Business Models to Facilitate Deployment of Connected Vehicle Infrastructure to Support Automated Vehicle Operations (2020)

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x SUMMARY THE PROMISE OF CONNECTED VEHICLES As safety and congestion issues on the nation’s highways continue to pose a challenge to transportation agencies, connected vehicle (CV) technologies have received much attention globally over the past two decades. CVs are potential tools to address the issues relating to the transportation system’s safety and mobility performance. CVs use advanced wireless communication technology to enable vehicle-to-vehicle (V2V) communications. When roadway infrastructure (e.g., signal controllers, traffic control devices) is also appropriately fitted with compatible communications technology, vehicle-to-infrastructure (V2I or I2V) connectivity can be established. V2V and V2I communication platforms are a primary component to enable CV applications, which are specific uses of vehicle, infrastructure, and other system user data to achieve certain objectives, most often related to safety, mobility, environmental mitigation, and agency operations. CV infrastructure to enable V2I communication can play an important role in the success of automated vehicles (AVs). Without a strong CV infrastructure component that provides real-time information about a Department of Transportation’s (DOT) network’s status, condition, and performance, AVs may not be able to fully deliver their promised benefits—beyond just safety enabled by on-board sensors and/or V2V connectivity—that include reduced congestion, improved mobility, and reduced fuel consumption at the network level. In the United States alone, more than 50 pilot or test bed programs, spread across dozens of states and cities, are investigating the benefits, costs, operational considerations, and partnerships associated with deploying CV technologies. DOTs recognize the value of CV technologies in helping achieve the strategic objectives of saving lives and relieving congestion. As documented in their policy frameworks and statements, several agencies are currently planning and preparing for a future where CV technologies could become a part of their routine business operations (NOCoE, 2020). THE QUESTION OF PUBLIC AGENCY CV INVESTMENT Nonetheless, DOTs’ commitments to CV investments face several significant uncertainties including wireless technology, investment obsolescence, and spectrum availability. As a result, some DOTs may prefer to adopt a more cautious investment approach by taking calculated risks now in anticipation of greater returns later. Others, however, may decide to take a wait and see approach and let the technology market stabilize before committing any financial or human resource investments related to CVs. Early adopters, for example, may begin with investments to lay the groundwork for the eventual agency deployment of CV applications that also support other more immediate priorities, such as deploying advanced ITS applications on a corridor or a TSMO strategy (termed “no regrets” investments). Such initial investments could be leveraged later with minimal cost and agency disruption as the market situation concerning technology and penetration of suitably equipped vehicles becomes more certain.

xi Whether an agency decides to adopt a wait and see approach or a more cautious investment approach, it is vital to consider evidence and analysis that establish the rationale for investment at the time investments in the decision-making process. This evidence-based analysis, termed a business case, is an important part of the investment decision process. PURPOSE OF THE STUDY Responding to the context of uncertainty and the need to provide clarity on CV investment decision-making, this study sought to answer the following questions: • Do DOTs need to make any investments in CV infrastructure to develop and implement V2I applications? • If such investments are warranted, which emerging candidate V2I applications must be prioritized and planned for in the next 5 to 10 years? • What scale of investment is needed, and which of these investments should be advanced to a formal business case analysis? • How does the DOT construct the business case and move forward to select an investment pathway that, compared to the status quo, yields the most benefit, makes the best use of available resources and mitigates risk or uncertainty? This study answered these questions by developing: 1. Methods to identify the most plausible CV infrastructure investments that DOTs may encounter for which quantitative business case arguments must be advanced. 2. Approaches for building effective business case arguments that consider market conditions and uncertainties. 3. Specific business model options during project procurement and delivery that help agencies deliver on the value propositions articulated in the business case with the least possible cost and effective risk management. ISSUES INFLUENCING PUBLIC AGENCY CV INVESTMENT The research first reviewed a series of questions that influence public agency decision-making on investing in CV infrastructure. The questions focused on whether public agencies need to make investments in CV infrastructure, and if so, what emerging and feasible V2I application candidates can be advanced to a formal business case analysis to aid with decision-making. The set of CV applications documented in the Connected Vehicle Reference Implementation Architecture (CVRIA) reveals emerging candidate V2I applications that DOTs should prioritize and plan for in the next 5 to 10 years and the benefits they can provide. The research identified more than 30 V2I applications that provide safety and mobility benefits to DOT users, require DOT-provided network performance or usage information to enable, rely on or take advantage of the high-speed, low-latency communication provided by CV infrastructure, and do not depend on significant V2V market penetration. DOTs interested in capitalizing on these benefits are in a

