Contractors board transportation sector for booming ride<@VM>Traffic decongestant <@VM>Put your best thoughts forward
- By William Welsh
- May 26, 2006
"We wanted to take the solutions that we had in the states and transfer them abroad; we felt the best way to do that was through an acquisition," says Michael Huerta, ACS Transportation Solutions
Affiliated Computer Services Inc. has a well-established reputation as having a knack for growth through acquisitions. Over the years, the company has used its deal-making savvy to build a leading state and local business with annual revenue of nearly $2 billion.
With the acquisition of the transport revenue division of Ascom AG of Berne, Switzerland, the company has gone from zero to 60 in the global transportation services market.
That single acquisition has given the Dallas company a business unit focused on transit, parking and toll collection, as well as operations in nine countries and about $100 million in annual revenue.
"We wanted to take the solutions that we had in the states and transfer them abroad," said Michael Huerta, group president of ACS Transportation Solutions. "We felt the best way to do that was through an acquisition."
But the acquisition does more than send ACS' technology on a world tour. It also reveals a major shift in the government transportation sector toward outsourcing to the private sector such complex IT systems as those that manage parking and toll roads, as well as smart cards and electronic payments for public transportation.
The growing market has caught the eye of several U.S. companies known for building domestic transportation IT systems.
The outsourcing trend combines a transportation system's design and implementation with its operations and maintenance to create a single award made to a prime contractor.
Because of the increasing complexity of these systems, customers are starting to outsource support and back-office processing that they usually do themselves, said David deKozan, vice president of marketing for the transportation systems unit of Cubic Corp., San Diego.
"They want to focus on their core missions and are outsourcing the more financial, administrative and IT related tasks," he said.Over there
Companies also are tracking transportation opportunities associated with European Union directives. For example, Ciber Corp. of Denver in January won a 30-month contract from Norway to run a compliance program for monitoring devices, known as tachographs, on commercial vehicles.
The devices are part of a new European Union directive designed to prevent driver fatigue by recording operating and resting times of commercial vehicle drivers.
Its strong work in Norway has put Ciber in line for similar contracts in other EU countries, which also will have to implement tachograph-monitoring programs, said Mike Townend, Ciber's European marketing manager.
"The EU requirement just began this year, so organizations are just getting up to speed with it," he said.
Well known in the United States for building E-ZPass electronic toll collection and PrePass commercial vehicle registration systems, ACS' acquisition of Ascom's transport revenue division is intended to help it expand into the full realm of electronic payment and regulatory compliance systems for all modes of transportation, Huerta said.
"We've always had this vision of being a full-service provider of technology solutions to support transportation," Huerta said. This acquisition enabled ACS, "in a very big way, to expand into the full spectrum of transportation."
ACS expects its transportation revenue division in fiscal 2007 to generate sales of about $600 million, about two-thirds from U.S. customers and one-third from international customers, Huerta said.
Public transportation security and efforts to control urban gridlock present further global opportunities in government transpor- tation. One anti-gridlock strategy, referred to in Europe as a congestion-charging scheme, calls for tolling vehicles that enter a city during business hours.
Such projects attract not only systems integrators but also companies that offer the technologies used in the process, said analysts and industry officials.
Spending for IT hardware, software and services for commercial and government transportation in Western Europe is expected to grow at a compound annual growth rate of 4.7 percent from $6.6 billion in 2006 to $7.7 billion in 2009, according to market research firm International Data Corp., Framingham, Mass.
Within the transportation IT market, software sales will grow at a rate of 6.2 percent, outstripping services and hardware sales, which will grow at rates of 5.4 percent and 2.4 percent, respectively, IDC said.
Industry officials interviewed for this story noted a lack of available research on how much governments spend on transportation technology services. But systems integrators that dominate the transportation sector estimate that, excluding the United States, governments around the globe will spend about $2 billion on transportation IT hardware, software and services over the next few years.
"We're only touching the tip of the iceberg," Huerta said.Fair collection
One of the sharpest differences between U.S. and European transportation technology markets is a result of Europe's public transportation infrastructure, which is more developed and used by a greater percentage of the population.
