as smart parking, smart license plates, and vehicle registration. Although some vendors assert that the costs of the components will increase the price of the higher-frequency tags, Raytheon is forecasting a tag retail cost of less than $20. The tag will be available in a passive, read-only version or in an active version with battery.

Important efforts to achieve standards may emerge from vendors offering multiple-frequency systems. A joint venture between Amtech and Motorola produced the Intellitag system, which is compatible with the State of California's Title 21 AVI standards regulations, is capable of both lane-specific and wide-area communications, and supports ETC applications in both the 915MHz and 5.8-GHz frequency bands. Intellitag's vehicle to roadside communications capabilities illustrate the direction in which advanced ETC toll systems are movingótoward systems that can operate on multiple frequencies. Recently, Amtech tested a system in Japan that is capable of operating at 902-MHz, 2.4-GHz, and 5.8-GHz bands.

In the absence of any common agreement on standards, the U.S. ETC industry will likely gravitate toward implementing interoperable readers that can communicate with different tags already on the market. Standards groups understand that toll agencies will not be willing or able to convert immediately to a new standard if it is incompatible with an existing ETC system. One migration path might require toll operators to implement hybrid readers only as their old equipment required replacing. In addition to installing equipment that reads multiple types of tags, operators will ideally combine billing systems that consolidate tag activity to one account with a single statement. Importantly, interoperability extends beyond technical capabilities and requires reciprocity and cooperation between toll authorities. Such cooperation has not been the traditional mode of operation for toll groups. Last year, discussions about establishing a national or even series of local clearinghouses that would consolidate back-end billing did not reach fruition. Similar competitive issues apply to the billing side, in which a number of companies are competing to manage the accounting and service sector of ETC projects.

In Europe the mandatory nature of the ComitÈ European de Normalization (CEN) and the International Organization for Standardization (ISO) standards for public procurement projects normally requires workable standards to be available before the procurement process begins. In the case of electronic toll collection in Europe, like the case in the United States, no such standards existed, and so several early ETC systems were developed and implemented with incompatible communications frequencies, data transmission rates and bandwidths.

The majority of European suppliers are, however, working to the telematics prestandard TC278, which incorporates the dedicated short-range vehicle-to-roadside communications for ETC standard of 5.8 GHz, a medium data transmission rate, and a bandwidth of 10 MHz. Although industry observers confidently predicted that this prestandard would be adopted in early 1996, Italy and Norway, both of which have suppliers whose products do not conform to some elements of TC278, vetoed its adoption. Italy also has an extensive network of toll roads operating commercially on a system that uses a 20-MHz bandwidth. The adoption of TC278 is unlikely now to take place before the end of 1996, although whether it will gain the necessary support is still not clear. The continued rejection of the prestandard will inevitably delay widescale adoption of interoperable ETC in Europe.

The issue of the bandwidth and data transmission rates are particularly crucial. The current prestandard proposes a 10-MHz bandwidth, which some European countries consider sufficient for dedicatod ETC applications. However, other countries, notably Norway, support a narrower bandwidth and lower data transmission rateóadequate for basic read-only technology with low cost tags. Italy however, supports a wider bandwidth of 20-MHz and higher data transmission rateófaster but more expensiveówhich is currently in use on its frceway network. The selfinterests of national players aside, whereas few support Norway, some suppliers believe that the higher data rate and wider bandwidth will be more suited to the nonstop multilane tolling environment that is envisioned for the next century and will cater better to sophisticated applications, such as route guidance and traffic and travel information, and direct debit payment options, which could be integrated into a multifunctional transponder.

A short-term compromise is likely, with individual countries and toll operators entering into bilateral or even EU-wide agreements that will enable some level of interoperability until the adoption of common specifications. Like in the United States, in Europe this compromise will likely require roadside readers to operate with a variety of transponders. However, we expect the 5.8-GHz communications frequency with a 20-MHz bandwidth to be the finally agreed-upon European standard, with agreement coming in 1997.

Efforts to achieve automatic debiting standards will also rely on developments outside the ITS industry. The use of dedicated ETC smart cardsówith transaction rates of 100 millisecondsófalls into two categories: contactless cards designed for use with readers at the toll control gate and removable smart cards for use with an in-vehicle transponder in nonstop payment systems. In both instances, the card can be loaded with prepaid units. Also under development is an electronic purse smart cardóa smart card that can be used in an open system to pay for a variety of goods and services from different service providers in different currencies. Money is loaded directly onto the card from the user's bank account. However, when electronic purse cards are used for ETC applications, the transaction time is much longeróbetween l and 2 secondsóthan for transactions using a dedicated ETC smart card. Security is the trade-off against transaction speed: Dedicated ETC cards are less secure than electronic purse cards. Smart card standards currently include specifications about appearance, size, and transmission protocols, but as yet no standards exist for electronic purse applications. So when a toll operator wishes to incorporate electronic purse functionality for future paymentsóas is the case in the TIS initiative in Franceóthe operator requires a customized specification from the card manufacturer, which inevitably gives the manufacturer a competitive advantage.

Unlike other ETC issues, standards for automatic debiting will develop in parallel with systems, making compatibility much easier to achieve. The lead in Europe for cooperation on automatic debiting is coming from Finland, Sweden, Norway, and Denmark, whichóunder the MANS initiativeóare planning to introduce a common system by 2001. Agreement within the rest of Europe is likely to take a little longer, with resolution likely by 2002.

Another area critical to the development of pan-European tolling is vehicle classification, one of the main parameters for toll calculation. However, again, no common standards exist for grouping vehicles in order to charge them. Classification is at the discretion of the toll operators, who are currently using a variety of criteria, including vehicle size, vehicle weight, number of axles, and axle weight. And all have already invested in the installation of different systems that form part of their tolling infrastructure. Agreeing at a European level that a common classification standard should be implementedóthe present situationóis a far cry from actually doing it. Whereas the problem has been identified, resolution is a long way off.

Although a number of national and international initiatives are striving to find a near-term resolution to the issue of interoperability, the fact remains that few suppliers have really shown an interest in developing truly interoperable equipment. Despite the fact that deployment of electronic toll systems could be speeded up by interoperability either at the reader or at the tag level, vendors are being particularly slow to adopt this approach, preferring to take their chances, and possibly a larger market share, with the adoption of de facto standards. Although vendors initially cited the lack of a comrnon communications standard as the problem, they have shown considerable reticence to reach any agreement. Even though a number of suppliers manufacture equipment to the European prestandard 5.8-GHz frequency, their systems are not compatible. The trials currently taking place in Austria illustrate this point. Three systems are on trial. A11 three are read-write systems with smart card payment functionality, and all use dedicated shortrange microwave communications at 5.8 GHz and the same data transmission rateóbut the systems, although compliant, are incompatible.

A glimmer of hope that this attitude may be changing came recently when several major suppliersóBosch/ANT, Saab Combitech, CSE Route, CGA, Texas Instruments, and Hyundai Informationótogether signed a joint statement confirming their agreement to supply components to the European draft communications standard. Similarly, French company Thomson-CSF signed an agreement to develop an interoperable multilane ETC system with Italian freeway operator Autostrade SpA. Although some way to go remains, these agreements demonstrate a recognition by some suppliers of the importance of cooperation if the market is to develop to its full potential.