xii unique position to shortlist and prioritize the applications of interest and to examine the investments to be made in CV infrastructure that support these applications. Making such investment decisions, however, requires understanding the V2I applications’ level of readiness for real-world deployment and the costs of doing so. The research examined the readiness of CV infrastructure components required for any given V2I application alongside a current set of DOT pilot projects, test bed activities, and plans. The readiness assessment of key infrastructure components, outside communication technology selection, and widespread availability of OBU-equipped vehicles indicates few obstacles to making targeted investments in V2I applications today. This conclusion is supported by the range of investments that DOTs are actually making across current pilot programs, test bed activities, and projects. The research then identified a set of cost categories and components and then estimated their scale from real-world cost data as well as expert judgment on individual components’ cost share. Results indicated that the cost share for RSUs (roughly 15 percent) is manageable for DOTs in the context of the full cost of investment, even if the communication technology becomes obsolete or is superseded. Indeed, by examining 30 of the most advanced and extensive CV pilot programs or projects that have used public funds to deploy CV infrastructure, it appears that DOTs are taking a cautious investment approach but exhibiting clear interest in certain V2I applications that meet current agency objectives. Specifically, there is a strong interest in applications that target signalized intersections; use DOT-provisioned network data (signal phase and timing, weather, work zones, and traffic volumes of non-CVs) to deliver transportation benefits. In the short-term, the focus is predominantly on certain mobility-related benefits accruing to DOT fleets or emergency vehicles. In the long-term, when market conditions align, the goal is to leverage much of the same infrastructure to target wider-scale mobility and the coveted safety benefits for all transportation system users. When taken in combination, this set of applications, their infrastructure needs, and their targeted benefit areas become the backdrop for the business cases to be made in advancing the cautious investment approach. A PATHWAY FOR CV INVESTMENT There is a pathway for DOTs to proceed forward when implementing CV investments. The current CV landscape shows that there is logical sequencing of V2I applications when DOTs choose to follow the cautious approach to investment. Sequencing should progressively build on prior investments, starting with applications that can provide benefits and learning opportunities today while laying a foundation for others that may depend on greater market penetration and other developmental factors in the future. Sequencing investments should also consider the scalability and leverage of the initial investment and include prioritization for components of the deployment that might be considered “no regrets” investments (e.g., signal controllers and backhaul) because they are outside the influence of market, regulatory, or technology uncertainties. A strategy can start modestly (e.g., localized projects involving key arterial corridors) and progressively grow, as outcomes suggest that further investment is warranted and resources are available. The same infrastructure base could also provide the benefits of advanced TSMO strategies or ITS applications otherwise performed using conventional cellular communications

xiii methods. However, because these investments can potentially be expensive, justification must usually be sound to help support the decision-making process. Those investments with significant financial impacts to the agency will be candidates for a quantitative business case analysis to justify them. CONSTRUCTING THE BUSINESS CASE The business case to support public agency investment in CV infrastructure begins with a problem statement that highlights the case for change. It compares the expected outcomes with the status quo option, i.e. highway improvements planned in the absence of the V2I application solution to address the identified problem or opportunity over the planning period. The business case then rests on arguments advanced around four sub-cases: • Strategic Case establishing why an investment should be pursued from a strategic standpoint. It determines the value of addressing a problem or an opportunity based on the goals, plans, and policies of the agency for a given region. It also evaluates the options against specific objectives to be achieved for each goal area to formulate a clear narrative on how the CV investment can address the problem or opportunity. The strategic case also articulates the risk to the performance of the investment option. • Economic Case establishing “the societal benefits” of the investment using a standard economic analysis approach. It assesses the costs and benefits of the proposed options to individuals and society at large. The economic appraisal spans the entire investment lifecycle—to include initial capital investments, O&M costs, and replacement costs. To aid this analysis, the research developed an Excel-based BCA tool to consider simple, high-level economic analysis including scenario analysis for various CV investment options. • Financial Case establishing “how much the investment will cost” a DOT. It focuses on the financial impact to the agency and funding arrangements (primarily the capital, operating, and revenue impacts and risks related to the investment). The financial case identifies potential funding sources and associated risks and uncertainties. The chapter reviewed traditional and supplementary funding sources and alternative financing options. • Deployment Case establishing “what is required to deliver and operate” the investment. Making the deployment case requires developing a high-level plan, evaluating various delivery strategies and procurement plans, and addressing delivery and investment risks. The research team investigated the feasibility of various delivery strategies for CV projects. Understanding the organizational context of the CV programs provided a starting point to further explore the deployment strategies for CV projects. The research team also evaluated how current CV projects are delivered, gathered lessons learned from these early deployments, and synthesized documented risks to inform the deployment case analysis.

