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

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1 1 INTRODUCTION The National Highway Transportation Safety Administration (NHTSA) reported nearly 36,000 fatalities from roadway crashes in 2018 (NHTSA, 2020). The 2019 Texas Transporation Institute (TTI) Urban Mobility Report states that the recent 8- to 10-year economic growth pattern has increased congestion to the highest measured levels in most urban cities in the US (Schrank et al., 2019). Nationally, according to INRIX’s Global Traffic Score Card, drivers lost more than $88 billion in time to congestion (INRIX, 2020). As evidenced by these statistics, safety and congestion issues on the nation’s highways continue to pose a challenge to transportation agencies. As potential tools to address the transportation system’s safety and mobility performance, connected vehicle (CV) technologies have received much attention globally over the past two decades. In the US 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. State Departments of Transportation (DOTs) and other agencies at local, metropolitan, and multi-state levels of government (collectively referred to in this report as 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). A core consideration in any such planning effort is an assessment of the need for and the nature of public CV infrastructure investments to support applications based on CV technologies. 1.1 ROLE OF V2I COMMUNICATIONS IN ENABLING CV APPLICATIONS AND RELATIONSHIP TO AUTOMATED VEHICLES OPERATION CVs use advanced wireless communication technology to enable vehicle-to-vehicle (V2V) communications. When roadway infrastructure (e.g., signal controllers, traffic control devices) is 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. Other components of the CV infrastructure environment that enable CV applications include relevant roadside and centralized hardware, software, in-vehicle and roadside sensors, and telecommunication networks. The information exchanged within the CV infrastructure environment alerts drivers in real-time of impending safety of life situations or network congestion issues so they can take appropriate actions. At the same time, the information exchanged can also help roadway signals to adapt to traffic conditions to relieve congestion or improve travel time reliability. Although automated vehicles (AVs) are evolving along a separate but parallel technological and policy path, CV infrastructure to enable V2I communication will play an important role in their success. Without a strong CV infrastructure component that provides real-time information about the DOT network’s status, condition, and performance, AVs may not be able to deliver their promised benefits, beyond just safety enabled by onboard sensors and/or V2V connectivity, that include reduced congestion, improved mobility, and reduced fuel consumption. The V2I connectivity that allows AVs to access DOT network information is especially critical as AVs achieve higher automation levels. The importance of the CV infrastructure (i.e., V2I technology) to AV operations is recognized in the current

2 CV and AV policy statements and frameworks of some state DOTs, e.g., Colorado, Florida, Pennsylvania (NOCoE, 2020). It is also recognized in the current federal policy direction (ITS JPO, 2020). 1.2 MOTIVATIONS FOR PUBLIC INVESTMENTS IN CV INFRASTRUCTURE CV applications (colloquially referenced as apps) can generally be categorized into two groups: (1) those that do not have any infrastructure information requirements, and (2) those that depend on information from infrastructure (Parikh, Duhn & Hourdos, 2019). Most of the V2V CV applications fall under the former category and will not require any infrastructure investments from DOTs. However, most of the V2I CV applications fall under the second category and may require some level of DOT investment— capital or human resources or both—in the future. The motivation for any investment is the expected outcomes such investment brings when compared to the status quo option, i.e., its value proposition. The closer the alignment of the value proposition of the CV infrastructure investment to the DOT’s strategic goals and related objectives, the higher the motivation to invest. Another factor motivating investment in CV infrastructure is the opportunity cost of not deploying V2I applications. Opportunity costs can be expressed in terms of suboptimally allocated capital outlays for system rehabilitation, expansion, and enhancement; increased costs of operating the system; lost revenues; reputation risk; and an insufficiently prepared organization to manage disruptive change caused by external factors (e.g., vehicle technologies). The value proposition for CV infrastructure investments to enable V2I applications has been postulated in past research in the areas of safety (intersections, work zones), dynamic mobility (real-time traffic and incident management), DOT fleet operations (transit, maintenance), and DOT asset management and maintenance operations. In the US alone, there are currently 123 planned or operational CV deployment locations across 30 states, including 57 operational projects (largely pilots and test beds) with 15,506 devices and covering 6,182 infrastructure components. Additionally, these locations include 66 planned projects with 3,371 devices and 1,916 infrastructure components. The 50+ CV pilot and test bed deployments nationwide are assessing a range of V2I applications and their benefits under various USDOT- or state-funded programs. The positive early learnings from these programs are creating conditions for DOTs to consider larger CV infrastructure deployment initiatives. However, such larger program ambitions are tempered by several uncertainties that must be considered when making investment decisions. 1.3 ISSUES INFLUENCING PUBLIC INVESTMENTS IN CV INFRASTRUCTURE The costs to establish and maintain CV infrastructure to enable V2I applications include those for wireless communications units on the roadside or roadside units (RSUs), backhaul telecommunication infrastructure, a Security Credential Management System (SCMS) to enable trustworthy and privacy- protected information exchange, back office data management or processing capabilities and support for monitoring and maintaining the system components. For DOT-owned and operated vehicles without native equipment, costs could also include those for providing compatible wireless communications radio units also referred to as brought-in on-board units (OBUs) and the relevant human machine interfaces or After Market Safety Devices (ASDs). For V2I applications involving signalized intersections, additional costs could include those for specialized signal controllers and information message sets. Finally, each V2I application may have other unique interface development and software development costs associated with the specific information (message sets) to be communicated between the wireless