In Japan, the MOC and the four major toll authorities are working with ten consortiaó comprising U.S. and Japanese companiesóto develop a national Japanese ETC standard. The U.S. companiesówhich include Hughes Transportation Management Systems, AT&T, Amtech, and AT/Commóhave all recognized the importance of local practical experience of toll collection in Japan and have each formed partnerships with Japanese companies. European companies have been less aggressive at showcasing their productsóa significant factor in their absence from the trials. Field trials to assess the suitability of microwave communications at 5.8GHz and 2.45-GHz frequencies for ETC applications finished in the early part of 1996, although no system specification has yet been announced. Although many analysts initially believed that the Japanese government was more likely to select the 2.45-GHz communications frequency than the current de facto 5.8-GHz European standard, this possibility is now in doubt, following problems with noise interference at 2.45 GHz during the trials. A communications frequency of 5.8 GHz with a bandwidth of 30 MHzómore suited to multifunctional transpondersówill probably be the frequency of choice, which would incidentally provide potential for Japanese suppliers to compete in the lucrative European markets.

Market opportunities for European companies now seem limited in Japan, although their considerable expertise in ETC using the 5.8 GHz communications frequency could still provide an opportunity. The Japanese ETC specification is likely to demand a high level of accuracy and reliability, which could benefit from European research expertise and practical experience. Partnerships with local companies will provide the only realistic opportunity for European companies in the short term.

Although the development of multifunctional transponders in Japanóon-board ETC units that would operate with other in-vehicle equipment such as the Vehicle Information and Communications System (VICS)óis desirable for users, public authorities are developing systems independently with no thought to common equipment. Integrated units will not likely become available in the short term, although this outlook will change in the long term as the markets develop. Surprisingly, the fact that users in Japan will need to buy separate in-vehicle units for ETC and travel information is not likely to be a major constraint to market growth in either application.

Marketing and Public Acceptance

So far, no clear evidence in the United States and Europe shows that the market for ETC systems is driven by any perceived consumer need. It is certainly true that at facilities where no alternative route is available to patrons (for example at a bridge or tunnel river crossing) and where congestion is a problem, ETC systems have been very successful, and adoption has been reasonably high. However, toll operators should not assume that benefits will be sufficient to develop increased demand. One of the keys to the success of ETC services in the United States and Europe will be in advertising and promotion, and toll operators will need to be creative in the ways in which they attract customers. Several operators already see regular campaigns to promote use as an essential part of their strategy. Market research and education will be critical for overcoming potential rejection of ETC. The message for toll operators is to launch early and aggressive advertising campaigns that contain a well-crafted ETC message highlighting user benefits. It is also critical for operators to recognize the importance to consumers of maintaining low costs and to implement off-peak pricing strategies.

Toll operators have learned the hard way that complex new technology simply does not sell itself. A number of analysts maintain that proper market research could have prevented some of Greenway's difficulties in attracting adequate ridership. Marketing survoys might have revealed that commuters would balk at paying the $1.75 one-way toll. Importantly, commuters did not like having to pay the same toll no matter how far along the toll road they traveled, nor what time of day they used the road. The group has since launched meetings, focus groups, and marketing surveys to understand user needs. Pricing structures can also create disincentives to use manual and coin lanes by providing discounts to tag users. A toll operator in Texas reported a 30% spike in the number of tags ordered after the authority announced that prices for manual and coin tolls would be double that of tag-based tolls.

Initial ETC experiences have also taught toll operators to market ETC in the same way that a company might launch a new, technical, consumer product. Toll operators must contend with offering competitive ETC alternatives to efficient, existing, low-tech options. Marketing surveys indicate that people are less interested in learning about the intricacies of a new complex technology and its capabilities than they are about learning what the system can do for them. Education can illustrate in detail a new system's advantages. CPTC for example, used a wide range of media channels to deliver specific information about the toll road and how it would work. CPTC organizers also used an extensive direct mail campaign to explain carefully the principle of congestion pricing and how it can encourage car pooling and off-peak commuting. The advertising campaign also used familiar pricing structure metaphors from other industriesósuch as airlines and telephone companies that charge higher fares for peak timesóto illustrate the common acceptance of variable pricing for services. Those toll operators who show an interest in the benefits of ETC to the community are likely to fare better and generate more business than those who simply view tolls as a means of servicing a debt.

Importantly, toll operators are discovering that commuters do not always value time savings as highly as planners would like. In addition, minor time savings exhibited on a few of the newest ETC facilities do not justify the cost of obtaining and maintaining a transponder and an account. In areas with relatively manageable congestion or sufficient alternate back routes, drivers will likely ask themselves whether a five-minute savings in daily commute time justifies a $70 monthly toll bill. In many areas, ETC shares a lane with a coin facility or even a manual lane, thus preventing complete free-flow toll processing. In these instances, time savings are far less drarnatic than they are with a free-flow, ETC-only lane. In addition to providing dedicated lanes so that the benefits of reduced queuing are instantly visible to users, operators must think of adding servicesófor example enabling the tag to be used to pay for local parking facilitiesóin order to help the market for ETC to grow.

In Europe, toll operators are finding increasingly that where users are able to choose an alternative route, or where the benefits of the ETC system are limited, they need to offer customer discounts to promote electronic services. In France, toll operator Cofiroute, which has currently installed two ETC systems to aid congestion reduction in areas of high commuter traffic, still finds it necessary to offer a 30% reduction to users. And it finds considerable customer resistance to having to pay a deposit for the transponder. Several operators avoid this situation by asking customers to accept liability for the tag and pay only if it is lost or stolen. And in a recent promotion in the United Kingdom, the Mersey tunnels operators provided each new account with a $15 opening balance, which resulted in substantial new business.

Market research can also uncover features that improve the quality of toll road service, especially billing services and procedures. For example, toll operators can provide feedback mechanisms such as warning lights directly on the transponder or follow-up letters if toll balances on the tags fall below a predefined level. In a system in Orange County, California, first-time offenders receive a polite letter and a request to pay. Current studies show that 90% of drivers comply with the first letter.

Research also reveals that consumers want easy access to tag distribution and accouating facilities. In some cases, tag distribution offices are difficult to find, making accessing tags an ordeal for the consumer. Operators might also tailor management of individual accounts according to user requirements. For example, drivers might receive quarterly or detailed statements listing toll transactions. In some areas, privacy is a major concern for users, some of whom would prefer to pay cash for tolls. These customers may prefer purchasing an anonymous tag with a predefined amount. Some toll operators in Europe are also finding that a high percentage of patrons are still inclined away from electronic banking and direct debit arrangements, preferring to retain direct day-to-day control of their finances by paying cash. This disposition is particularly noticeable at toll facilities in areas of high unemployment.

