By Uwe Hörmann and Philipp Grosche

Since the turn of the last decade, the toll road market has seen very little development in terms of new innovations and technologies. The size of the toll road networks is stagnating, particularly in high-income countries, and there has not been much growth in the length of the networks either. The reason for the lack of efficiency in the toll road market lies largely in the legal framework for national toll road operators. Although innovative technologies are available, sizable market entry barriers and costs are among the factors that mean the system continues to rely on traditional and simple applications such as the vignette. If there is to be a sustainable improvement in the efficiency of the toll road market, a big change will be needed.

Greater efficiency with 5G and the EETS

The toll road market is currently ready for a change. This is mainly due to the high administrative cost ratio faced by the big national toll road operators in Europe, where admin costs are fixed cost heavy and are also growing faster than the rate of revenue development. Added to this is the fact that the traditional business model of toll road operators encompasses the entire toll road value chain, from user registration to the management of on-board units to vehicle detection, toll calculation and payment collection. Yet this very fact discourages providers from specializing in individual elements of the value chain, and this in turn has a negative effect on market dynamics and efficiency.

We have identified two market drivers that have the potential to change the toll collection market for the better.

First there is the legal framework, which is facilitated by the European Electronic Toll Service (EETS). EETS ensures the interoperability of all existing and future toll systems throughout the road network of the European Union and aims to realize a system where all tolls are paid on the basis of only one contract and one on-board unit. It also helps bring road traffic increasingly into the information society by integrating real-time information from other telematics services. This can enables optimization of route planning, vehicle and cargo tracing etc..

Furthermore, the new regulatory changes allow EETS providers to focus on specific elements of the value chain in multiple countries, which has a positive effect on efficiency and market dynamics.

Second, we expect there to be a change in mobile communications following the deployment of 5G. The original collection systems of tolls based on GPS and DSRC technology runs in a special-purpose infrastructure which is only dedicated for toll collection with significant capital investments and fixed cost. The implementation of 5G technology holds two major advantages here: 5G technology can serve multiple application including toll services which allows sharing capital investments and providing reduced fixed cost advantages. Moreover, it will reduce latency and increase bandwidth. This will enable reliable communication in real time, something that will be essential for future autonomous driving technology , among many other things.

There is a clear trend towards services being bundled on a single platform. This is in fact desirable from the user's perspective, too, as it reduces the level of complexity involved in using the services while also increasing the functional value added.

Growing competition for toll road customers

We expect the two key factors outlined above to have a significant impact on the toll road market in the coming years.

Technological developments in particular will intensify the competition for toll road customers and drive further innovations that can meet the existing operational demands of toll collection.

Starting in 2025, dedicated on-board units will increasingly be replaced by telematics platforms from EETS providers, as it will then be possible for vehicles to be integrated in the 5G network infrastructure through the platforms. Thus, the need for a collection infrastructure for dedicated on-board units and a separate control infrastructure will also decrease. If toll collection then becomes a byproduct, toll billing would be the only central task left for toll road operators, which, in the absence of a drastic change in business model, would cause the market share of national toll road operators to stagnate.

We further expect that with the launch of 5G infrastructure , on-board unit technology will no longer be a barrier to market entry. Payment service providers as well as data and telecommunications providers could then potentially seek to enter the market. B2C providers, such as Apple CarPlay, will also become players in the market segment when they gain access to positioning and vehicle data via smartphone interfaces from 2025 onwards.

Read our full publication to learn more about the business impact and developments in the toll roads market.