Read VAST - Final Report text version

Final Report for Publication

VAST Contract ST-98-RS-3086

Project Coordinator:

France Développement Conseil (FDC)

Partners:

Netherlands Economic Institute (NEI) PLS Consult (PLS) ISFORT

Subcontractor: University of Vienna (WUW)

Project Duration: Date: 15 April 2000

PROJECT FUNDED BY THE EUROPEAN COMMISSION UNDER THE TRANSPORT RTD PROGRAMME OF THE 4th FRAMEWORK PROGRAMME

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PREFACE

VAST (Value Added Services for Transport) is a project funded by the European Commission (DG VII) under the transport RTD programme of the 4th framework programme. The overall objectives of the VAST project for all modes of transports are the following: to identify, given future GNSS options, the main present and future commercial applications of satellite navigation services, to assess the associated potential market for each identified application, to assess the willingness to pay of each category of potential users for identified applications, to propose and assess cost recovery schemes against financial profitability, implementation feasibility and public acceptability, to propose and assess Public Private Partnerships in a position to recover funds from commercial applications to finance (part of) GNSS2 development and operation. To attain these objectives, an independent European industry consortium has been set up. This consortium is led by the independent French engineering and consultancy company FDC (France Développement Conseil). It also includes the Italian institute ISFORT (Istituto Superiore di Formazione e Ricerca per i Trasporti), the Danish consultancy company PLS, the Dutch economic institute NEI (Netherlands Economic Institute) and the Austrian University of Vienna WU (Wirtschafts Universitat).

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EXECUTIVE SUMMARY

The VAST project aimed at assessing the expected benefits of commercial application of GNSS in transport with an emphasis on road and multimodal transport. In this way, the first step of the project was to identify promising present, emerging and latent applications and their related VAS. The VAS have been structured in 3 main different layers :

VAS layer 1: satellite based service enhancements (e.g.: Satellite Based Augmentation Systems, Galileo controlled access service) VAS layer 2: terrestrial enhancements (e.g.: DGPS, pseudolite) VAS layer 3: application layer (e.g.: communication services, coupling with other sensors) A broad identification process, mainly based on "desk studies", direct interviews and brainstorming sessions, has allowed to identify more than 50 applications and their related VAS. A significant dominance of road transport applications has been underscored. To propose a comprehensive GNSS applications database, a description of each application and their main user needs and requirements have been given. It appears that present user requirements and emerging user requirements do not significantly differ. A special attention has been paid on the communication requirements linked to the GNSS applications (technical needs, safety critical aspects), and shows, very often, this kind of service is clearly essential for most of applications identified in the framework of the VAST project. The VAS identification process points-out the real need for a Galileo control access service due to the high integrity and guaranty levels required for many applications. The second step of the study aimed at assessing the opportunity of market development for GNSS applications in the main transport segments. The market structure has been defined basically in terms of market driver's unit: a market driver's unit is each transport vector (car, lorry, locomotive, vessel, aircraft) and equipment (wagons, containers) which can be furnished with a receiver generating a demand for GNSS commercial applications and Value Added Services. For each transport segment the population of market driver's units and the market penetration of GNSS equipment has been forecasted building up different penetration scenarios. The market dimension trends in monetary terms for both the equipment and applications have been estimated using current average market prices and a technology-driven approach for assessing Value Added Services. The forecasted market for Value Added Services (VAS) and applications in road segment will rise from 5 billion (in 2002) to more than 40 billion (in 2020). In multimodal segment the

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market will probably reach more than 5 billion in 2020. In aviation, rail and maritime segments, the market will arrive respectively to 900 million, 680 million and 50 million. The market results have been used as relevant inputs for the third phase of the VAST project aiming at assessed potential recoverable costs as a percentage of benefits for end users. Benefits for end users are defined as the reduction of costs and/or the increase of profit by using satellite navigation applications. These future benefits have been assessed, performing some interviews with end user, organisations and experts. The total annual benefits of satellite based navigation applications for European end users are estimated at 15 billion in 2008 increasing to 53 billion in 2017. The potential recoverable costs are equal to the increase of turnover by European industry from the sales of open access service receivers and controlled access application equipment. The potential recoverable costs should increase from around 1.5 billion in 2008 to around 7.6 billion in 2017. When we assume that 1% of the turnover can flow back (by a general levy on the world-wide sales of receivers and equipment) to the Galileo investors, recoverable costs increase over the years from 5 million in 2008 to 76 million in 2017. Under this assumption they are significantly smaller than the increase of tax on sales income to the government, which is assessed at 265 million in 2008 to 1,323 million in 2017. Restricted to the sales to European end users the recoverable costs increase over the years from 5 million in 2008 to 26 million in 2017. Tax on sales income to the government increases from 88 million in 2008 to 174 million in 2017. To finalize the VAST project, the implementation feasibility of three PPP-models suitable for a Europe satellite based navigation infrastructure has been studied. Key variables, determining the definition, design, building and operation of Galileo have been evaluated: the potential payment structure, the risk factors and the financing mechanism. Based on these inputs, typical roles of the private and public parties involved in PPP projects have been assessed and the most likely organisational set-ups presented. Generally concession gives better allocation of risks and less friction between public and private parties, if risks can be clearly identified ex-ante. Joint ventures are more relevant when no clear allocation of risks and responsibilities can be established. Therefore three possible generic PPP-models have been elaborated: 100% private concession, shared public/private concession and shared joint venture. The final matching of the three PPP-models with the financial mechanism, risk factors and payment structures have given the following result: Joint ventures (joint undertaking) seem to be suitable for the design phase as risks factors are difficult to allocate ex-ante in that phase. Shared concession seem to be suitable for the building phase as risks can be allocated, while the need for cash flow increases, no market revenues are generated and the need for public finance is substantial. Private concession is suitable for the operation phase as risks decreases and should be easy to allocate, market revenues increases, the need for public finance decreases and private investments will raise.

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At last but not the least, to ensure the outcomes of the VAST project are exhaustive and relevant, a service provider panel has been set-up. The role of the service provider panel was to assess the results of the work already done and to contribute, when necessary, by providing some inputs to improve the outcomes quality. 2 meeting with the service provider panel have been organized. This process has allowed to identify missing commercial applications of GNSS, to better determine the futures market structure and their related assumptions, to better evaluate cost recovery possibilities and to gather some remarks on PPP models.