In those European countries where road-use charging is a new practice, experience has shown that local authorities and governments need to reinvest profits in roads and public transport in the local area to make the charging for road use acceptable. Although the U.K. government had previously made it clear that any profits from tolls and congestion charges would be ploughed into the treasury, the government has since found it politically expedient to agree that revenue from freeway tolls will all go to roads.

Despite the lack of interoperability and compatibility between ETC systems currently on the market, suppliers must not underestimate the importance to the consumer of needing only one transponder per vehicle, particularly for facilities that are close in proximity. Two very critical benefits result from a vehicle's not needing to carry more than one tag. In the first instance, if customers are required to obtain and pay for separate tags for each application they use, they will undoubtedly limit their participation in electronic toll systems. And in the second, interoperability minimizes the potential for tag-to-tag interference, which can occur with some VRC technologies if multiple tags are present on the same vehicle.

Unlike in the United States and Europe, in Japan, the implementation of ETC is an important means of alleviating congestion on the toll-road network, which will be welcomed by the majority of road users. Promotion of ETC is not therefore an essential component of ETC adoption, although toll authorities will likely offer discounts to users as an incentive to encourage initial adoption. With limited routes between cities and few alternatives for drivers to take, users will likely prefer ETC systems over conventional payment methods. The high cost of the invehicle unit is also not likely to deter users in Japan, who are already used to paying very high road tollsóin Japan a 100-km trip costs in the region of $20.

Political Issues

Major political concerns that are having a negative impact on the widespread adoption of ETC in both the United States and Europe include consumer reluctance to pay for public road use, the perceived unfairness of congestion pricing, and privacy concerns (see Privacy and Legal Issues in this section). Many voters are resistant to the idea of paying tolls for an infrastructure cost whose payment they believe should come from fuel and road license taxes. Although many governments see tolling as inevitable for the provision of better roads, the move will not be popular. This political issue has already created difficulties for companies that have made substantial investments in preparing and responding to proposals that will not see near term adoption, for example with the proposed freeway tolling system in the United Kingdom. In Japan, drivers are already accustomed to paying for road use and to the practice of video enforcement. Of more concern in Japan are the effects ETC will have on employment and ETC's potential to create congestion on urban roads at freeway intersections.

Some areas will likely not succumb to public road-use charging without a fight. In Washington state, for example, the potential imposition of toll roads on new projects led to substantial public protest and controversy. Although Washington state officials initially requested bids for some six new construction and improvement projects, public opposition put the projects on hold. The change in policy has created difficulties for the companies that have made substantial investments in responding to proposals that will not see passage in the near term. Even the Tacoma Narrows Bridge proposal, which is the furthest developed, will not likely undergo construction until 1999. This date assumes that environmental assessments see successful completion and voters pass required legislation. In addition, other statesósuch as Arizona, Minnesota, and Michiganóhave seen public opposition to ETC system construction.

Concerns also exist about the private management of public facilities. Public-private consortia believe that private entities can supply an efficient and technologically advanced service that governments are no longer able to provide. Opponents argue that because consumers must pay for the built-in profit margin of a private ETC operator, the ultimate cost of a privately managed ETC facility will be higher than the cost of fuel-taxes and bond funding for ETC. In addition, some opponents are concerned that if the market for private ETC operation is not viable, outstanding debts of failed ETC projects will revert to the state. Despite the rhetoric, political opposition to public-private ventures will likely wane in the long term. Consumers are beginning to understand that government is increasingly unable to maintain an adequate transportation infrastructure. Ultimately, consumers will prefer a private serviceóassuming it is efficientórather than a poor service or no service at all.

The congestion pricing debate has reccived much coverage and represents a more problematic issue for ETC operators than other political concerns. Many consumers perceive congestion pricing schemes that charge high tolls for peak times and low tolls for off-peak times as unfair to low-income customers who do not have the job flexibility to alter commute patterns.

Bottom p. 67 Several congestion pilot tests are already in place in Europe and the United States, and some have already met with substantial public resistance.

In an effort to boost congestion pricing schemes on highways, the U.S. Federal Highway Administration announced that it would reimburse toll facilities for any lost revenues resulting from congestion pricing pilot tests. The FHWA established a $10 million fund to replace lost revenue. Although officials are publicly supportive of variable pricing, many of them express private concerns about its ultimate political viability. In place currently are congestion pricing pilot tests such as the project that the San Diego Association of Governments (SANDAG) is managing. The three-year, $16.1 million project will receive 80% of its funding from federal sources. SANDAG will test congestion pricing on highway I-15. According to the project manager, the fee schedule will change according to demand. The SANDAG test is not operating on an existing toll facility, but in an HOV lane. Although the test is not on an ETC facility, it may provide critical insights about the implementation and public acceptance of congestion pricing concepts. In 1994, the FHWA also approved an additional congestion pricing pilot test on the San Francisco Bay Bridge. The proposal included increasing tolls from $1 to $3 during peak times. Unfortunately, the proposed pilot met with substantial resistance. Without a legislative champion for the policy, congestion pricing structures have failed to make inroads on the Bay Bridge. Pockets of intensive public resistance are likely to persist in many areas in the United Statesóespecially in places where congestion is not yet an overwhelming problem. Although preimplementation tests of congestion pricing schemes are under way in Houston, Boulder, California, Minneapolis-St. Paul, New York, and Portland, U.S. DOT authorities are not optimistic that these locations will soon adopt congestion pricing. Use of congestion pricing schemes in downtown U.S. cities will never become a viable political solution.

Value-pricing schemes will find the most success in heavily congested areas in the United States. Congestion pricing on SR-91 is well understood by commuters who tangibly benefit from a drastically reduced commute time, sometimes saving as much as 40 minutes to an hour. In addition, some studies reveal that a number of cars traveling during peak times are not necessarily commuters. A research group revealed that during a 24-hour period on the San Francisco Bay Bridge, less than 50% of the trips were commuters or even work related. Value pricing structures could help redirect a substantial amount of noncritical peak-time traffic. Officials note that the technical capabilities of the ETC system on SR-91 actually permit realtime variable pricing that could adjust the amount of tolls according to specific conditions. For example, if an accident occurred that slowed traffic further, operators could immediately increase the toll to divert traffic. Variable message signs could warn drivers of toll change; they could then elect to get off the freeway at the nearest exit. However, market studies show that people prefer to have a published toll schedule ahead of time, so that they may plan their commute accordingly. In addition, toll operators do not want the public to perceive them as willing to take financial advantage of a misfortune such as an incident or accident. Real-time variable pricing is not likely to be commercially viable in the foreseeable future.

The introduction of ETC in Japan will not be constrained by political issues in the same way as it will be in other countries. Because the policy to implement ETC has already been authorized by the Advanced Information and Telecommunication Society Promotion Headquarters, it cannot be changed, even if the government changes. And because the MOC is very determined to proceed w ith the implementation of ETC , no reason exists to suppose that this implementation will not progress as planned, with the necessary funding from central government.