"In Europe, public transportation is for all people," said Riet Cadonau, managing director for ACS' transport revenue division. "It is clear that everyone likes public transportation and uses it."
This translates into constant demand for technology that makes it easy for passengers to pay fares. It also raises the demand for new and better security features incorporated into bus and transit systems.
ACS' acquisition of the Ascom unit has brought the company into direct global competition with Cubic. Outside the United States, Cubic enjoys a strong presence with projects in Australia, Canada, Great Britain, Italy, Sweden, Singapore and Thailand.
The company's transportation unit brought in about $250 million of its $804 million annual revenue in fiscal 2006, Cubic's deKozan said. The unit's revenue is split evenly between U.S. and international sales, he said.
Cubic made a name for itself in the transportation arena by supplying automatic fare collection systems that provide tickets to enter and exit buses, subways and trains. With greater use of smart cards and electronic ticketing, the systems increasingly are referred to as electronic fare payment systems, deKozan said.
One of Cubic's high-profile international projects is the integrated Prestige public-transport automated fare collection system, and the Oyster smart card project for the Transport for London Authority. The TranSys consortium, led by Cubic and EDS Corp., developed both.
The three-year-old smart card can be used throughout London for travel on buses, trams, railways and the subway. As of March 31, Cubic had earned $595.3 million from the project, said Jae Lande, a company spokeswoman.
Cubic also is picking up new electronic fare contracts involving smart cards. Cubic Nordic of Glostrup, Denmark, won a contract in March 2005 to implement the Resekortet smart-card-based fare collection system for bus and rail in Skane, the largest county in Southern Sweden. Less than a year later, the company announced that four more counties in Southern Sweden had awarded it contracts to link them to the Resekortet system. The additional contracts raised the work's value to $31 million.
The company's primary competitors for automated fare collection in the global market are ACS Transport Revenue and Thales of Neuilly-sur-Seine Cedex, France, deKozan said.
Cubic is positioning itself to gain new business integrating security features into older electronic ticketing systems as well as integrating intelligent transportation system technologies manufactured by other companies into its own products, deKozan said.
"We've been working with a number of different companies" in the intelligent transportation system space, deKozan said.
For example, in March, Cubic and GE Security unveiled an automatic public transit ticket vending machine with early warning explosives detection capability. The collaboration marries Cubic's expertise in integrated automatic fare collection with GE's expertise in explosives detection.
The system is designed to develop new security solutions that will make public transit operations and facilities safer.
The company also sees international demand to incorporate intelligent transportation system technologies, such as Global Positioning System, computer-aided dispatch and automated vehicle location systems, into fare collection systems on buses.
"There are real growth areas out there for us," deKozan said.Deputy Editor William Welsh can be reached at email@example.com.
Often described as "floating on water," the central city of Stockholm is built entirely on 14 islands connected to each other and the mainland by 57 bridges. It's also the latest site, following groundbreaking projects in London and Singapore, of a six-month pilot program to reduce traffic congestion.
The program, built by IBM Corp., charges vehicles as they enter or exit the city between 6:30 a.m. and 6:30 p.m. The Swedish capital's well-defined entries and exits make it relatively easy to establish toll points, said Todd Ramsey, general manager of IBM's Global Government Industry.
For the project, the Stockholm Roads Administration has budgeted an initial $200 million, which covers payment to IBM and associated administrative costs for the agency, Ramsey said.
Parking payment systems and congestion charging schemes are two major areas of opportunity in Europe, said Massimiliano Claps, a public sector analyst with market research firm International Data Corp., Framingham, Mass. The congestion scheme appeals to cities not only because it can reduce gridlock and improve the environment, but also because it can generate revenue, he said.
The Transport for London Authority is considering enlarging the eight-square-mile area of central London covered by its three-year old program, Claps said. The camera-based, non-stop system levies an $8 toll on vehicles entering or exiting the area between 7 a.m. and 6:30 p.m. IBM and Deloitte Touche Tohmatsu provided consulting services for the project, which is administered by Capita Group plc of London, he said.
