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BALANCING RESPONSIBILITY AND PROFITABILITY UNDERSTANDING THE DYNAMICS OF PUBLIC AND PRIVATE PARTICIPANTS IN INTELLIGENT

TRANSPORTATION SYSTEMS (ITS) INFRASTRUCTURE DEVELOPMENT ________________________________________________

13TH WORLD CONGRESS ON INTELLIGENT TRANSPORT SYSTEMS LONDON, UK

OCTOBER 2006

David Pickeral, JD Booz Allen Hamilton, USA Washington DC Derval Cummins Booz Allen Hamilton, Ireland Dublin, IE ABSTRACT Where ITS infrastructure projects are being considered, there is a need for both public and private entities to be actively engaged with each other and with the affected stakeholders during all phases of the process to understand the costs, risks and benefits on all sides. Private participation should be planned to combine immediate potential and the realistic possibility of further work later on. The aim of this co-ordination should be a symbiotic relationship that maximized both the public good and the long-term business potential of building effective, sustainable and scaleable ITS infrastructures. KEYWORDS ITS infrastructure, business opportunity, responsibilities, decisionmakers, risk, Vehicle-to-Infrastructure Integration (VII), public-private engagement, open standards architecture, privacy BACKGROUND As with any major public works project undertaken throughout history, making the decision to develop ITS infrastructure involves the commitment of substantial resources with implications that will reach years, if not decades, into the future. In reaching this commitment, a limitless combination of options is available to stakeholders—and an equal number of potential pitfalls. The overarching goal and obligation is for public officials to provide an end result of improved safety, convenience, and overall quality of life to a broad segment of the population. Fulfillment of this responsibility was reflected in the building of the Roman road system throughout Europe and North Africa two thousand years ago, in developing the British mail coach network a few hundred years ago, and in the creation of the “Chunnel” during the last few decades. Along the way, it became apparent to entrepreneurs worldwide that government creation of massive public infrastructure presented a tremendous business opportunity—from the promise

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of steady wages for the rank-and-file workforce to the prospect of decent returns for investors and substantial wealth for business leaders. Although these incentives are and will remain essential to ensure a high degree of investment and drive further innovation, it is essential to balance the private sector profit motives against public need. Having experienced both the inequity of laissez-faire capitalism and inefficiency of state-run economies during the previous two centuries, it is now an accepted principle among most of the world’s leaders that a policy of balancing market forces against government oversight is optimal. This paper outlines, in the briefest terms, some of the key metrics that should be considered when entering into relationships designed to achieve that balance. PUBLIC SECTOR CONSIDERATIONS In principle at least, modern democratic governments worldwide are motivated by doing the greatest good for the largest segment of the population, or for filling an important need that could not be met by market forces alone. In recent years this equation has become increasingly complex—directly meeting the needs of the citizen at large while also encouraging industry participation—under the doctrine that doing so will create or enhance economic growth affecting all income levels. Accordingly, regulatory bodies, such as the Federal Communications Commission (FCC) in the United States and the Office of Communication (OFCOM) in the United Kingdom, have increasingly expanded their traditional role from detached oversight to serving as arbitrators and even advocates for industry development to facilitate overall industry success and ensure national prosperity. In such a climate of active engagement, ITS can present a particularly attractive option for public officials, representing public convenience, increased public safety and protection of life, and any number of broad-reaching new markets. These markets include those related to the development, operation, maintenance, and enhancement of the ITS architecture itself, as well as the tremendous number of services that could be developed as a result of it. In U.S. federal and state governments and in many other countries around the world, the key decisionmakers are a blend of elected or politically appointed officials and career public service executives. Although it is risky to over-generalize, it is worthwhile to understand the prevailing motivations of both groups. The “politicals” will tend to focus on advancing immediate objectives of their administration’s agenda—often based on campaign platforms—that affect a majority of the public or particular interest/industry groups that are key supporters. Therefore, they will want to drive change quickly and may be less risk averse. The careerists will, by contrast, often tend toward a more conservative approach that encourages stability. They will look for projects that advance long-term strategies that they may have developed over lifelong careers within a particular agency. In this regard, reconciliation between the two groups on ITS projects may often be easier because these projects have the potential to effect rapid, significant change, affect both the public and business interests within the technology community, and involve long-range development. Perhaps the most universal factor relating to all government stakeholders involves the "two-way" educational process. Private technology industry executives, as a function of their primary responsibilities, are provided with the latest in market research to identify and leverage emerging opportunities. Public sector decisionmakers, on the other hand, may have more limited access to information on current trends and less time and resources to engage in