However, two issues that are of concern to the Japanese public and that will constrain the pace of ETC implementation are unemployment and secondary traffic congestion. In Japan, the maintenance of employment levels is a major responsibility for all companies, with particular relevance for those companies operating in the public sector. As currently configured, toll collection is a labor-intensive industry, providing employment to many people. Because the introduction of ETC will significantly reduce the workforce, toll operators will likely choose to implement new systems over timeópossibly as long as 20 years, with no more than 60% of toll lanes electronic. Although a major driving force for the implementation of ETC is a reduction in traffic congestion on freeways, concern exists also that an increase in the number of vehicles exiting the freeways will create congestion on urban roads near freeway junctions.

Technology

The pace at which the market for ETC will grow is to a large extent dependent on the development of a range of technologies. These developments will affect such areas as equipment costs, levels of system functionality, alternative technologies, and consumer acceptance. Technical developments in non-ITS areasóin particular smart card technologyóare also having an impact on future implementations. Analysts need to take these developments into account when predicting future market growth.

The current market for ETC in the United States and Europe is dominated by simple read-only (Type l) technology, which in addition to being efficient and cheap, is eminently suitable for low-level ETC functionality. More complex read-write systems (Type II) that enable a reader to transfer information or update information on a tag have developed within the past few years, offering both user and toll operator additional services, such as storing statistics about the number of unsuccessful attempts a reader makes when communicating with a tag, or storing monetary toll balances that can be deducted as the user drives through a toll point. Battery life on these tags is also fairly robust, and toll operators can expect the current generation of equipment to last for some seven to ten years before requiring replacement. Such systems are seeing increasing use, particularly in upgrade and retrofit implementations. But ETC for new facilities on freeways and urban ring roads must enable toll operators to implement nonstop toll collection without modifying the design of the road lanes, without the necessity of widening the lanes at the toll point, and without introducing lane separation. These multilane systems (Type III) are in pilot implementation in several locations worldwide, but are encountering problems with enforcement and communications, which will have a bearing on the timing of their implementation.

The transponders -or tags- in use in the three levels of systems vary in both their cost and service provision. First-generation tagsófor Type I systemsógenerally operate at frequencies in the 902- to 928-MHz range in the United States and 2.45 GHz in Europe, over a distance of around 1 meter. Second-generation tagsófor Type II systemsógenerally operating in the 902- to 928-MHz band in the United States and on the 5.8-GHz frequency in Europe, can process transactions over a distance of around 5 to 7 meters on average, and sometimes over as much as 8 meters. Typically, read-only tags cost $30, increasing to some $50 for read-write technology. Read-write tags can perform a deduction transaction within 20 milliseconds, with transmission rates to and from an ETC system to the tag of some 300 Kbits per second. Depending on system requirements, Type I and II tags mount on the driver' s side interior of the windshield, on the back of a rearview mirror, underneath the vehicle, or sometimes on smart license plates (as is the case with some commercial vehicles). Occasionally, glitches in performance surface. For example, in some vehicles with unusual windshield coatings or shapes, some systems exhibit difficulty reading tags. Repositioning the tag is typically an adequate solution. Technologies such as spread-spectrum data transfer can offer superior noise immunity, but at higher cost.

Advanced functionality transpondersówhich are seeing demonstration in Type III systemsó are already expanding from credit card-style tags to transponders with warning lights, sound signals, and even small computer interfaces that can display information. For example, the AT/Comm system in use on the Maine Turnpike (and in Brisbane, Australia) allows users to ascertain an account balance by querying a built-in keypad and viewing data on the tag's liquid crystal display. LCDs on current tags are small, often enabling display of a few characters.

In the United States and Europe, Type I systems are the most common, with many toll authorities still reluctant to invest in more expensive Type II systems with complex options. The read-only tag usually contains 256 bits of information, such as a tag identification number. Type II read-write systems began appearing in the United States only in 1994 and are seeing gradual introduction in Europe. According to interviews that we conducted with key project managers, the cost of implementing a Type II system is often inconsequentially larger than the cost of installing a Type I system, so cost will not likely be a factor in inhibiting the incorporation of Type II equipment in new ETC installations in the near term. In many cases, the upgrade path from a Type I system to a Type II system can be a relatively straightforward process that might include incorporating a new add-in board in a lane-based computer system.

In contrast, a Type III system is significantly more expensive to install than a Type II system. Transponder requirements in a Type III solution are often complex, require intense customization, and incur costs to the consumer, who sees higher prices in the form of expensive tags with specialized hardware and functionality. In Type III installationsóstill only in pilot implementationódevelopers are encountering technical problems with communicationsóhow to organize the ground antennas, the transmission protocol, and the transaction duration in order to be able to communicate with several vehicles at a time, placed in unknown positions on the road, and traveling at high speeds, without missing a communication.

Enforcementóhow to detect and identify vehicles in violation with a high degree of accuracyóis proving problematic in advanced multilane systems where barriers are not suitable. This issue is particularly relevant in Europe, where a higher level of accuracy is necessary than for systems operating in the United States. Two methods of enforcement are proposed for these systems: mobile enforcement and enforcement at the point of transaction. Mobile enforcementó technically the easiest way of catching violators in a multilane configurationóuses a vehicle equipped with a reader and a video camera to detect and take pictures of defrauding vehicles. This system of "spot checks" has had successful application on public transport systems for a number of years.

The alternativeóenforcement at the point of transactionóis much more complex. The footprint in a multilane environment is very short, requiring the completion of several transactions within a very short time. So far, no enforcement system of this kind has performed satisfactorily in any trial. In addition to the need for a technical solution to enforcement, progress is being hampered by legal issues (see Legal Issues in this section). Another important question that toll operators need to ask of any ETC systemósophisticated or simpleóis: At what point does the cost of the enforcement system exceed the benefit?

Most monolane systems use video cameras for backup detection and enforcement tasks. Cameras require additional illumination for nighttime transactions and must be rugged to withstand environmental conditions. Multiple cameras are nocessary for capturing licenses of vehicles traveling at high speeds, in wide lanes, or off center. Processing violations using video equipment is still labor-intensive because operators must key in numbers of captured plates and issue violation paperwork. The use of optical character recognition equipmentówhich speeds ticket processing and can now read plates correctly about 90% of the timeóis gaining momentum. Automated license plate readers are undergoing testing in Detroit, Niagara Falls, Boston, New York City, Raleigh, and Santa Barbara.

Although several alternative communications technologies are on trial for ETC, all installed systems are microwave basedówith many proposed monolane and multilane implementations planning to use this technology for communications. Tolling systems based on global positioning system (GPS) satellite technology for vehicle position location and mobile data or global system for mobile communications (GSM) for payment transactions are under development by German companies T-Mobile (formerly DeTeMobil) and Mannesmann for nonstop freeway tolling environments. The main advantage of a GPS/GSM system is that it negates the necessity of investing in expensive roadside infrastructure. However, not only is the technology unsuitable in local urban environments, it is also suffering from the fact that microwave has become the system of choice in Europe for the upgrade of existing toll infrastructure, often selected by neighboring facilities in the interests of future interoperability. One of the main reasons why DARS, the Slovenian freeway toll operator, chose a microwave-based system was to be compatible with Austrian and Italian implementations. And the Swedish authorities specified a microwave-based system for the Stockholm ring road, not only because they saw microwave technology as becoming the de facto European standard, but also because user anonymity is harder to guarantee in a GPS/GSM systemóa legal requirernent in Sweden. Nor is the technology suitable in a cordonóring roadósystem, where toll stations are necessary for the installation of video enforcement systems. Other toll operators have chosen not to consider GPS/GSM systems because of the high cost of the on-board GPS receiver and navigational database. The development of hybrid systems incorporating GPS functionality is likely.