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PARTNERSHIP

The number of partners in the consortium has been deliberately limited to four (plus one subcontractor) compiling very complementary skills and limiting resources for management activities. The expertise of each company involved and their status regarding the VAST project are as follows:

- FDC (France Développement Conseil, FRANCE), Partner and Co-ordinator FDC company, is an independent engineering company whose prime role is to provide governmental agencies and international organisations (EC/ DG TREN, ESA, EUROCONTROL) with technical assistance and program management service. The major domain of expertise of FDC is satellite navigation systems and their applications to transport which represents more than 60 % of the total activities of FDC Project co-ordinator: Pascal Campagne ([email protected]) Major expertise: GNSS

- ISFORT (Istituto Superiore di Formazione e Ricerca per i Trasporti, ITALY), Partner ISFORT is an Institute for training and research in transportation. ISFORT is involved in several research activities such as development of intermodal systems, interaction between the new telecommunication and information technologies and mobility systems. ISFORT has been the co-ordinator of a study conducted for DG XIII :" Market Context related to telematics applications for transport". Major expertise: transport market research

- NEI (Netherlands Economic Institute, The NETHERLANDS), Partner The Netherlands Economics Institute (NEI) is an independent research and consultancy organisation based on applied financial, business and socio-economic analysis. The organisation carries out studies and projects aimed at providing recommendations regarding planning and policy development for socio-economic issues and strategic and tactical business decision, including market analyses, evaluations, strategic development and management information systems for the transport sector. Major expertise: socio-economic analysis

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- PLS ( DENMARK), Partner PLS Consult is currently one of the leading consultancy offices in Denmark with a staff of 95 associates. In the field of transportation PLS Consult participates and has participated in many national and international projects. Among international projects financed by the European Union through different Directorate General, PLS Consul is the project co-ordinator of FREIA (DG VII), FAST/TITE (DG XIII), INTRACOM (DG XXII), Other international transportation projects with PLS Consult being a major partner are EUROSPREDI, ETPROJECT, EUROLINK, EUROPLATFORMS, COST 320, TRANSINPOL. Major expertise: transport system implementation (including PPP)

- WUW (Wirtschafts universität Wien, AUSTRIA), Subcontractor WUW is the Vienna university which is, among others, specialized in methodology and economic advice. Major expertise: Methodology and economic advices

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TABLE OF CONTENT

1. 2.

OBJECTIVES ................................................................................................... 10 WORK DESCRIPTION ..................................................................................... 12 2.1 Work breakdown structure.......................................................................... 12 2.2 Project deliverables .................................................................................... 13 2.3 Structure of the report................................................................................. 13 3. PRELIMINARY REMARKS............................................................................... 14 4. GNSS APPLICATIONS AND THEIR ASSOCIATED VAS ................................ 16 4.1 Approach .................................................................................................... 16 4.2 Present applications and associated VAS .................................................. 17 4.2.1 Road segment ..................................................................................... 17 4.2.2 Maritime segment ................................................................................ 18 4.2.3 Aviation segment ................................................................................. 20 4.2.4 Rail segment ....................................................................................... 21 4.2.5 Intermodal segment............................................................................. 21 4.2.6 Non transport applications................................................................... 22 4.3 Emerging applications and associated VAS ............................................... 23 4.3.1 Road segment ..................................................................................... 24 4.3.2 Maritime segment ................................................................................ 25 4.3.3 Aviation segment ................................................................................. 26 4.3.4 Rail segment ....................................................................................... 27 4.3.5 Intermodal segment............................................................................. 29 4.4 Latent application and associated VAS ...................................................... 30 4.5 Geographical considerations ...................................................................... 31 5. FUTURE MARKET STRUCTURE AND DIMENSION....................................... 32 5.1 Approach .................................................................................................... 32 5.2 GNSS Market: reference framework........................................................... 33 5.3 Supply Structure ......................................................................................... 34 5.4 Demand structure ....................................................................................... 35 5.5 Current GNSS market development and market potential.......................... 36 5.5.1 Road segment .................................................................................... 36 5.5.2 Multimodal segment ............................................................................ 39 5.5.3 Aviation segment ................................................................................. 40 5.5.4 Maritime segment ................................................................................ 41 5.5.5 Rail segment ....................................................................................... 41 5.5.6 Value forecast ..................................................................................... 43 6. COST RECOVERY SCHEMES FOR USER GROUPS .................................... 51 6.1 Approach .................................................................................................... 51 6.2 Relevant aspects per market segment ....................................................... 52 6.2.1 Road segment ..................................................................................... 52 6.2.2 Maritime segment ................................................................................ 57 6.2.3 Aviation segment ................................................................................. 59 6.2.4 Rail segment ....................................................................................... 60 6.2.5 Non transport segment ........................................................................ 62 6.3 Cost recovery ............................................................................................. 62 6.3.1 Results on benefits for European end users........................................ 62 6.3.2 Results on recoverable costs .............................................................. 65 6.4 Willingness to pay....................................................................................... 66

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6.5 Sensitivity analysis on results ..................................................................... 66 6.5.1 Approach ............................................................................................. 67 6.5.2 Limitations ........................................................................................... 68 6.5.3 Results of three scenarios ................................................................... 68 6.5.4 Comparison of results to estimates on SatNav VAS in other publications 69 7. PUBLIC PRIVATE PARTNERSHIP MODELS .................................................. 71 7.1 Approach .................................................................................................... 71 7.2 Likely Public Private Partnership model...................................................... 73 7.2.1 Preliminary remarks............................................................................. 73 7.2.2 Aims and objectives of Galileo ............................................................ 74 7.2.3 Three likely PPP model for Galileo ...................................................... 76 7.2.4 The participation of private sector........................................................ 80 7.2.5 Matching of PPP models with payments, risks & finance .................... 82 7.2.6 Summary ............................................................................................. 89 8. VERIFICATION OF VAST DELIVERABLES..................................................... 90 8.1 Approach .................................................................................................... 90 8.2 Role of the service provider panel .............................................................. 90 8.3 Composition of the service provider panel.................................................. 90 8.4 Organisation of service provider panel meetings........................................ 91 8.5 Service provider panel meeting outcomes.................................................. 91 9. CONCLUSIONS ............................................................................................... 92 10. REFERENCES ................................................................................................. 96 ANNEX A ................................................................................................................ 108 ANNEX B ................................................................................................................ 112

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1. OBJECTIVES

To identify main existing and future commercial applications... VAST is a transport research project launched by the European Commission Directorate General for Transport, as part of the Transport Research Programme of the 4th framework programme. The first objective of the VAST project is to identify, considering future perspectives for GNSS, main present and future commercial applications and their Value Added Services, linked to the use of satellite navigation systems. In order to propose a broad and relevant identification, applications using a satellite navigation systems combined with other means of navigation, communication or information systems have been taken into account. Regarding market perspectives, a particular emphasis on road and multimodal transport has been considered. To achieve this objective, "desk studies", surveys by direct interview among a selection of representative players and brainstorming sessions have been performed.