3 communications units. Establishing and maintaining CV infrastructure to enable V2I applications at a scale large enough to create systemic impacts can, therefore, be a capital-intensive undertaking. Although costs, funding, and expected returns from investments made are always a major consideration for any investment decision process, CV infrastructure investments include a few other unique cost- related externalities that DOTs must consider that add a greater level of uncertainty to the mix. These externalities are imposed by non-DOT actors—the automotive industry, the telecommunications sector, and federal regulators of the electromagnetic spectrum—whose actions determine, to some degree, if DOT CV infrastructure investments are warranted, relevant, or useful. These uncertainties are briefly described below. • Wireless Technology Uncertainty. At the heart of CV infrastructure is wireless communication radio technology. Both 3G and 4G LTE-based wireless communications are used for Intelligent Transportation Systems (ITS) purposes today. V2I is considered the next generation of ITS. However, for certain V2I CV applications involving safety and dynamic mobility, high-speed, reliable, low-latency communications are necessary to alert or warn drivers in a timely fashion. Investment in communications infrastructure to support these applications are of primary concern to DOTs. The two clear wireless communication choices for such safety-critical applications available today are the dedicated short-range communications (DSRC) technology and the cellular vehicle-to everything1 (V2X) or C-V2X technology. Although CV applications can work with either technology, the lack of a national or global consensus on which technology will be used in CVs and AVs coupled with the timing uncertainties of when C-V2X will be available for general use have affected projected timelines for the market penetration of suitably equipped vehicles. This, in turn, has a major impact on DOT investment decisions and other deployment activities. • Investment Obsolescence Uncertainty. If C-V2X and the emerging 5G become the defacto wireless communication standards as opposed to DSRC, the involvment of DOTs in providing physical communication infrastructure (e.g., RSUs) to enable CV applications may be diminished. But, at the same time, new business-to-business data sharing or data-centric service relationships between CV/AV data owners, CV infrastructure owners and operators, and potentially other third parties could emerge that require a different type of investment. The lack of clarity about the future in terms of the communications technology landscape raises fundamental uncertainties in the investment decision processes of DOTs and the supply chain actors who provide equipment and services to them. • Spectrum Availability Uncertainty. Another significant uncertainty is if the 75 megahertz (MHz) of spectrum in the 5.9 gigahertz (GHz) band will continue to be exclusively available for ITS safety-related uses. The Federal Communications Commission (FCC) has proposed a realignment that would open the lower 45 MHz of the spectrum for unlicensed use, and assign the remaining the 30 MHz either to C-V2X only, or a combination of DSRC and C-V2X. Their reasons for the realignment are numerous, but include what they call a “lack of progress in using the set aside 5.9GHz spectrum for transportation safety purposes.” Recent research by US DOT and 1 V2X communications is a term that is used to collectively reference V2V and V2I communications as well as wireless communications between vehicles and personal devices of pedestrians (V2P), vehicles and the cloud (V2C), and other entities.