Infrared beacon-based technology for ETC is also losing out to alternative microwave-based systems, and although technically very efficient, it is unlikely to become the system of choice in Europe or the United Sates. A major factor in the nonacceptance of IR technology is the dominance of one supplier for the systems, with second sourcing presenting a problem.

Contactless smart cards will find increasing use in ETC applications. Smart card technology is developing rapidly and seeing increasing deployment in such areas as cellular communications and financial transactions. More countries are taking an active interest in the technologyóin the United Kingdom, banks are planning to issue smart cards in 1997óand several international credit card companies are planning to introduce smart cards to their customers within a few years. As these schemes proceed, opportunities will develop for ETC integration. Although public transport will be a large growth market for smart card developers, particularly in the area of ticketing, the main drive is likely to come from electronic purse applications. Electronic toll collection forms only a small part of both markets, with suppliers estimating between 2 million and 3 million cards in use for ETC by the year 2000.

At one level, contactless cards are competing with magnetic strip technology at toll plazas where vehicles are required to stop. Although the transaction is significantly quicker and more robust than with magnetic strip technologyóbetween 20 to 30 times quickeróthe higher cost of the cards is hindering wide-scale implementation. However, the main growth for the technology will be in its use for dedicated ETC, where nonstop payment options are provided. In this application, the card is inserted into an in-vehicle transponder. So far no commercial ETC installations use contactless smart cards in nonstop environments, although several are on trial, and all new systems are likely to incorporate smart card functionality that can be activated when necessary. The first implementation of ETC with smart card technology will be made by Autostrade in Italy. Implementation is planned for 1997, when between 300 000 and 500 000 cards will be in use. The card will be a dedicated ETC card, using high-rate data transmission.

Smart card systems with electronic purse functionality are also on trial for ETC in several locations worldwide, and will likely increase in use as standards for their use are adopted worldwide. Some specifications for ETC systems already incorporate electronic purse functionality, which can be activated at a later date when necessary. In Portugal and Singaporeó both of which have national electronic purse initiativesóelectronic purse smart cards will likely become the preferred payment option for ETC. But in France, where chip card and magnetic stripe technology are well established for ETC, electronic purse technology is likely to take several years before adoption.

The benefits of smart card technology as opposed to prepaid tag systems are several. A readwrite system with a smart card has two pieces of in-vehicle equipment: the transponder and the smart card. Ideally, the transponder remains permanently fixed in the vehicle, and in addition to undertaking the roadside-to-vehicle communications, it can also include vehicle classification details. Removable transponders (tags) are open to misuse and theft. Because smart cards have the ability to be multifunctional, they will in future incorporate a variety of applications, including payment for parking and the use of public transport. Because the owner of the vehicle and the driver are not always the same, the smart card system also allows the toll to be charged directly to the useróa tremendous benefit for car rental firms.

However, a major drawback with smart card technology is that it is expensive, particularly when compared with its major competitor: magnetic stripe technology. This high cost factor will initially slow the pace of introduction, although as volume production leads to some level of cost reduction and the more widespread use of the technology in a variety of applications demonstrates benefits to both toll operators and users, the markets will grow. The current cost of a smart card for use in pilot ETC implementations is between $12 and $15, although major supplier Gemplus estimates that this cost will fall to some $7 per card for volume production. However, this cost is still significantly higher than the cost of magnetic stripe technology.

Privacy and Legal Issues

The shift in ETC from simple AVI systems with barrier enforcement to more sophisticated systems designed to permit high-speed operations in multilane open highway environments with video enforcement presents a variety of nontechnical issues that need resolution before the market for these more sophisticated systems can develop fully. These issues include protecting the anonymity of the driver who has paid the correct fee, agreement about automatic debiting payment procedures, violation reporting and enforcement, user privacy, and data security. Various working groups and initiatives in Europe and the United States are working to establish common procedures for the resolution of such issues, but so far no practices have been established.

Privacy is an important area for ETC in the United States and Europe, and all developments are moving toward respecting the individual's right to privacy. Although in some countriesó notably France, where the perception that the toll authorities could use the knowledge of their patrons' whereabouts to the patrons' detriment is possibly constraining the success of ETCó most industry observers believe that privacy is not likely to play as great a role in determining ultimate use of ETC systems as will issues such as interoperability and well-designed system features. At the Dartford river crossing in the United Kingdom, 40% of users choose the direct debit payment option, despite the lack of anonymity. And the success of the credit card as a tollspayment medium that provides no customer privacy clearly supports this view.

Ensuring complete security will be increasingly difficult but still essential as ETC systems grow in complexity. Tags will transition to transponders, which will incorporate smart cards that will enable users to access a range of ITS-related information, such as real-time traffic data and weather bulletins. Toll agencies, banks, financial institutions, ITS clearinghouses, and other entities may eventually require access to the personal consumer information and preferences stored on the smart card. Designing a perfectly anonymous system that prohibits access of specific information by individual parties is difficult. The task will become increasingly challenging as smart cards contain ITS information that is tailored according to a specific individual's preferences. For example, as smart transponders integrate into ITS and traveler information systems, they will download information suited to a particular user. Such intelligent information delivery schemes will make it difficult for ITS system designersóand usersóto adopt a completely anonymous card. Systems will have to identify a user to apply specific user requirements about the kind of information they receive and the method in which it is packaged. In addition, privacy concerns become more difficult to address as cards find use for a variety of applicationsósuch as parking payment and retail purchasesóoutside toll collection. Sophisticated encoding and encryption schemes are possible, but may ultimately add an unwantod cost to the transponder.

Enforcement technology is maturing much more quickly than the legal and institutional framework in which the systems will operate. In the case of high-speed ETC, the acceptance of a video image as legal evidence is still unclear. In the Unitod States, issuing video speeding tickets is common in Florida, where legislation permitting video enforcement is in place, but such legislation does not exist in all areas. In 1995, the IBTTA adopted a resolution endorsing video enforcement, including reregistration fines and fees, of toll violations. Video cameras capture only license platesónot occupantsóof vehicles that are in violation. In Europe, although all countries require enforcement equipment to be type approved, the United Kingdom is the only country so far that has a type approval procedure in place for video systems. Those countries that are committed to road use charging, such as Belgium, are already working toward a change in their legal structure. But others are dragging their heels. Any resolution is unlikely to take place before 2002, which will further delay the implementation of multilane systems.

In Europe CARDME will also play a crucial role in the timing of the resolution of legal issues. The scope of CARDME is to identify problems at a political and institutional level and to cooperate with standards' working groups to ensure the solution of present problems and the achievement of Europe-wide interoperability of ETC systems. Priority has already gone to such problems as payment enforcement, nonequipped users, data protection, area tolling, and lowfunctionality transponders. Because CARDME comprises representatives of national governments, it has more influence than other European initiatives. This influence will be critical in driving the pace of systems implementation.