To assess the associated potential market for each identified application... According to transport authorities and various market analysis, GNSS based Value Added Services (VAS) have an important role to play in the transport domain, leading to a huge market for commercial applications, where strong demand already exists. In that context, the second phase of the VAST project aims at assessing the present, the future structure and the dimension of the GNSS market in the European Union from 2000 up to 2020, taking into account each transport segment identified as relevant for the study. The analysis of market dimension and market potential has been defined in terms of market driver's units interested both by the deployment of the services and by the installation of the equipment. These objectives have been reached performing surveys and direct interviews with major players of the navigation field and using relevant other studies as inputs.

To propose and assess cost recovery schemes... As the market of Value Added Services is certainly considerably larger than the cost of the space segment, the idea of recovering all or part of the cost of the development and operation phase of space and ground infrastructure is tempting. To analyse the potential return of investment for a European contribution to Galileo, cost recovery schemes need to be performed taking into account financial profitability, implementation feasibility and public acceptability. Thus, the general objectives of the third phase of the VAST project is to assess the benefits that the European economy will have from using satellite navigation services as well as the

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users willingness to pay. The benefits for which users have a willingness to pay should show what costs of the Galileo system might be recoverable. The rest of the benefits can be an argument for community funding for Galileo. Expertises from economic institute and university have used to achieve these objectives.

To propose and assess different Public Private Partnership models... According the European Commission Communication (10 February 1999, COM(1999) 54 final), a Public Private Partnership (PPP) should be established for Galileo. In that context, the main objectives of the next logic phase of the VAST project is to propose and assess different PPP models in a position to recover funds from commercial applications to finance (part of) Galileo development and operation phases. Costs recovery schemes and market structure have been used as relevant key inputs and allowed to study potential payment structure, risk factors and financing mechanism which are necessary key variables to elaborate the most likely PPP models.

Finally, to validate the VAST outcomes by a service provider panel... In order to ensure the quality and the exactness of the VAST deliveries, a service provider panel has been set-up. The main objectives of this service provider panel is to validate the results of a project performed by a fully independent consortium composed of a consultancy company expert in GNSS, transport market research and economic institutes and a university, by professional industrialists.

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2. WORK DESCRIPTION

2.1 Work breakdown structure

The overall objective of this project was to assess the expected benefits of commercial applications of GNSS in transport with an emphasis on road and multimodal transport. The first step of this study was to identity potential commercial application of GNSS. The second step was to study the corresponding market structure and its analysis. The third step was the evaluation of the possibility of cost recovery associated to each identified application and its willing to pay users. The results of the three first phases have been the basis of the fourth step which propose different PPP models. During the project service provider panel meetings have been organised to validate the VAST outcomes. In practical terms, each step of the study corresponds to a work package ( WP1, WP2, WP3, WP4, WP5) Management activities have been carried out for the entire duration of the project (WP6). The following figure illustrates the work package breakdown as well as the relationship between the work packages and the work phases mentioned above.

Figure 1 : Work breakdown

WP1 Value Added Service Identification FDC WP2 Future Market Structure

WP6 Project Management FDC

ISFORT Study WP3 Cost Recovery NEI WP4 Public Private Partnership PLS Result

WP5 Service Providers Panel

FDC

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2.2 Project deliverables

The work package 1 up to 5 have resulted into five main reports identifying respectively potential commercial applications, the market structure, the cost recovery schemes, the most likely PPP models and the main outcomes of the service provider panel meetings. The title and the work package leader of the reports mentioned above are:

·=

"Report on GNSS applications",

FDC, work package 1, deliverable D1.

·=

"Report on future market of commercial applications of GNSS",

ISFORT, work package 2, deliverable D2.

·=

"Report on cost recovery schemes for user groups",

NEI, work package 3, deliverable D3.

·=

"Report on Public Private Partnership models",

PLS Consult, work package 4, deliverable D4.

·=

"Report on service providers panel meetings",

FDC, work package 5, deliverable D5.

2.3 Structure of the report

As explained previously, the project has been structured in a set of work packages leading to the delivery of five deliverables. The present report is structured as described hereafter. Chapter 4 summarises the results of the broad identification of current, emerging and latent application and their associated Value Added Services (source: work package 1, D1). Chapter 5 presents the results related to the identification of the present and future market structure and analyse the GNSS market dimension in the European Union from 2000 up to 2020 (source: work package 2, D2). Chapter 6 presents the results on benefits and recoverable costs from Galileo for the transport sector (source: work package 3, D3). Chapter 7 presents the most likely Public Private Partnership models elaborated in the framework of the VAST project. (source: work package 4, D4). Chapter 8 presents the outcomes of the service providers panel meeting held throughout the project (source :work package 5, D5). Chapter 9 presents the conclusions. Chapter 10 presents the references.

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3. PRELIMINARY REMARKS

Definitions and assumptions have been proposed and approved at the beginning of the study, and are only valid in the context of the VAST project. In particular Value Added Services (VAS) have been shared in 3 main different layers as follows:

Value Added Services (VAS): Value Added Services are designed to provide service enhancements over the GNSS basic services, to improve their quality (accuracy, integrity, availability...) or to offer combined services (navigation, communication, information...). Financing of the operation of these services will be based on user charging mechanisms. They are composed of 3 layers.

VAS Layer 1: Satellite based service enhancements. This layer comprises Value Added Services based on satellite technology. They are divided into 2 groups: -= Satellite based services (augmentation systems) designed to increase the technical performances of the Basic GNSS Services like accuracy, integrity and availability. GNSS 1 (EGNOS, WAAS, MSAS) systems are considered, for the purposes of this study, as VAS (VAS 1.1), -= Satellite based services offered by the core system, improving the basic open access service such as guaranteed and liable services (Galileo Controlled Access Service) (VAS 1.2).

