By Christmas, the Oyster Project should be up and running, at which point London will have become the latest and largest city in the world to embrace smart card technology in its public transport system. And, by then, the financial markets will have been able to take an early view on whether the scheme is likely to prove the money-making venture that Transys, the consortium running it, hopes it will be.
It is likely to be a tense six months for financial director John Stout and his team. “We have done a great deal of market research over the past four years,” says Stout. “We know that travellers in London are keen on the idea of using smart cards in place of the present magnetic strip paper tickets. The large number of ticketing outlets, including the internet and phone, means people will not have to queue to renew their season tickets. They can simply top up the value on their smart cards when they choose.”
The consortium’s confident expectation that it will earn about £1bn over the 17-year life of the contract is predicated on the notion that extra business (or ridership) will be generated through the use of smart card technology. As such, the system will have to be user-friendly. If the travelling public find it irksome, or if the new technology fails to live up to its expectations, revenue stream may suffer. “It was precisely for this reason that we began with a large-scale trial of the technology and conducted public attitude surveys,” says Nicole Carroll, business development director at Transys. “Since August last year, 80,000 TfL (Transport for London) staff have been using the smart cards and we have managed to sort out the few gremlins that were in the system. Nine out of 10 people interviewed for the survey have welcomed their use.”
Perhaps, but it would be well to bear in mind that contactless smart card technology is a relatively new medium in the transport sector and, although it is being increasingly used in public transport systems throughout the world, London is in a category of its own in the size of its venture.
And much is dependant on the good will of the customer. If the technology were to break down, or fail to perform in the manner expected of it, not only would there be great disruption but, over time, a growing reluctance by the public to use the system in the numbers needed to generate a profit.
So what are the risks being taken by the consortium, whose members include data processing giant EDS (UK), automated fare collection specialists Cubic Transportation Systems, Fujitsu Computer Services and WS Atkins?
The PPP contract entered into in 1998 with the then London Transport was for a centralised, intermodal ticketing system, valid across all forms of public transport in the capital, including some urban train services.
The consortium was given four years to develop the system and have the infrastructure in place, ready for an operational launch by the end of this year. Revenue streams were to be based on two criteria, the first of which was the availability of the assets. If these failed to work, the consortium’s payments would be abated. The second criteria was usage.
The more that people use the smart card system, the more Transys gets paid as a proportion of the whole. The risk, therefore, is that insufficient additional journeys are made to provide Transys with its expected revenue from TfL. The new system needs to be more efficient than the one it replaces if it is to persuade Londoners to make more use of the public transport system. “We have looked at all the risks involved in this undertaking,” says Stout, “and are satisfied that the business case is sound.”
In the meantime, Transys has invested about £140m on providing the infrastructure, with a further £48m on upgrading the existing technology. This has included the equipment needed to dispense and recharge the stored value cards, which have now been installed in about 2,500 newsagents and other retail outlets in the London area under the LT PASS – EPoS, (London Transport Pass Agency Sales Service – Electronic Point of Sale) solution.
So what additional value will the new technology bring that can’t be achieved using magnetic strip, paper tickets? The Oyster card, which takes about 200 milliseconds to work, contains a photocard number, the holder’s name and any discount availability. It will tell the system where and when the holder entered and left the network and enable TfL to better plan its services. It should also help reduce fraud.
“The current, paper-based system provides little or no management information, is open to fraud and allows for little flexibility in the fare structure,” says Stout. “The system we have devised overcomes these difficulties and gives TfL the opportunity to introduce off-peak and other concessionary fare systems, like the Freedom Pass for the elderly. We began rolling out the system to season ticket holders in May and hope to complete the process by Christmas.”