Unlike in the United States and Europe, in Japan privacy is ualikely to be a major constraint to the introduction of ETC. Video equipment is already commonplace at toll plazas, and so far public opposition to its use has been minimal.

Societal Changes

Although most studies predict an increase in road traffic in the next 15 to 20 years, an alternative view that could adversely affect the adoption of ITS products and services needs consideration when assessing market development. A recent study in the United Kingdom predicted that in 15 years, car journeys made by commuters and shoppers will drop by as much as 43%, with drivers using their cars 20% less for socializing. The study attributes this change to a change in working patterns, with more people working remotely from home; to videophone conferencing, resulting in less direct socializing with family and friends; and to significantly more teleshopping. Although this view is not universally supported, BT forecasts 3.3 million teleworkers in the United Kingdom by the year 2000, with 1 worker in 6 using the home as an office. These figures would mean that a medium-size company operating in central London could save $3 million a year in transport and office costs. And a recent report on the information society produced by the European Commission estimates that teleworking in Europe will grow from 1.25 million teleworkers in 1995 to 10 million by the end of the decade.

MARKET FORECAST

Although the vast majority of ETC projects in North America will be in the United States, some significant developments are taking place in Canada. As a result of these developments, our market forecast covers the North American ETC market.

Although we show the market forecast section for ETC on a regional basis, we have used the same equipment cost assumptions for North America and Europe. Based on discussions with toll operators and equipment suppliers, our estimate for the average cost of retrofitting an existing toll lane with nonstop monolane ETC equipment is $100 000, and the average cost of constructing a new monolane or multilane ETC facility is $250 000 per lane, although this number is likely to drop to $200 000 per lane in the next five years. Our estimate for the cost in Japan of a new non stop monolane retrofit installation with smart card payment option is some $200 000 higher than the cost in North America and Europe, at $400 000 per lane. In addition to significantly higher AVI costsórelated to the requirement for close to 100% accuracyó communications and installation costs are also higher in Japan. We assume replacement costs to be 100% of the cost of a retrofit installation and 50% of the original cost of a new installation. These estimates do not include construction and materials but do include electronic equipment such as antennas, readers, video cameras, mountings for housing ETC equipment at the roadside, and specialiÊd equipment such as lighting for nighttime license plate recording and backup systems (such as power surge protectors). New ETC projects also include costs for additional toll collection equipment (such as lane controllers) not already in place and communications infrastructure costs (such as fiber-optic cable) for high-speed transmission of high-resolution data and images to centralized billing systems. Communications infrastructure accounts for a significant proportion of ETC project costs.

On toll facilities that have mixed manual, coin, and ETC lanes, an average of 30% of toll transactions are ETC transactions. Toll facilities typically reach this level of penetration as quickly as one year after implementation. Incentives to increase toll penetrationósuch as increased prices for manual and coin lanes and discounts for ETC customersócan contribute significantly to ETC market share. Indications are that toll facilities have a solid success rate in retaining ETC users.

Importantly, large projects do not often see ETC retrofitting or installation complete at a single time. Rather, toll authorities install ETC on a few lanes within a contained region and launch subsequent extensions. After a toll authority sends out a request for proposals, the time to completion for a large-scale toll project can thus take several years. Data about cumulative, linear growth rates in ETC projects are therefore perLaps of less interest to ETC suppliers than are bookings projected within a single year. Our market charts show the projected single-year markets for 1996, 2001, 2006, and 2011 in 1996 dollars. The forecast figures represent not a cumulative market, but our estimate of that yearts potential ETC equipment revenue according to number and type of projects likely to be fitted during those years. Because developments in ETC markets are highly dependent on a number of factors, we present both realistic and optimistic but still plausible scenarios. We have indicated the distribution of ETC installations between the new, retrofit, and replacement markets. Currently, analysts anticipate that ETC shelf life will be robust in the near term, averaging some 10 years before replacement and even averaging 15 years in some installations.

A major differentiator for the ETC realistic and optimistic market scenario will be the adoption of ETC technologies into non-ETC areas. The development of multifunctional transponders, installed as original equipment by automobile manufacturers, will enhance the market potential for ETC systems by enabling drivers to select a variety of additional services from parking and urban passenger payment through to traffic and travel information. Such use will increase dramatically as transponders expand in capabilities and features, although they will still have to compete with less expensive optionsósuch as magnetic stripe cardsóin situations such as in a public or corporate parking lot, in which sufficient time savings cannot realistically be achieved or justified through a costly free-flow ETC system.

North America

SUMMARY OF NORTH AMERICAN ETC MARKET DEVELOPMENT SCENARIOS

Realistic Scenario: Market Develops According to Our Expectations

o Numerous ETC retrofit and conversion projects in North America continue to receive funding, especially in areas with limited alternatives such as bridges and tunnels and along the Eastern seaboard.

o A limited number of new construction toll projects funded by public-private partnership deals emerge because private enterprises await the results of the financial status of current projects before making any long-term ETC commitments.

o Congestion pricing schemes prove effective in only a small number of heavily congested areas. Public support for variable pricing remains weak and slows implementation of new ETC projects.

o Many areas without a toll history continue to hold out against the construction of new toll roads.

o Government entities and trade associations pass ETC standards but see slow migration of interoperable ETC systems for both public and private vehicles.

o Toll operators implement inexpensive, low-end, Type I ETC systems that do not easily integrate with other ITS functions.

Optimistic Scenario: Market Development Exceeds Our Expectations

o The inability of the U.S. government to maintain crumbling transportation infrastructure pushes additional toll authorities to implement new and retrofit ETC on a wide scale, even in key, nontraditional toll areas such as Minnesota, Washington, and Arizona.

o Congestion pricing finds acceptance and becomes a standard feature even on toll projects without previous toll histories.

o Traffic between Canada, Mexico, and the United States increases dramatically and dictates the use of ETC for international transportation of passengers and goods.

o The private sectoróespecially commercial fleet operatorsóincorporates ETC for toll collection, container inspection, refueling, border crossings, and other commercial and government rerquirements.

o ETC transponders find acceptance in applications outside toll collection, such as traffic probes, traffic routing, parking payments, and traveler information.

North America will have some 5000 toll lanes (including both ETC and traditional tolling systems) in place by the end of 1996, of which 30% óor 1500 lanesó will be ETC capable. Penetration will increase to 40% by 2001 and to 60% by 2006 and will top off at 70% by 2011. A reserve of non-ETC lanes will need to be available for infrequent users on roads where no alternative untolled route exists. Toll authorities in the United States are adding several hundred new ETC lanes per year.

