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.
( ... Portion skipped)

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.
( ... Portion skipped)

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.

==== SECTION MISSING - see p. 111 ff of the Report. ====

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.

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