VAS Layer 2: Terrestrial enhancements. This layer comprises VAS based on terrestrial systems. They are divided into 2 groups: -= VAS designed to provide the basic service, as provided by the core GNSS space elements, in areas not covered by these space elements (tunnels, underground parking, inside buildings, urban canyons, under intense foliage...) (VAS 2.1) -= VAS designed to enhance the basic service (increased accuracy, integrity...) in local areas (e.g. DGPS) (VAS 2.2).

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VAS Layer 3: Application layer. This layer comprises service enhancements designed at the level of the user equipment. This layer is divided into 2 groups: -= Services based on the combination of other functions within the user equipment. It includes software enhancements (map matching, integrity check by RAIM algorithms...) hardware integration or coupling (odometer, inertial sensors, digital maps...) and use of databases (database on dangerous chemicals, on relevant locations...) (VAS 3.1), -= Services based on the combination of the GNSS service with other different kind of services as communication, traffic information, internet... (VAS 3.2).

To complete these definitions, a brief description on GPS, GLONASS, GNSS1 and GALILEO is given in appendix A.

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4. GNSS APPLICATIONS AND THEIR ASSOCIATED VAS

4.1 Approach

In order to propose a structured identification of commercial GNSS applications, a segmentation has been made in the following three categories: -= Present applications and their associated VAS -= Emerging applications and their associated VAS -= Latent applications and their associated VAS

The identification of present applications is mainly based on a "desk study" whereas the selection of emerging applications combines direct interview and literature researches. Finally, the selection of latent applications is based on brainstorming sessions.

This first step of the VAST project has resulted in a database which supplies a description of each application (operating principle, user requirements, user identification ...) for the main domain (road, aviation, maritime, rail, intermodal, other) as well as the current and future VAS. The full database is annexed to the deliverable D1 of the VAST project.

Remark: the selection of VAS is only based on user requirements

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4.2 Present applications and associated VAS

Over 30 present applications have been identified including transport and non-transport domains.

4.2.1 Road segment

Road present applications identified in the framework of this study are already numerous and fully operational in most of European countries. -= -= -= -= -= Fleet and freight management -= Traffic info systems in public transport -= Traffic survey

Emergency and mayday services Breakdown assistance Route guidance and traffic information Vehicle location

Present road transport applications using a satellite navigation system are the most numerous and promising both in terms of equipment sales and services revenues.

User identification: Most of these present applications are aimed at all private and professional road users such as taxis, rent a car firs, transport haulage, fire brigade services, public transport... Approximately 175 million of potential users have been identified in Europe.

User requirements: For road applications, technical positioning requirements are not extremely demanding and would be compliant with the expected performance of GALILEO (open and controlled access) and GPS modernized systems. Most current road applications require accuracy of between 10 and 25 metres, and global (land mass) coverage is required, except for the "traffic information system in public transport" (where local coverage is sufficient). In general, the availability requirement is not very high, but will be difficult to achieve without local augmentations mainly due to masking problems resulting from "urban canyons" or tunnels and underground facilities. All present applications identified require a communication system (1 or 2 way), except for "static route guidance" ("route guidance" application, but without reception of traffic information). In general, communication link reliability is only of commercial importance, except for "emergency and mayday services" for which "safety of life" aspects must be taken into account.

Note: For each application (all domains), the technical requirements (accuracy, availability, coverage, communication, ...) are set out in detail in the full database annexed in appendix A of the deliverable D1.

Current and future candidate VAS:

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As explained in the "definition" paragraph, Value Added Services (VAS) are designed to provide service enhancements over the GNSS basic services, to improve their quality or to offer combined services. The VAS selection for each current road applications is summarised in the table below.

Note: for each application (all domains), all details of the selection process are provided in the database annexed in appendix A of the deliverable D1. Table 1 : VAS selection ­Road applications

Core element and current candidate VAS Core element and future candidate VAS VAS 3.2 Galileo OAS Modern GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Applications Emergency and mayday services Breakdown assistance Route guidance and traffic information Vehicle Location Fleet and freight management Traffic information systems in public transport Traffic survey

Current GPS

VAS 1.1

VAS 1.2

VAS 2.1

VAS 2.2

VAS 3.1

X X X X X X

X X X X (X)

X X X X X X X X X X X

X

X X

X X X X X X

(X)

X X

X

X X

X X

(X) X X

X X

X X X

X X

Note : the "( )" means that the VAS is only an option, it is not VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system essential VAS 2.1: Terrestrial enhancement to increase system availability "Galileo OAS" means Galileo Open Access Service VAS 2.2: Terrestrial enhancement to increase service performances "Modern GPS" means modernized GPS VAS 3.1: Use of external data (application level) This note is valid for all tables in this report. VAS 3.2: Use of external services (application level) For more details see chapter 3

4.2.2 Maritime segment

The maritime segment includes all maritime and in-land waterway applications. The selection of present applications is as follows: -= -= -= -= -= Maritime construction -= Emergency and rescue operations -= Positioning of navigation buoys

Navigation Survey and inspections Fishing Dredging

The maritime sector was the first to use a GPS system for navigation purpose, thereby creating the first major satellite navigation market.

User identification:

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"Maritime navigation" and "emergency and rescue operations" concern a very large number of users (several tens of thousands of users). On the other hand, specific applications such as "survey and inspection", "dredging" or "maritime construction" concern a small number of potential maritime users (professional users). A total of 5 000 potential users have been identified for these kind of application. User requirements: Most present maritime applications require a high level of accuracy. Certain applications, like "Maritime construction" require accuracy to within 10 centimetres! Today, this level of performance is only achieved by a differential system (e.g.: DGPS). A large number of applications are demanding higher performance positioning systems to increase work efficiency (fishing, dredging...). The availability required is the least critical issue, because there are few environmental constraints (except in ports with very high buildings). Integrity is often a targeted asset. Service guarantees would be appreciated. As regards technical communication needs, most applications require only a one-way communication link (to receive DGPS corrections). "Emergency & rescue operation" may require a 2 way communication link if an acknowledgement of receipt is necessary . Current and future candidate VAS: Today a large share of the seafaring community uses a DGPS receiver (VAS 2.2), or some other system like RACONS, LORAN-C... In the future, Galileo controlled access Service (VAS 1.2) seems to be the best candidate given the high level of accuracy and integrity required by most maritime applications (see table below). Due to its intrinsic accuracy features, Galileo would avoid the use of differential correction infrastructures and the associated communication link.