xiv BUSINESS MODELS TO DELIVER CV INVESTMENTS The business case informs a decision on pursuing investment in CV infrastructure. In the event a “go” decision is reached to invest, the project or program of projects must be planned and delivered as part of a DOT’s standard business operations. A business model specifies this process by defining how a proposed project and its value can be delivered to the customer at an appropriate cost. At the heart of the business model is the “game plan” to acquire the financial, technological, and human resources necessary to deliver the project, who will provide them, and how risks will be managed. Because of the emerging nature of the technology and supply chain surrounding it, the business model for CV investments should address procurement planning, installation and integration, implementation of applications, and long-term maintenance and upgrades over the life cycle. By closely examining all risks, a DOT can determine the role of the private sector in delivering the CV investment, and what the DOT can offer in return to the private sector. The DOTs have gained significant experience with ITS projects that can be leveraged for CV projects. Despite this experience, DOTs are still evolving in their knowledge of more standard ITS deployments. With CV deployments, the DOTs must devise delivery mechanisms for enabling back office systems, data hubs, software application capabilities, and backhaul communications. These projects require significant back office systems, data hubs, and software application capabilities, and current back office infrastructure will not be adequate to handle the scale of data flowing bidirectionally. Such large-scale implementations might require alternative business models for procurement. By observing the current CV landscape, the research found that indeed the private sector can play a predominant role in technology, equipment, and expertise to build the necessary technical capacity of CV infrastructure. The research identified three business model options that engage the private sector to varying degrees, distinguished principally by the allocation of responsibilities, risks, and commercial opportunities between the public and private sectors: • The traditional model of public sector systems ownership and development using purchased commercial capabilities is a conventional “vendor” arrangement where the public sector owns the physical assets, and the private sector supplies communication and information services for a fee. This model is suitable for publicly developed and owned DSRC communications networks where the private sector could develop, own, maintain, and lease the needed equipment, systems, and technology to the public sector for a fee. • A public-private partnership model relies on collaboration between the DOT and interested private sector vendors to co-develop systems and applications. This model is suitable for a range of communication options, including technology agnostic applications, direct C-V2X, 5G, or DSRC. The DOT provides access to the rights-of-way (ROWs), signals, and other infrastructure, as well as access to DOT-owned data for commercial purposes. The private sector provides a suite of services related to technology, application development, data management, and network infrastructure.

xv • Connected vehicle as a service model where the DOT purchases a service package from the private sector by subscription or contract. The private sector supplies “all-in” services, including physical assets, cloud data, and analytics for a fee, while the public sector owns the data feed and provides signal controller and network access. This model is suitable for potential V2I applications that are technology agnostic and those not dependent on latency bandwidth requirements. GUIDANCE TO DEVELOP BUSINESS CASES AND EXPLORE BUSINESS MODELS This study found that state DOTs are actively preparing for a future with CVs and AVs. There is a significant number of V2I applications that can help advance DOT objectives, such as safety and mobility, outside of conventional means, and therefore DOTs should consider the value proposition for CVs, weighed against their risks. The research found a viable pathway that maps a cautious investment approach to CV infrastructure for those agencies willing to look beyond a wait and see stance. DOTs can use a business case analysis to support their decision to make CV investments, and several identifiable business models can implement a CV project or program that receives a positive business case outcome. Along with this report’s detailed summary of the research, this study articulated these findings and how to use them in the separately published Guidance to Develop Business Cases and Explore Business Models for Connected Vehicle Infrastructure to Support Automated Vehicle Operations.