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analysis of them. Even those government leaders who are regularly and actively engaged in ITS issues and committed to their development must promote their objectives in the absence of advertising budgets, and very often with legal restrictions on their ability to lobby. In such instances, the participation of the business, scientific, and academic communities is critical. They can provide the latest information to support critical government decisions regarding ITS development, affording intellectual credibility to bolster these decisions in the eyes of the public and forums (Internet, publications) to conduct broad outreach and education. PRIVATE ENTITY CONSIDERATIONS The cynical view would hold that the private sector focus is limited to driving the highest profit margin against the smallest outlay. This truism has certainly been demonstrated on any number of historical occasions when civil engineering contractors were motivated simply to complete a particular bridge, highway, airport, seaport facility, etc., and follow the profits to the next big public works job. Even when more enlightened government contracting procedures began to offer incentives for “on time and under budget” or “best value” in order to increase the public’s return on investment, the philosophy remained that the newly completed project would operate as a standalone resource for decades and that further development, if any, was too far into the future to predict and track as a follow-on opportunity. However, the dynamics that have evolved to drive the business of ITS infrastructure development in the 21st century—and the metrics used to define return on investment—have generally moved far beyond immediate cash compensation toward a more diversified portfolio of short- and long-term risks and benefits. The optimal objective for those in the ITS business is geared far more toward sustainable, scalable growth. Such growth allows not only for the deployment of a discrete asset, but for the maintenance and support of that asset, as well as the opportunity for upgrades to that asset and other systems. Examples include intermodal facilities that link marine, aviation, rail, or motor carrier operations, or that link any of these assets with IT and communications infrastructure. Another more specific example, Vehicle-to-Infrastructure Integration (VII), promises an increasing array of options—from traveler information systems to emergency response capability to remote payment of tolls—to any number of goods or services. Beyond the direct monetary returns from the award of development contracts and/or return on sales of equipment, industry will also be concerned with other less tangible but equally important factors, chiefly the protection of intellectual capital and the limitation of liability. In the case of intellectual capital, private firms that create it will want to protect it from unauthorized appropriation–either directly or through "reverse engineering"— and promote it for system development, to the exclusion of other technologies. In an era of rampant class action lawsuits in the United States and a growing number in some other countries, private firms, with the support of the insurance industry, will also view it as essential to define and, in as many instances, restrict their liability. Lastly, as with virtually all developers of technology, there will be a tendency, if not a necessity, for private firms to promote and then retain the rights to proprietary technologies or other intellectual capital after devoting substantial resources and undertaking substantial risk in the development process.

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BALANCING THE INTERESTS: With an understanding the dynamics of both parties, it is now appropriate to attempt to balance the relative strengths and limitations of each, optimizing the former and mitigating the latter. One area where the strengths of public-private engagement can achieve the most symbiotic effect is in encouraging "best of breed" solutions. This can be accomplished by developing a “portfolio” of multiple private entity providers rather than issuing an “all or none” award to a single provider. This approach combines the reach and resources of large established companies with the perspective and specialized expertise often offered only by smaller firms or even individual entrepreneurs. On the public sector side, large national or even international government agencies could partner with regional or local authorities to provide the right mix of broad-based authority and deep community understanding that only those directly appointed or elected within them have. Those undertaking ITS infrastructure projects of almost any size will need to address the liability issues discussed previously. This can be accomplished by direct statutory/regulatory action such as formal design immunity. It might also be effectively mitigated through government project leadership that involves regulatory oversight as well as arbitration of claims. Although this approach should not discourage legitimate claims or grievances, it would help to ensure that any claims or grievances are more likely the results of actual loss rather than profiteering. Recalling the tendency of private entities to both promote and protect their proprietary intellectual capital, requiring an open standards architecture may be yet another option for governments to increase competition and ensure parity between private sector participants of differing sizes and resources. It should be recognized that the overall trade-off is between market domination by a single or smaller subset of potential entrants using proprietary standards, balanced against the likelihood that an open standards development process could be much more time consuming and might be slower to react to latest technology trends. In this regard, ITS can borrow from public safety community experience in the development of the Project 25 radio communications standard in the United States and the TETRA radio communications standard in the European Union, where end users worked directly with standards bodies to develop a standard that could be deployed competitively by multiple vendors. Perhaps the most critical issue that public and private ITS partners must come together to address involves privacy, which, from a public perspective is something of a double-edged sword. On one hand, there is strong concern regarding the potential for governments to use information such as vehicle identification, speed, and location garnered through the operation of transportation systems such as VII for law enforcement or regulatory purposes. Conversely, there is also a lot of public unease about trusting the collection, use, and dissemination of this and other information to the discretion private concerns. Regulators such as the FCC are currently engaged in rulemakings to resolve the implications of privacy for ITS systems under such legislation as the Communications Assistance for Law Enforcement Act (CALEA) related to the ability of authorities to monitor transmissions on publicly switched communications networks. However, in this and other areas, there is, as

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yet, no clearly defined path to resolution. These issues are daunting even within individual countries, and become even more pronounced when proposed projects cross borders. CASE STUDIES Although there are numerous examples of highway (an other infrastructure) public-private partnerships which incorporate ITS, there are few examples, as yet of ITS public-private partnerships. One interesting case study to observe over the coming years is the UK Highways Agency’s National Roads Telecommunications Services (NRTS) project. This was launched in 1999 to procure a telecommunications services for the HA, using private finance, which would support current and future requirements, including ITS initiatives. In September 2005, the HA appointed the GeneSYS consortium to deliver this project in the form of a concession to take over, upgrade, and operate the HA's telecommunications network over the next ten years. A currently operational case study which appears to have struck the right balance is the Austrian electronic toll collection system. Here ASFINAG was appointed by the Federal Ministry of Transport, Innovation and Technology to operate the system for a period of 10 years, with the potential to extend for a further 5 years. The private sector entity’s responsibilities included planning, financing, providing and installing the road side equipment and on-board units as well as providing the operations, sales network and enforcement. CONCLUSION In closing, it is important to note that the issues described above are merely illustrative and intended neither to be inclusive nor comprehensive. Rather, this paper illustrates the need for both public and private entities in the nation or nations contemplating ITS projects to be actively engaged with each other and with the affected stakeholders during all phases of the process to understand the costs, risks, and benefits on all sides. Private participation in the creation of public infrastructure should be planned to combine defined, immediate potential and the realistic possibility (subject to continued competition) of further work later on. Hopefully, the end result of this coordination will be a symbiotic relationship that maximizes both the public good and the long-term business potential of building effective, sustainable, and scalable ITS infrastructure.