Table 2 : VAS selection ­ Maritime applications

Core element and current candidate VAS Applications Current GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2 Galileo OAS Core element and future candidate VAS Modern GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Maritime navigation Fishing Survey and inspections Dredging Maritime construction Emergency & rescue operations Positioning of navigation buoys

X*1 X X X X (X) X

X X X X X X

X X X X X X X

X

X

X

(X)

X

Note : *1: Other systems are also used (visual aids, autonomous navigation system, RACONS, LORAN-C...) VAS 1.1: Satellite based augmentation services VAS 2.2: Terrestrial enhancement to increase service performances

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VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.2.3 Aviation segment

Today, even if GPS is becoming an essential part of all aircraft navigation systems, the benefit of satellite navigation systems are relatively limited for civil aviation applications since current satellite system performance is not sufficient in terms of accuracy, integrity and reliability. The only current aviation application identified is "aircraft navigation".

User identification: The "Aircraft navigation" application concerns the entire aeronautical community. Over 30,000 potential users have been identified in general and commercial aviation.

User requirements: Different flight phases, within which needs are assumed to be constant, have been defined by the ICAO (International Civil Aviation Organisation) and are presented with their requirements in the ICAO GNSS SARPs V.8.0. In addition to the natural dependency of navigation on weather conditions, the operational needs of these navigation systems are increasingly stringent in dense traffic areas and at low altitudes.

Current and future candidate VAS: At present, navigation systems used for aviation depend on the flight phase, the fly-over region and the type of aircraft. The most widespread systems are the DME and the VOR, as well as the ILS (or even the MLS) for landing. The GPS system is usually used as a supplementary means. In the future, on condition required guarantees are provided, the Galileo controlled access service (VAS 1.2) should meet all civil aviation needs and in particular those concerning the most critical phases (commercial flights, IFR flights, approach and landing).

Table 3 : VAS selection ­ Aviation applications

Core element and current candidate VAS Applications Current GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2 Galileo OAS Core element and future candidate VAS Modern GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Aircraft navigation

X

X

X*1

X*1

X

X

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Note : *1: The modernized GPS or Galileo open access service will certainly suffice for tourism flights and in certain areas VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.2.4 Rail segment

Satellite navigation-based rail applications are mostly in the test or experimental phase. So all rail applications are discussed in the "emerging applications" section.

4.2.5 Intermodal segment

Applications concerning intermodal transport and using a satellite navigation system are only starting to emerge now. But, "container management" is a current application and is the most representative application of intermodal transport.

User identification: A lot of harbour, haulage and airport storage facilities are becoming equipped with GPSbased container management systems. The number of installations fitted out should exceed several thousand.

User requirements: In general, user requirements are not very demanding, except in terms of accuracy (1 to 5 m) due to the size of containers (<10m). This application requires a one way communication link to transmit the position of each container as well as very low cost equipment. User requirements are likely to change, in particular when transporting dangerous loads. In that case, integrity and guarantees become essential.

Current and future candidate VAS: All details of the selection process are provided in the database (appendix A, p42 to P43). The VAS selection is as follow:

Table 4 : VAS selection ­ Rail applications

Core element and current candidate VAS Applications Current GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2 Galileo OAS Core element and future candidate VAS Modern GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

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Container management

X

X

x

x

X*1

X

Note :*1: For dangerous loads VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.2.6 Non transport applications

Many other applications requiring use of satellite navigation systems have been identified, but do not concern transport. Given the importance of these applications, both in terms of potential market and number of users, the main applications identified are as follows:

-= Scientific applications such as:

·= ·= ·= ·=

-= High precision farming such as:

·= ·=

Engineering surveying & mapping Geodetic and geophysical applications Asset management and Geographical Information Services Meteorology applications

yield mapping plot mapping

-= animal/person surveillance -= task automation -= environmental protection

-= time/frequency applications -= leisure applications -= personal security

User identification: Non transport applications concern both professional users (scientific, farming, geodetic applications...) and private users (leisure). It has to be noted that the leisure segment will concern a huge number of users. This is mainly due to the ever-increasing variety of leisure applications available. In addition to this, the number of potential users in the leisure segment will increase significantly when mobile phones include a GNSS module.

User requirements: Most scientific applications and professional applications on the whole require a high level of accuracy, but integrity levels however are not very demanding (except for time/frequency applications). Very often, local or regional coverage suffices. A medium level of availability should satisfy most of these non-transport applications and the need for a communication link is clearly dependent on the kind of application.

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Current and future candidate VAS: Today, most non-transport applications use a GPS or DGPS receiver (post processing is used to improve accuracy). In the future, Galileo Open Access Service or modernized GPS should satisfy most of the accuracy and integrity requirements of these applications.

Table 5 : VAS selection ­ Non transport applications

Core element and current candidate VAS Applications Current GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2 Galileo OAS Core element and future candidate VAS Modern GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Engineering surveying and mapping Geodetic and geophysical applications Asset management and GIS Meteorology Time/Frequency application Yield mapping Plot mapping Leisure

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X X X X X X

X X (X) X X X X

X X X X X X

X X X X X X

(X)

X

X

X X X

VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.3 Emerging applications and associated VAS

New GNSS applications are invented everyday and will become probably fully operational in few years. These "emerging applications" are really numerous and should provide a huge market for the years to come.

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4.3.1 Road segment

The emerging road transport applications identified in the framework of this project are as follows: -= -= -= -= Speed management Lane control Accident management Re-routing -= -= -= -= Car pooling Integrated city logistics Road pricing and tolling Behaviour registration

-= Urban traffic control -= Parking management

-= Automatic vehicle control

Most of these applications and services are aimed at improving the driving conditions of the single traveller and at ensuring technical assistance and support. The development of this kind of application is strictly linked to Intelligent Transportation Systems (ITS) projects. User identification: Most of these emerging applications are aimed at all private and professional road users such as taxis, road haulage, fire brigade services, public transport. This total account for some 175 million potential users in Europe. User requirements: For the emerging road applications, technical positioning requirements are not any more demanding than for present road applications. Accuracy requirements for most of these applications are to within 10 metres (except for "lane control" and "speed management" which require accuracy to within less than 1 metre). However, availability requirements are critical since most of these applications need to be operational in urban canyons, underground, in tunnels ... As for present applications, all emerging road applications need a communication link (1 or 2 way) ,except for "urban traffic control". Communication link reliability is essentially of commercial importance. For the years to come, European ITS policy should be of major importance for the development of these road applications and should play a significant role in strengthening the European position on the road segment.