4 transportation stakeholders has determined that the impact of the reduced spectrum on the ability of CV wireless communications technologies (e.g., DSRC, C-V2X) to successfully support safety-critical and time-critical CV applications (both V2V and V2I) is severely threatened, and as a result, the FCC’s proposal is largely viewed unfavorably by the transportation community. This issue will affect both public and private sector investments in CV technologies. To move past these issues and make relevant decisions regarding CV infrastructure investments will require that DOTs work with their supply chains and with non-DOT actors to align vision and priorities for the benefit of the transportation system users. It will require a thorough examination of national, regional, and local factors to advance options for or against such investments. 1.4 CV INFRASTRUCTURE INVESTMENT DECISION OPTIONS IN AN UNCERTAIN ENVIRONMENT Given the uncertainties, some DOTs might prefer to adopt a “wait and see” approach to let the technology market stabilize before committing any financial or human resource investments related to CVs. Others may decide to take a more cautious investment approach by taking calculated risks now in anticipation of greater returns later. They may, for example, begin with investments that 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 Transportation Systems Management and Operations (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. Whether an agency decides to adopt a “wait and see” approach or a more cautious investment approach, evidence and analysis that establish the rationale for investment at the time investments are being considered are important to support the decision-making process. This evidence-based analysis is termed a business case, and it is an important part of a wider range of factors (e.g., policy, public engagement, political motivations, organizational capacity) that decision-makers consider as part of the investment decision process. Making a business case is a routine part of an agency’s business model or practice that deals with transportation project planning and procurement. It can be qualitative or quantitative; the latter is reserved for projects where capital and operating expenditures are greater. 1.5 PURPOSE AND SCOPE OF THE GUIDE The scope of this guidance document, developed as part of NCHRP Project 20-102(12), is to present (1) methods to identify the most plausible CV infrastructure investments that DOTs may encounter for which quantitative business case arguments must be advanced; (2) how to build effective business case arguments that consider market conditions and uncertainties; and (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 cost and risk. This document considers a planning time horizon of 5 to 10 years when discussing plausible high value CV infrastructure investments. However, the planning-level investment actions taken within this time frame are expected to have an impact over the next 20 years or beyond and will, therefore, be considered in the business case analysis appropriately.

5 1.6 GUIDE ORGANIZATION This guide is organized into four chapters. Chapter 1 includes introductory material. Chapter 2 reviews the V2I applications of potential interest to DOTs based on findings from the literature. The benefits of each application and their alignment with a DOT’s strategic objectives are also presented. The chapter includes a shortlist of V2I applications for infrastructure investment based on an assessment of the deployment readiness of CV infrastructure components. A suggested sequencing of these applications by roadway type (e.g., urban arterial, rural freeway) is also presented. CV infrastructure requirements needed to deploy the V2I applications and the scale of costs involved are then discussed. Finally, the chapter presents the logic for when to advance a CV investment option under consideration to a business case analysis and who is responsible for advancing the case. Chapter 3 discusses what a business case is and describes its place in the decision-making process. The chapter also provides detailed guidance on the step-by-step construction of the components of the business case arguments and how to summarize them for review and consideration by decision-makers. In presenting the business case development process, this chapter highlights relevant data sources and tools that may be useful in constructing the business case. It also includes hypothetical illustrations of business case summaries for a specific CV investment option that DOTs are considering today. Chapter 4 articulates the plausible business model options available to DOTs during the procurement planning phase of V2I projects that can aid in minimizing risks to delivery. The model option choices discussed include (1) a traditional DOT-vendor-service provider model, (2) a public-private partnership model, and (3) an “all-in services” model where the private sector acts both as a vendor of hardware and a service provider under an integrated contract.