Impacts of digital transformation on markets and regulation in the French land transport sector: Case study on the Transport Regulatory Authority (ART)
Context
Passenger transport in Europe is undergoing a profound transformation, due in no small part to the digitalisation of mobility.
Digital transformation in the transport sector has numerous advantages for consumers, as it translates in particular into:
new uses of existing modes (e.g. car sharing)
new entrants and increased supply of services (e.g. Uber cabs)
new tools to compare transport modes and prices and improve multimodality (comparators, route planners, interoperable ticketing systems, etc.)
increased capacities to characterise and target demand (big data)
competitive pressures on monopolies (e.g. rail) as intermodal competition is facilitated.
On the supply side, new frontiers are emerging in competition between transport modes so that competition becomes more and more intermodal. On top of what new business models and new transport policies are being developed.
Issues
In that context, the French Transport Regulatory Authority (Autorité de régulation des transports, ART) has identified some new challenges posed to regulators:
First, increased competition between transport modes due to digitalisation questions the definition of relevant markets and, in turn, the definition of dominant positions. Some of the underlying questions include: should regulators (transport regulatory bodies as well as competition authorities) maintain a modal approach or define relevant markets as multimodal? How and to what extent should regulators take into account the risks associated with transport operators’ diversification (leverage effect)?
In addition, increased competition between transport modes also inevitably questions the scope of intervention of transport regulators and their capacities to analyse and take into account intermodal competition (e.g. between trains and coaches or between air-planes and high-speed trains) to efficiently regulate. Some of the underlying questions include: Is it relevant to maintain “mono-modal” regulators? Shouldn’t transport regulators be multimodal transport regulators?
Finally, with digitalisation, the control of intangible assets like data by transport operators may increase the risks of exclusionary conducts. As observed when the airline transport market was liberalised, the control over computerised reservation systems by incumbent transport companies may be used to foreclose competitors on the downstream markets. Similarly, the control over information/data on traffic, timetables, customer bases, etc. may provide a non-replicable advantage causing the exclusion of competitors on the transport market. Some of the underlying questions include: To what extent should transport regulators (and more generally sectoral regulators) be in charge of guaranteeing fair, transparent and non-discriminatory access to intangible assets/facilities that affects the intensity of competition on the transport service market?
Approach and intervention
If digitalisation is a challenge for regulators, it is also an opportunity. Indeed, digital technologies are potentially opening many avenues to reduce information asymmetries between operators, users and regulators and, in the end, allow the latter to better perform their tasks.
New technologies mean increased capacities for regulators to collect, stock and process existing data on the upstream and downstream markets and open the black box of monopolies. It further allows a better control of the performance of regulated companies and, ultimately, it is a source of incentives as it reduces information asymmetries and allows to better challenging regulated firms’ efficiency.
The new powers given to ART in 2015 and the on-going transposition of the Regulation No. 2017/1926 on the provision of EU-wide multimodal travel information services are two recent measures that ART would like to highlight for the purpose of this case study.
Toward a data-driven regulation
In 2015, the French Transport Regulatory Authority (ART) was legally empowered to collect data from land transport companies and sanction non-co-operative behaviours. Since then, it has implemented a data-driven regulation. Actions taken include:
creation of a market monitoring department (with statisticians, economists, data scientists)
data collection campaigns on a regular basis (NB: several appeals were lodged against our data requests, all rejected by the Court)
field surveys
systematic reporting and publication of results and benchmarking (yardstick + sunshine regulation)
organisation of a hackathon (19 March 2019) to develop an “app” improving the information disclosed to users on rail service quality.
From databased transport regulation to the regulation of transport data
To encourage the development of new services facilitating multimodal journeys (transport route planner together or not with through ticketing, real-time arbitrage solutions), the EU Commission adopted Regulation No. 2017/1926 on 31 May 2017. Regulation No. 2017/1926 defines, for each mode of transport (regular/on demand; public/private; urban/interurban), the perimeter and format of the data on transport that various stakeholders (private operators, public operators, organising authorities) will have to make available according to a precise agenda. It further requires stakeholders to provide static data related to theoretical transport offer (schedule, stops, fares, journey time) as well as dynamic data on real-time traffic disturbances for instance.
An act transposing Regulation No. 2017/1926 (Loi d’orientation des mobilités) was adopted in France in December 2019. Among other things, it stipulates that:
All local authorities will have to organise mobility and will be responsible for the provision of multimodal information system.
ART will be in charge of controlling the proper implementation of data opening (includes the power to settle disputes and fine data providers in case of non-compliance to their obligations), and the absence of bias of the information on travel options provided to customers.
Results, impact and lessons learnt
The main lesson learnt based on ART’s experience is that databased regulatory decisions certainly increase the credibility of regulators and objectify public debates.
Concrete examples of ART’s recent actions include:
update of crucial regulatory hypotheses (e.g. induction rate, occupancy rate, pricing unit of access charges, price elasticity of demand…);
revision of rail transport service quality indicators (punctuality and reliability);
forthcoming tool (app) based on machine learning to calculate the likelihood of traffic disturbance on the rail network at a very disaggregated level.
For a data-driven regulation to be effective and credible, it is a pre-requisite for the regulator to have the legal powers to collect data and to sanction the non-compliance to data transmission obligations. Indeed, regulated companies may be reluctant to disclose information on their action and performance, as illustrated by the appeals against ART’s requests for data from railway undertakings. Finally having sufficient financial and human resources will be decisive for the regulator to become a data cruncher and make the most of the opportunity offered by digitalisation.
Co-operation
To develop a common approach to data-driven regulation, seven French regulators (Competition Authority (ADLC), Financial Market Authority (AMF), Telecommunications Regulatory Body (ARCEP), Data Protection Authority (CNIL), Energy Regulatory Body (CRE), Broadcasting Authority (CSA) and Transport Regulatory Authority (ART)) issued in July 2019 a dedicated memorandum which formalises their thought processes and delivers an account of the progress they have made in this area.
The “Energy and Mobility” Datathon jointly organised by ART and CRE in March 2019 is one particular example of co-operation between national regulatory authorities aiming at pooling human and financial resources to develop innovative regulatory tools (web/mobile apps). The challenges proposed to participants indeed included the creation of BtoC tools which reuse the two regulators’ own data in a relevant way, to foster interactivity with end users and allow them, first, to obtain information that is not currently shared by operators (or not sufficiently accurate) and, second, to send information to the regulators (e.g. on malfunctions).