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Future candidate VAS: Due to accuracy and integrity level requirements, many emerging road applications will require the Galileo Controlled Access Service and very often a ground-based augmentation will also be necessary for availability in masked areas. The table below shows the VAS selection.

Table 6 : VAS selection - Road applications

Core element and future candidate VAS Applications Galileo Open Access Service Modernized GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Speed management Lane control Accident management Re-routing Parking management Urban traffic control Car pooling Integrated city logistics Road pricing and tolling Behaviour registration Note :*1: If high integrity is required VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability X X X X X X X X X X X

X X

X X X X X

X X X X X

X X X X X

X X X X X*1

X X X X X X X X X X X

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.3.2 Maritime segment

Emerging maritime and in-land waterway applications identified are as follows: -= Navigation aids -= Monitoring and control -= Vessel Traffic Services (VTS) -= Hydrographic and oceanographic survey -= Ship trialing

User identification: Most of these emerging applications are aimed at professional users (fishing, tanker and bulk carrier companies, maritime institutes...). This accounts for several thousand users (> 30 000).

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User requirements: The main user requirements in emerging maritime applications are clearly very close to the technical requirements of present applications. No other specific and important specifications have been identified over and above current applications. Vessel Traffic Services (VTS) is one of the most significant emerging applications. VTS technical requirements are not excessively demanding and could reflect emerging maritime user needs.

Future candidate VAS: Galileo Controlled Access or Open Access Services will be required depending on the level of accuracy and integrity required for these emerging applications (see table below).

Table 7 : VAS selection - Maritime applications

Core element and future candidate VAS Applications Navigation aids Monitoring and control Vessel Traffic Services Other areas of application X (X) X X (X) X X X Galileo Open Access Service Modernized GPS VAS 1.1 VAS 1.2 X VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.3.3 Aviation segment

For the aviation segment, the emerging applications identified in the framework of the VAST project are as follows: -= High precision navigation -= High precision approach and landing -= Airport traffic management User identification: Emerging aviation applications concern the entire aeronautical community. Over 30,000 potential users have been identified in Europe for general and commercial aviation. -= Surveillance applications -= Communication applications -= Free flight

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User requirements: As for "aircraft navigation" (see "present applications" section), the technical requirements have been and will be defined by the ICAO (International Civil Aviation Organisation). Requirements for both present and emerging applications are extremely demanding since many safety critical aspects are at stake The integrity level is doubtless the most important parameter for all aviation applications (present, emerging and latent). A reliable communication link is also required, especially for airport traffic management applications or more generally for surveillance applications. Future candidate VAS: Local augmentations (e.g. LADGNSS), wide area augmentations (e.g. EGNOS, WAAS and MSAS), and finally a Galileo Controlled Access Service will probably offer essential support to most emerging aviation applications. The table below shows the VAS selection.

Table 8 : VAS selection -Aviation applications

Core element and future candidate VAS Applications Galileo Open Access Service Modernized GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

High precision navigation High precision approach and landing Airport traffic management Surveillance applications Communication applications Note :the "( )" means that the VAS is only an option, it is not essential VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

x x x x x

x x x x x x x x x x

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

4.3.4 Rail segment

All rail applications have been considered as "emerging applications" because most of them are in the experimental or feasibility phases. The selection of rail applications is as follows: -= Track measurement and maintenance -= Global management system -= Security control -= Traffic information to passengers

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User identification: Most of these rail applications concern all wagons and traction units accounting for some 500,000 potential users in Europe. User requirements: "Global management system" and "traffic information to passengers" are not very demanding either in terms of accuracy or integrity. However, "security control" and "track maintenance" require a very high level of accuracy (< 1cm) and integrity (only for security control), because many safety critical aspects have to be taken into account. Certification procedures also have to be taken into account. Most railway applications require reliable communication links for technical communication needs. At present, different solutions are being developed to meet these needs, in particular GSM-R (GSM adapted to railway use). But the use of complementary satellite systems may also be considered and would be of great interest for applications in areas not covered by a ground communications network. Future candidate VAS: Due to the low constraint levels required by "global management system" and "traffic information to passengers", Galileo Open Access Service or Modernized GPS seem to be the best candidates for these 2 applications. However, none of the future satellite navigation systems meet the accuracy requirements of "security control" and "track maintenance" applications. So the Galileo Open Access or Controlled Access Service could be used (depending on the integrity level), but a complementary system will always be necessary. The table below shows the VAS selection.

Table 9 : VAS selection - Rail applications

Core element and future candidate VAS Applications Galileo Open Access Service Modernized GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

Global management system Track measurement and maintenance Security control Traffic information to passengers

X X

X X X

X X (X) X X

X

X

VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

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4.3.5 Intermodal segment

The inter-connection of different modes of transport is becoming increasingly essential as distribution and delivery businesses seek to optimise the transport chain. To achieve this aim, it is necessary to co-ordinate the various transport services in a way that allows changes of transport mode without delays. In this way, the emerging intermodal applications selected are as follows: -= Tracking and tracing -= Fleet management User identification: It is really difficult to estimate the potential number of users for these applications but it should exceed several thousand. Carriers, shipping companies, haulage companies, logistic control centres, but also rail and maritime operators could be interested in this kind of application. User requirements: The main technical requirements are not extremely demanding for this kind of application, except for dangerous loads (high integrity required in this case). All applications require accuracy to within 1 to 5 meters because the size of containers or packaging is generally less than 10 meters and it is important to differentiate the position of one load in relation to that of another load. A communication link is also systematically required to transmit the position of loads to the management centre. Very low cost equipment is essential for this kind of application. Future candidate VAS: Given the specifications, Galileo Open Access Service seems to be sufficient for most intermodal applications. The Galileo Controlled Access Service may be required for dangerous loads. The table hereafter shows the VAS selection.

