The need of regulation of the transport sector

The transportation sector is a complex and evolving industry that presents many regulatory challenges. At the industry level, its complexity is reflected by the various transportation modes and the strategic behaviors of the operators, both vertically and horizontally. Different transportation modes exist to satisfy needs for traveling across time and space. Some modes, such as airlines, taxis, and e-scooters, are run mostly by private operators who face fierce competition. Some other modes, especially mass public transportation modes such as train and metro, are often run by public operators or private operators under public contracts. We usually also find these markets being dominated by a monopolist.

The network industry nature would explain the emergence of natural monopolies in the transportation sector. Vehicles need to be driven on roads and trains on rolling stones. The better the infrastructure network, the more convenient it is to connect to different places, and the faster the increase in convenience. However, building such infrastructures needs huge investment. Once the road is built, it would be always easier for new entrants to pay an access fee to the existing one rather than to build the same one by the side of the existing one. The infrastructure builders thus naturally hold the advantage of vertically integrated as an operator. In the past decades, there has been a trend of decoupling infrastructural and operational entities that are vertically integrated into network industries such as transportation, electricity, and telecommunication. A typical example is the National Society of French Railroads (SNCF). It is until January 2015 that the decoupling of the infrastructure entity (SNCF Réseau) and the train operator (SNCF Voyageur) took place.

Another characteristic of the transportation sector is that it is a public service. Transportation is often considered as a right which allows residents to have access to cultural, medical, and professional activities. For this reason, a basic and satisfactory transportation service should be provided to everyone at an accessible level, even in less-popular hours and in less-dense areas. Together with the huge infrastructure and equipment costs, a completely private market would lead to under-provision of transportation. The government (at the state or local level) needs to provide basic mass transportation. These two characteristics could explain why mass transportation is often public-owned/funded and monopolistic. Nevertheless, there exist other market segments beyond mass public transit which are as well large in scale. Private operators are more often seen competing in these segments, such as airlines and taxis.

At the same time, the transportation sector has been evolving rapidly, and so should regulatory practices. Without attempting to be exhaustive, we here list some ongoing trends that are particularly relevant for the regulation.

Shared mobility: Beyond digitization

One of the most remarkable changes in the ecosystem of the transportation sector is the emergence of shared mobility platforms. From cars to e-scooters, all modes that an ordinary person can manipulate can be shared. Companies can have their own fleets and drivers and rent to individuals. Individuals can also share their idle vehicles/bikes/scooters or share empty seats. The matching process becomes more efficient thanks to digital platforms, which have already raised regulatory challenges in labor, urban planning, and in market competition. However, the trend is beyond digitization. As individuals start to propose transportation equipment and services, sometimes complementary to the existing public options, the boundary between the public and private nature of transportation, as well as the definition of the operator, starts to blur.

MaaS & The re-integration of operators

Each transportation mode has its own characteristics which make it prone to natural monopoly. However, the entire transport system should be coordinated to offer users a smooth experience to navigate in between different modes. After all, traveling itself is not the end, but an intermediate to be able to achieve the end. For this reason, the concept Mobility as a Service (MAAS) has gained popularity in the last few years. The goal of MAAS is to offer end users an all-in-one experience in travel information and booking through an integrated digital platform. The key challenge is who will be able to integrate such information, at which level, and how.

To summarize, as the schedules and capacities of different modes become more and more public, operators start to strategically present in different modes to gain advantages in multimodality, both in sharing travel information and in ticketing. We are witnessing a new trend of “vertical integration”, this time, not the integration infrastructure and operation, but the integration of different market segments, especially between mass transit and first mile/last mile solutions. At the same time, we also witness the fierce competition between “vertically integrated” operators at the current stage, as all operators want to take a share. In the end, pure tech companies such as Google and Waze may have gained advantages in information integration, but as they are not operators, it would be difficult to integrate ticketing, especially at the local level. Transport data and multimodality regulation should also keep pace with the trend.

Changing habits: Covid, ecology, and urban planning

Transportation is not an isolated sector but reflects the changes in micro level (user habits) and in macro level (economic situations). The Covid pandemic has profoundly changed the way that people work, live, and travel. The transportation sector also needs to respond to the requirements of the ecological transition. The regulation could play a role in better orienting the operators and the users to get prepared for the new era.