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Europe

SUMMARY OF EUROPEAN ETC MARKET DEVELOPMENT SCENARIOS

Realistic Scenario: Market Develops According to Our Expectations

o Countries with existing freeway toll infrastructure continue to retrofit networks with incompatible nonstop monolane read-write ETC systems as a means of improving traffic flows in congested localities.

o Microwave technology becomes the de facto standard as a result of toll operators' choosing to implement the same systems as installed in neighboring facilities.

o The political sensitivity of road use charging in areas with no history of tolling continues to hinder the early implementation of ETC on freeway networks and in urban localities. Several countries, kean to implement ETC for trucks, resort to in-vehicle transponders as an interim solution.

o Vendors, recognizing the importance of interoperability to market development, cooperate more to develop compatible systems. This cooperation results in the adoption of a compromise communications standard of 5.8 GHz with a 20-MHz bandwidth by early 1997.

o Delays in the implementation of free-flow multilane systems occur as a result of the nonresolution of technical, standards, and legal issues.

o The funding of a limited number of new construction toll projects by public-private partnerships takes place in countries such as the United Kingdom and Germany in the absence of any major commitment to road-use charging.

o Interest in congestion pricing continues to be hindered by lack of public support.

Optimistic Scenario: Market Development Exceeds Our Expectations

o The early resolution of technical, standards, and legal issues encourages toll operators to retrofit existing toll infrastructure and build new facilities with compatible read-write ETC technology in both mono- and multilane configurations.

o Open standards hasten the development of hybrid multifunctional transponders, which incorporate a variety of applications such as ETC, parking payment, and traffic and travel information. Transponders are installed as original equipment by automobile manufacturers, with consumers selecting only those functions they wish to access.

o Political sensitivity to road-use charging declines as the need to improve traffic flows increases.

o Toll operators enhance ETC services and compete with broadcast radio to provide patrons with regular traffic and travel information bulletins via multifunctional transponders.

o Developments in smart card technology simplify payments methods and enable the early use of an electronic purse option.

In 1996, the number of ETC-equipped lanes in Europe totals some 1500óa combination of dedicated and ETC-capable lanesówith an estimated installed base value of $150 million. Although some of the newest installations incorporate read-write functionality, the majority of today's installed systems rely on simple read-only technology and use barriers for enforcement.

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Japan

SUMMARY OF JAPANESE ETC MARKET DEVELOPMENT SCENARIOS

Realistic Scenario: Market Develops According to Our Expectations

o Company responsibilities to maintain employment levels slow the pace of implementation of ETC in Japan, with full network coverage taking up to 20 years. ETC Implementation is restricted to major toll authorities in the near term.

o Despite the government's wish for toll roads to have ETC lanes only, concern about unemployment limits this exclusivity to some 60%.

o Toll operators will need to replace more of the existing toll infrastructure than they first anticipated, leading to higher overall installation costs.

o Although Japan has agreed to an open ETC equipment specification using a communications frequency of 5.8 GHz by the end of 1996, in reatity competition is limited to only two or three compames.

o Markets for in-vehicle units are slower than anticipated because ETC leads to increased use and further congestion on urban roads. Toll operators offer discounts to ETC customers to encourage adoption.

Optimistic Scenario: Market Development Exceeds Our Expectations

o Significant benefits in congestion reduction encourage drivers to use the ETC lanes as an alternative to automatic or manual lanes.

o Despite concern about the possible impact of ETC on employment levels, electronic-lane implementation gains public support as it begins to improve traffic flow on freeways. Network coverage is accomplished in 15 years, with 80% of lanes having ETC functions.

o Smaller toll operators bring forward ETC implementation in an attempt to alleviate congestion on their networks.

o Public authorities cooperate on the development of multifunctional transponders, resulting in increased adoption of ETC.

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NOTE: The following is extracted from the section "SUMMARY OF RESEARCH FINDINGS" and can be found on pp. 174 to 177 of the report. REFER to full report for complete information.

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ELECTRONIC TOLL COLLECTION

North America

The near and mid-term future for ETC looks very bright in North America. According to the International Bridge Tunnel and Turnpike Association (IBTTA) based in Washington D.C., almost 1 million electronic toll transponders are now in use in the United States, with the mid Atlantic currently the fastest-growing region for ETC deployment. In this area alone, the majority of the larger, longer-established manually operated-toll operators will have converted several hundred toll lanes to process electronic transponders by 1997. With activity in Mexico and Canada also gathering momentum, widespread penetration of ETC into existing and new toll facilities in North America is likely within the next few years.

ETC in the United States was pioneered in the south of the country, notably in the states of Texas, Louisiana, and Oklahoma, where first-generation electronic systems were installed as early as 1989. More recently, electronic tolling has moved into New York City, a collection of islands linked by tolled bridges and tunnels. Nine toll agencies in New York, New Jersey, and Pennsylvania that collect some $3 billion a yearCmore than half the total toll revenue in the United StatesCare currently in the process of installing electronic systems or considering bids. All are likely to have some form of ETC on their toll roads by 1998 or 1999. Significant ETC activity is also taking place in states such as Massachusetts, New Jersey, Virginia, and Florida, with several major projects under way and new contracts already awarded. A number of projects that will further increase the size and scope of the U.S. toll business in Pennsylvania, Illinois, and California are also poised for development.

In Mexico, in addition to limited ETC installations on selected portions of the roadway system running between Tijuana and Guatemala, interest is growing in the installation of electronic systems at border crossings between Mexico and the states of California and Texas. And in Canada, the Ontario 407 roadway, which is due to open in January 1997, will be the world's first multilane toll collection system, setting a new standard for future projects.

Despite opposition in some quarters, a notable recent development in the implementation of ETC in North America has been financing from private sources to supplement dwindling government support. The 1991 passage of the Intermodal Service Transportation Efficiency Act (ISTEA) enabled the use of federal funds in the United States to finance the construction of public-private highways. This use resulted in local governments' working with private groups to create financial packages for new toll projects. Two high-profile ventures, the State Route 91 in southern California and the Dulles Greenway road in VirginiaCboth of which were funded privatelyCare under close scrutiny. If successful, they will undoubtedly spawn additional similar projects elsewhere in North America.

Although the future for ETC in North America looks bright, an issue that needs resolution in the near term is interoperability. Currently, the industry in the United States comprises a patchwork of ETC systems from about half a dozen different vendors. Although pockets of interoperability exist, particularly for adjacent facilities, the majority of systems have been developed with little thought to providing users with interoperable systems. Although government groups and trade organizations are working on a nationwide interoperable standard, a de facto standard could emerge from a successful vendor.

The U.S. Federal Communications Commission (FCC) could also significantly affect the development of the ETC market in the United States if it mandated that ETC equipment operate on a frequency band other than the current 902-MHz to 928-MHz bandCalthough no current plans exist to do so. Whereas the 900-MHz band was fairly clear when originally allocated for ITS applications, the situation has changed significantly, and ETC now has to compete with many other devices and services, including new advanced cellular systems. Although previous attempts to move ETC to another frequency have failed, overcrowding on the 900-MHz band may make reallocation to different frequencies necessary if ETC is to reach its full potential, not only in dedicated applications, but also as part of advanced traffic management systems.

