Frost & Sullivan Market Insight   Published: 31 May 2002
Electronic Toll Collection in North America
Date Published: 31 May 2002
By Jasmine Sachdeva and Veerender Kaul
An electronic toll collection (ETC) system is a group of technologies that allows a driver to pay a toll without stopping the vehicle at a tollbooth. An ETC system has three major components:
  • Automatic vehicle identification systems to identify vehicles (a transponder is placed inside the vehicle),
  • Automatic vehicle classification systems that classify vehicles by types and class in order to apply the correct toll rate (inductive loops, treadles, video image processing)
  • Violation enforcement systems that recognize violators and charge them (video tape recording, license plate recognition system).
ETC systems are easy to use and can be installed on tunnels, roads, and bridges. They can be used on new roads or as retrofits on existing roads.
The benefits of electronic toll collection systems for motorists are numerous. Some of them are:
  • Convenience of cash-free transactions
  • Decreased number of stops on the road
  • Reduced fuel consumption
  • Reduced traffic congestion
ETC installation is also advantageous for traffic agencies, since ETC decreases the need for additional toll plazas and operation expenses, and increased revenues. In addition, ETC systems also have a favorable effect on the environment as it reduces the amount of exhaust emitted from the vehicles during start-up and stop at manual booths.
The development of electronic toll collection systems across North America started about 12 years ago, with the first ETC implementation in Dallas, Texas. From then on, the ETC market has been growing at a constant rate, mostly in the United States.
Today, North America heads the league of ETC installations, accounting for over 4,500 of the estimated 8,800 lanes equipped with ETC systems throughout the world. With this high number of lanes, the ETC market in North America represents 51 percent of the worldwide electronic toll collection market. In terms of number of tags in circulation, North America represents over 50 percent of the worldwide market.
Today, the large number of electronic toll collection installations, the reluctance of drivers to use the ETC systems, and the high capital requirements for toll agencies, drive drown the demand for ETC implementations in North America. In fact, the U.S. and Canadian markets are following two different ways. In the United States, the electronic toll collection market has peaked. The ETC market is now slowly entering its mature stage and market growth is diminishing. All large projects have been or are being deployed, and the U.S. is approaching the replacement stage. Despite this decreasing demand for ETC implementation, the North American ETC market is still growing and is expected to do so in the next few years, but at a lower rate. In fact, demand for ETC installation in small or medium roads starts growing.
In Canada, toll collection is a recent concept. Therefore, Canada appears as a new market and the Canadian market for electronic toll collection is still in the infancy stage. Canada started implementing ETC systems in the late 1990s and so far, the concept of toll collection has not been very popular. Even in the 407ETR in Ontario--known as the first all-electronic toll highway in the world--demand for new ETC implementations in Canada is not assured.
There is a tremendous reluctance at the political and institutional level to convert existing roadways to toll facilities, particularly if there is not a reasonable alternate route which is not tolled. Because of customers' reluctance to accept the system and political fears, the Canadian ETC market is not expected to grow significantly in the next few years.
Demand for electronic toll collection system implementations in North America will be slowly replaced by a new demand, based on the interoperability of the products. Interoperability consists in using the same transponder in different geographical regions and/or for different applications. In the medium term, because of the development of new technologies, ETC customers will be able to use their transponder for different types of purchases, such as parking and retail. Indeed, the demand for electronic toll collection systems is getting a new face.
Furthermore, the North American ETC market has witnessed considerable changes due to acquisitions, mergers, and partnerships. As a result, distribution channels have changed (limited vendor choice) and the ETC market is becoming less competitive.
Two separate channels share the distribution network for electronic toll collection components: systems integrators that supply entire systems to traffic and toll agencies by combining products from different vendors, and ETC vendors, who provide directly toll agencies with their products. About sixteen companies supply electronic toll collection components in North America, system integrators excluded. It is common for many suppliers not to distribute their products directly to the toll agencies, and provide system integrators instead. In most cases, system integrators combine products from various vendors from different market segments, in order to offer the most complete system to the agency installing the ETC. There are also suppliers who use both distribution channels, that means that they sell directly to the toll agencies and to system integrators.
Major system integrators--including TransCore and SIRIT Technologies, Inc.-- are deploying their strategies of development by acquiring small and/or important participants in the electronic toll collection market. As a result, the number of suppliers in the electronic toll collection market has been slowly declining. However, while the number of ETC component vendors is slowly declining, the number of system integrators is increasing. Despite the strong market concentration, there is still a place for new participants in the electronic toll collection market and particularly for System Integration Services. In fact, company such as Ascom Transport Systems, Caseta Technologies, Parsons, and Raytheon are developing their activities in the field of ETC and trying to impose as systems integrators.
As of April 2002, SIRIT is experiencing financial difficulties that started approximately six to eight months ago. These difficulties include:
  • Management cease trading order from the Ontario Securities Commission for failure to report audited year-end results
  • Share value at approximately C$0.05
  • Renegotiations of long-term debts
  • Internal reorganization of its business operations to reduce operational costs to reflect revenue expectations of approximately C$20 million for fiscal 2002
SIRIT reported its audited financial results for the fiscal year ended November 30, 2001 on May 03, 2002. Currently the company has approximately 40.8 million common shares outstanding.
In order to remain competitive in the market, which is expected to become increasingly technology-driven, suppliers in the electronic toll collection systems market need to develop services and invest heavily in product development. In addition to services, quality and reliability are major issues in the market. In fact, because of a less competitive market, price will not be a strong competitive issue anymore. Therefore, services and quality of ETC components will make the difference between participants. Suppliers will also need to be able to fill customers' expectations -- toll agencies and drivers -- by developing more valuable products. It is important for the ETC suppliers to keep a tight link between customers' needs and technological development.