Table 10 : VAS selection ­ Intermodal applications

Core element and future candidate VAS Applications Galileo Open Access Service Modernized GPS VAS 1.1 VAS 1.2 VAS 2.1 VAS 2.2 VAS 3.1 VAS 3.2

-= Cargo management

Tracking and tracing Fleet management Cargo management

X X

X X X

X X X

VAS 1.1: Satellite based augmentation services VAS 1.2: Enhanced services offered by the core system VAS 2.1: Terrestrial enhancement to increase system availability

VAS 2.2: Terrestrial enhancement to increase service performances VAS 3.1: Use of external data (application level) VAS 3.2: Use of external services (application level) For more details see chapter 3

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4.4 Latent application and associated VAS

Window of opportunity: Identifying latent applications concerns future technological developments as well as the need to overcome the current restrictions of satellite navigation and mobility information systems. Latency is a supply and demand phenomenon. Latent demand or latent needs exist if a substantial number of potential customers/potential users share a strong desire for something that cannot be satisfied by any existing product or service. Latent supply exists if a substantial number of potential suppliers share a strong desire to offer something but without the corresponding demand (demand = need + buying power + willingness to pay). The market is not yet sufficiently developed or technology acceptance has not reached a satisfactory level. The window of opportunity is not open. The latent supply is perceived as coming too early. Below are Windows of Opportunity with different latency statuses concerning different market segments:

Market readiness opportunity window for majority

Technology state of art readiness of majority readiness of pioneer opportunity window of pioneer Latency of pioneers open window

min.required readiness

Latency of majority

time Too late

Too early

Market resistance Technology state of art readiness of pioneer readiness of majority

Figure 2 : Window of Opportunity

Latent applications: Within the time frame 2000 to 2008 (Galileo implementation) current computing power restrictions will have been overcome by at least 3 new processor generations. By then the global market development for value added services with integrated Signal in Space and GIS for location awareness computing will have spread all over the planet. By 2005 more than 50% of location services will be information services.

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-= Badges with integrated GIS

·= ·= ·=

-= Location Aware Computing systems (LACS) -= Wearable computing with general context awareness

dumb badge smart badge intelligent badge

User requirements and future candidate VAS are not easy to identify as it is a latent need, but the Galileo Open Access Service should be well positioned to satisfy most of these latent applications.

4.5 Geographical considerations

Geographical considerations are to take into account in order to highlight certain major differences between countries. Road sector The United-States are clearly leaders in "Fleet and freight management" applications. This is mainly due to its very large territory (3 times the size of Europe) in which management of all kinds of vehicles is essential to save money and increase competitiveness and it is also due to the very high potential number of users (over 50 million vehicles). In any case, the American government is currently massively fitting out its public services with fleet management systems. One example is Los Angeles which will have all its buses fitted out with a fleet management system by the end of this year. On the other hand, Japan is clearly the leader in "road guidance" applications where the number of units sold this year should exceed 1.6 million with only 800,000 units being sold in Europe and less than 200,000 in the USA. In fact, the Japanese road infrastructure, especially in cities, is not explicit enough to allow for easy navigation in streets. Moreover, the Japanese are particularly receptive to high technology devices and have a dominant industry in this field. To improve road guidance efficiency, the Japanese government broadcasts real time traffic information entirely free of charge. This Japanese domination on road guidance applications should last at least until 2005. In Europe, some countries are very involved in ITS technologies such as Germany or Holland and should be among the first to provide the new generation of intelligent systems in order to improve transport efficiency. This European position could be strengthened by stimulating demand and strongly supporting ITS development. Furthermore, the integration of technologies and the participation of many organisations in producing a compatible infrastructure are crucial for the development of effective ITS. To this end, there is a relatively high level of government involvement in the industry and several organisations have been set up to ensure exchange of technical information and developments. These include Vertis in Japan, ITS in America and Ertico in Europe.

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5. FUTURE MARKET STRUCTURE AND DIMENSION

5.1 Approach

The market structure and dimension have been assessed considering different scenarios built using a step-by-step methodology: Step 1: data collection - The main purpose of this phase was to establish the stock of current population of market drivers (number of cars, vessels, air-crafts, etc.) and to determine the development of the population up to 2020. The development was realised coherently with hypothesis outlined by industry associations. This phase was mainly based on a desk activity. Step 2: main scenario construction - The main purpose of this phase was to build up the most likely scenario. In other words, step 2 was devoted to define the market penetration for GNSS equipment and services over the period 2000-2020. This phase was based on: information obtained by face-to-face interviews, information collected through desk activity, data collected by means of the questionnaire. The main scenario is generated by interaction between three set of hypothesis: hypothesis on policy factors influencing this sector (i.e. political choices on infrastructures) hypothesis on technology factors influencing this sector (i.e. the spread of different systems based on different technology paradigm) hypothesis on market factors influencing this sector (i.e. industry choices on stock substitution) Step 3: alternative scenarios construction - The main purpose of this phase was to analyse alternative scenarios, based on a different combination of the set of hypothesis outlined above. The consortium was interested in determining what happened varying the main framework of hypothesis. In conclusions, the alternative scenarios highlight the boundaries of the main scenario. Step 4: potential market for applications ­ a specific methodology, based on a technology-driven approach has been applied to set potential market for each GNSS application. Step 5: confirm results ­ Results were verified and discussed with GNSS experts. Review of data has been essential to refine the scenarios outlined and constitute a sort of validation test for the estimated figures.

Some assumptions have been considered notably in order to propose realistic results (see paragraph 1.5 , Deliverable D2).

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5.2 GNSS Market: reference framework

Progress in all fields of science and technology depends on political and financial support. This linkage is even more important in the GNSS market, as the development of new navigation and positioning systems deal with a wide range of political variables. In the past decade navigation and positioning basic needs has been satisfied by the US GPS technology. In reality, the US defensive interests have braked the development of GPS applications, by assigning for civilian use a less precise signal (the C/A-code), offering a lower level of accuracy (around 100 metres). Additionally, the United States Department of Defence has not guaranteed signal integrity, its availability, or continuity of service. However, the GPS signal has become an essential element of many commercial enterprises. The explosive growth of information and communication technology has influenced the keyplayer strategies, stimulating a huge interest in developing a new civilian system. The decision to actively compete in the development of a future GNSS, announced by the European Commission in the Galileo Communication (1999), is a direct consequence of this growth. Because advances in space research have often resulted in new market applications, taking an active role in determining the evolution of the space sector can result in an increased industrial and commercial leadership in this and in other linked sectors. In contrast, a low-profile policy could impact on the capacity of Europe's industry to successfully compete in the promising future market of satellite applications dedicated to transport. In parallel with EU plans, the US are developing new strategies in order to continue to mastering the future of this industry. Following the Presidential Direction (1996), the Department of Defence and the Military Institutions started a programme aiming to updating the current GPS system. The Presidential Direction asked the parts: to create a new dual civil/military system, free to peaceful use world-wide, and to turn-off Selective Availability by 2006. Additionally, Presidential directive also fixed the `Military Must': to preserve friendly use, to deny adversary use and not to disrupt civil use.