IBM's Stockholm system similarly uses cameras positioned along the city's roadways to photograph and record automobile license plate numbers. The system also can read radio-frequency identification tags, which residents can place in their cars. The units interact with 18 toll entry and exit points. IBM is responsible for design, development and operation of the congestion charging system.
Cities around the globe are watching the Stockholm system's development as they consider congestion-charging schemes of their own.
Both the United Kingdom and the Netherlands are looking at national road-pricing approaches that involve a mix of cordon barrier-based charging schemes.
In the Czech Republic, Prague city fathers are considering a congestion scheme, and Singapore is looking to upgrade its eight-year-old system, Ramsey said. The company also has discussed the concept with Beijing, which is being overwhelmed by gridlock.
"Most cities in Asia are overrun by congestion," Ramsey said. "This will be attractive to them."
In London, the scheme is credited with greatly improving traffic flow downtown, improving business for some, such as taxi drivers, but hurting others, such as retailers.
Stockholm is seeing similar clashes. In September, city residents will vote on whether to make the system permanent. But commuters who live not in the city, but in Stockholm County, may not vote on the referendum.
"There's a lot of interest in this transportation [concept], but it is politically a hot potato," Ramsey said.
IDC's Claps agreed. The congestion-charging scheme faces considerable resistance from city-center shop owners, who fear the system will reduce the flow of visitors during the week, he said.
Other cities around the world are considering similar projects, but, Ramsey said, "there is not going to be a mad rush" to do them.
"When we found places that we wanted to be, we set up an operation and localized it," says David deKozan, Cubic Transportation Systems.
Government officials around the world are eager to hear about the latest trends. This is particularly true for the transportation sector, where the welfare of the traveling public is foremost in their minds.
To succeed in the global government transportation market, systems integrators need to have strong local partners, a willingness to adapt to other cultures and the ability to convey clearly how trends apply to their customers' projects, industry officials said.
Ask managers of any company that is successful abroad, and they will tell you that local partners are the basis for fruitful international business. Local partners know customer requirements in their country or region, have a detailed knowledge of laws and regulations, and probably have customer relationships in place upon which U.S. companies can build, said Riet Cadonau, president of ACS Transport Revenue in Switzerland.
Without local partners, U.S. companies operating on their own may fail to adapt properly to what may be unique regulations of a foreign government.
"Based on different customer requirements, you must copy, adapt and paste," Cadonau said. "You can't just copy and paste."
Michael Huerta, group president of ACS' Transportation Solutions, said that when ACS acquired the Ascom Transport Revenue unit, the company knew it could not generate new business from afar. "We let our local management teams go about being the entrepreneurs they are in generating new business," he said.
David deKozan, vice president of marketing for San Diego-based Cubic Corp.'s Transportation Systems division, said Cubic has been selective about the type of projects it chooses around the globe.
"When we found places that we wanted to be in, we set up an operation and localized it," he said.
When Cubic first entered the United Kingdom, the company did so through a joint venture with Westinghouse, called Westinghouse-Cubic Ltd. Cubic bought the joint venture a decade ago and now has more than 400 employees in the country to support its automatic fare collection contract with the Transport for London Authority, deKozan said.
After Cubic establishes an office or unit in another country, such as those it has in Australia, Denmark and the United Kingdom, it sends people from its U.S. operation who understand its corporate culture and the "unique vagaries" of its business to work alongside the local team, he said.
"We've done a lot of cross-pollinization where we have sent people from the home office abroad on lengthy stints to work with the people who we've hired locally," he said. "Then we groom the local people and build up operations in each of our carefully selected markets."
Barry Ptashkin, vice president and client industry executive with the transportation sector of EDS Corp.'s Global Government Industry Group, had some advice for company executives who deal with government officials in other countries.
"You have to be very sensitive to the political and personal needs of the people you're speaking with," he said. "Their careers are tied to [a project] in ways that are different from the Western experience. Be sensitive to the other person's job preservation as well as his political needs."
It is equally important to offer a consistent point of view from the company you represent and to clearly convey to a foreign customer how sector trends apply to the project you are discussing, he said.
"You have to be willing to roll up your sleeves and help," Ptashkin said. "It's not just enough to come by and talk. You have to show and demonstrate your willingness to help and share your best thinking."