In addition to a sizable market for ETC on new facilities, substantial opportunities exist for retrofit installations and upgrades. By far the majority of installed ETC systems in North America are Type 1 read-only systems, which will require upgrade to Type 11 and 111 read-write technology as the benefits of these more sophisticated systems become apparent to toll operators. Combined with the need to retrofit systems to existing toll roads, electronic toll collection will continue to be a commercial success in the North American region during the forthcoming decade.

Europe

In Europe the market for ETC is being driven by the need to raise revenue through tolls to build new roads, bridges and tunnels, and the opportunity to reduce congestion on existing toll roads. Countries such as France, Spain, Portugal, and Italy already benefit from an existing freeway tolling network, but long queues at some toll plazas, combined with the physical restrictions that are preventing the addition of new booths, are encouraging toll operators to replace manual and automatic systems with ETC as a means of increasing throughput, not only to generate additional revenue, but also to reduce operating costs and improve customer service. Although the majority of installed freeway systems in these countries use read-only technology, retrofits, upgrades, or new installations are now tending to favor read-write technology with smart card functionality in nonstop monolane configurations Cwhere the lanes are separatedCwith barrier or video enforcement.

Countries such as the United Kingdom, Germany, the Netherlands, and BelgiumCwith no or limited toll roadsCare investigating the potential of more sophisticated multilaneCwith no lane separationCETC systems to provide an effective way of generating toll revenue or controlling traffic demand. Multilane systems do not require investment in traditional tolling infrastructureCsuch as toll booths and plazasCwhich in addition to being expensive, also creates congestion and raises pollution levels. However, political concern relating to public acceptance of toll roads in some countries will delay implementation. Countries such as Sweden and Norway see ETC as an effective means of raising toll revenue while controlling access to city centers.

The introduction of multilane ETC systems in EuropeCthe most appropriate technology for countries with no existing tolling infrastructureCis further hampered by technical difficulties relating to the accurate detection and identification of vehicles in violation and non-technical issues including violation reporting and enforcement, user privacy and data security, and agreement on automatic debiting payment procedures.

In addition to the national initiatives, which are taking place throughout Europe, funding for research into ETC technology is also a key element of the European Union's Transport Telematics Applications Program. Of the total budget of $282 millionCof which $165 million is allocated to road-related ITS projectsCin excess of $13.6 million has already been earmarked for projects that are either totally dedicated to or that incorporate research on toll collection. The objective of the EU is to ensure that member states that intend to introduce, or have already installed, electronic toll systems work toward the implementation of interoperable systems, leading to a pan-European tolling network. The EU's support for the development of the trans-European road networkCa network of toll freeways covering the whole of EuropeCand the implementation of ETC for trucks will play a significant role in the development of the market for ETC in Europe.

InteroperabilityCthe ability of a system installed by one toll operator to work with a different system installed by another toll operatorChas emerged as a major issue for the ETC industry in Europe, and one that will constrain the widespread implementation of ETC systems in the near term. In the absence of any common equipment standards, toll operators undertook the installation of ETC systems in Europe largely in response to national tolling needs, with no thought to providing users with interoperability. This choice resulted in the implementation of systems with incompatible communications frequencies, data transmission rates, and bandwidths.

Although a growing awareness of the benefit of providing European road users with interoperable systems is now leading suppliers, national governments, and EC officials to work together to overcome the technical, administrative, and legal issues that the adoption of pan-European tolling involves, it is proving an uphill struggle for several reasons. Although the majority of European manufacturers are supplying to a European pre-standard (TC278 - which incorporates the dedicated short-range vehicle to roadside communications for ETC at 5.8 GHz, a medium data transmission rate, and a bandwidth of 10 MHzCnot all countries or manufacturers believe that this standard is the most suitable for pan-European tolling in a multilane environment. Despite confident predictions that the standard would be in place by early 1996, it was surprisingly rejected by Italy and Norway, leaving a compromise standard of 5.8 GHz with a 20-MHz bandwidth as the most likely solution by 1997, with a short-term compromise of dual interoperability until standard systems can be fitted to all existing toll lanes.

In order for the market for ETC systems in Europe to develop to its full potential, resolution of these issues is critical. The objective of European initiatives such as CARDME (Concerted Action for Research on Demand Management in Europe), whose role is to cooperate with standards' working groups to ensure the achievement of Europe-wide interoperability of ETC systems, will be crucial in dictating the pace of systems implementation.

Japan

The Five-Year Road Improvement Program set up in June 1992 by the Japanese Ministry of Construction nominated ETC as one of the main areas of research within the Advanced Road Traffic Systems Program. Tolls already figure prominently on Japanese roadways, with all existing freeways designated as toll roads. Each of the four public corporationsCthe Japan Highway Public Corporation, the Metropolitan Expressway Public Corporation, the Hanshin Expressway Public Corporation, and the Honshu-Shikoku Bridge AuthorityCthat administer 83% of these roads currently uses a different method of collecting and managing the toll process. Toll operators view ETC as a way of improving the heavy congestion that already exists on Japanese roads, as well as leading to a more efficient way of using landCa very valuable resource in Japan.

Unlike in the United States and Europe, in Japan government funding for the implementation of ETC is assured, having been authorized by the Advanced information and Telecommunication Society Promotion Headquarters. This authority guarantees policy continuityCproviding the policy has ministerial supportCeven in the event of a change of government. With the Ministry of Construction acting as product champion, and providing that the technical requirements of the specification can be met, the nationwide introduction of ETC in Japan at some future point is assured.

So far collaborative technology trials involving ten private consortia have taken place, and we expect an announcement of a decision about the national specification in early 1997. The most likely specification for the Japanese system will comprise nonstop monolane ETC using read-write/smart card technology and video enforcement, with 5.8 GHz likely to be adopted as the dedicated short-range vehicle-to-roadside communications frequency. The MOC has also stipulated high levels of system accuracy, reliability, and securityCfor example, accuracy in excess of 99.90% for vehicle type recognition and more than 99.99% for vehicle detection at 60 km per hour.

An important component of the ETC market is the in-vehicle unit, but contrary to the situation in the United States and Europe, in Japan funding for this equipment is unlikely to come from the toll operators. Japanese drivers will have to equip their own vehicles if they wish to access ETC facilities. With ETC promising reduced queuing time and discounted tolling fees, toll operators are confident that Japanese drivers will be only too willing to buy the units.

Despite the high level of government support in Japan for ETC, concerns about unemployment will constrain the pace of implementation. Company commitments to staff members, with consequential reluctance to administer the redundancies that will inevitably result from the introduction of ETC, will lead to the implementation of electronic lanes over only 60% of the network, taking up to 20 years to complete.

Although the Japanese ETC implementation will be the largest system in the world, market opportunities for ETC vendors are likely to be limited, especially for non-Japanese companies. Although the government has stated that the national specification will ensure the market is open to all manufacturers, with toll authorities free to choose which system they wish to implement, the reality is likely to leave one or two suppliers in a dominant position. European companies, already lagging behind their U.S. counterparts (which are participating is some of the trials), will need to work aggressively on the development of partnerships with local companies, if they are to develop any realistic chances of success.

1996 by SRI Consulting p.177

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