Complementary information related to technology trends which can affect the market structure are included in the deliverable D2 (chapter 2). A brief description of the GPS modernization programme and of complementary systems (SBAS and GBAS) is in particular given.

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5.3 Supply Structure

The decision to actively compete in the development of a future global satellite navigation system presents a plan to promote growth in the space market in Europe. The reasons that guide EU's decision-making are strictly linked to industrial policy: it is not expedient to hand over the role of leader to US and Japan so that they determine the development of a global satellite navigation system. Even though the European Commission's choice is in line with strategic and industrial opportunities, it has provoked different reactions of European companies operating in the sector. In fact, this choice has different consequences on the factors that drives development of the market during this phase. First of all, the operational commitment that the EU requires from companies implicate a change in investment plans that are currently based on GPS-based applications deployment and development. Moreover, the development of GALILEO system requires concrete and immediate outlays for the cost of participating in the construction of the infrastructure. Such a commitment requires investment projects involving billions of Euros spread out over a period of 10 to 15 years, during which time the companies would face considerable financial exposure. The survey carried out since June to September (1999) has highlighted different positions with regard to the sector's future and to the opportunity to support the EU strategies of development. Direct contact with companies confirmed the existence of different positions on this issue. In detail, the European satellite industry is now divided into three different groups:

the pro-actives : a first group of operators openly backs the project to develop a new satellite navigation system, considered to be a fundamental element for in market growth. This group of operators is characterised by two common attitudes: 1. Market Vision: they believe that GALILEO can influence market trends, allowing a development towards an effective integration between communication, navigation and positioning services; 2. PPP Support: they actively support the EU projects, both financially and operatively. In fact, some companies have carried out independent costing of the Public Private Partnership, demonstrating that such a project is economically sustainable. the passives : a second group has decided to wait before taking a position and to see how the situation evolves: 1. Market Vision: they share the belief that near future is still driven by GPS technology development. 2. PPP Support: the social effects arising from creation of a new system authorise that financial cost should be entirely assigned to the public sector. The project should thus be financed by European Union funds. the pragmatics : a third, larger group of operators backs the project, but is firmly interested in maintaining strong connection and interaction between GPS development and GALILEO:

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1. Market Vision: it is not expedient to uphold a competition between the two systems. The most predictable scenario is based on the GPS superiority, while GALILEO is just a longterm chance. 2. PPP Support: they presently working on projects financed by European defence and research ministries. It is not clear if they are interested in financially supporting GALILEO project.

5.4 Demand structure

The potentiality of the market implicates that is quite impossible to determine a demand structure. However, it is possible to identify the current trends influencing the future demand. Customer requirements: As we experienced in other business sectors (mobile telephony, Information and Communication Technology, etc.) basic requirements expressed by end customers are simple but very urgent as showed in the following table.

Table 11 : Basic requirements

Services

Service availability whenever they need Service availability wherever they want Reliable services A price that justifies its use

Equipment

To have specific equipment for different services To have complex equipment To worry about the overall system works

These requirements especially affect services that concern safety of life. However, the real plus of satellite systems is really in the supposed universal availability of the services offered. This means that all the services offered have to rely on the requirement outlined above. The following table gives an assessment of the drivers that presumably will influence the deployment of applications (L, M and H stand for low, medium and high probability to influence the deployment of applications in the relative transport segment).

Table 12 : Drivers influence Universal Availability Road Market Maritime Market Aviation Market Rail Market Multimodal Market L M H M H Reliability M/H H H H M/H Reasonable Price H L L M M

The table shows that demand requirements are expected to act in a different way depending on the transport segment considered. In other words, it is possible to expect a demand that is very sensitive: to the price of applications in the road sector (the real mass market)

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to the universal availability both in the multimodal and in the aviation sector to the reliability of the system in the rail, maritime and again in the aviation sector.

Interaction augmentation: Today, the possibilities that a client has to interact with satellite navigation systems are limited to a certain number of possible options. In other words, the client has the possibility to interact with a service centre and to request some types of services (from breakdown to medical assistance) or information (location of points of interest such as chemists, parking, etc.). In truth, current developments in the transport sector must be inserted into a broader framework of innovation involving all markets and which, in final, results in a growth in the demand for personalised information. The internet is most obviously the benchmark, as demand for the internet exploded the moment in which technology was able to provide the user with simple instruments to access an ever expanding information data base. It is likely that such a trend will also manifest itself in the transport sector and associated satellite services.

5.5 Current GNSS market development and market potential

This paragraph outlines the forecasted trends for market penetration of equipment since 2000 up to 2020, under the main scenario hypotheses and 2 or3 alternative scenarios.

5.5.1 Road segment

According to companies, the area of road transport has the greatest opportunity to develop a real mass market. Car transport The following table shows the potential deployment of positioning technologies in car transport sector over the period 2000-2020. Market penetration will rise from 1% of total car population in 2000 up to over 60% in 2020. This development is based on interaction between the hypothesis shown in the following table.

Table 13 : Car transport scenarios Scenarios Factors Technology Factors Hypothesis Over the period 2008-2010 technology will provide advanced information and positioning VAS. Car Producers strategies are aimed at introducing positioning technologies in Top Class Cars. Local Authorities are prompted by Central Government in building up ITS infrastructures.

Main Scenario

Market Factors Policy Factors

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Scenario 1 Scenario 2 Scenario 3

Policy Factors revised Technology Factors revised Market Factors revised

Delay in building up ITS infrastructures. Car Producers strategies are aimed at introducing positioning technologies in High/Medium Class Cars. End-users adopt a GSM-like behaviour.

The translation of these scenarios into "rate of penetration" is presented with the following graphic.

Figure 3 : Rates of penetration in % of car potential market

90 80 70 60 50 40 30 20 10 0 2000

2005 Main Scenario

2010 Scenario 1

2015 Scenario 2

2020 Scenario 3

Differences can be observed by comparing the three alternative scenarios with the main scenario. In detail, policy restraint on ITS infrastructure development works as a strong delaying factors (max potential market at 2020: 40%). On the other hand, the hypothesis that end-users adopt a GSM-like behaviour push market penetration over 80% in 2020.

Lorries transport The following table shows the potential deployment of positioning technologies in lorries transport sector over the period 2000-2020. Given the particular proximity of market, hypotheses considered are very similar to those outlined for car transport sectors. Hypotheses are detailed in the following table.

Table 14 : Lorries transport scenarios Scenarios Factors Technology Factors Hypothesis Over the period 2008-2010 technology will provide advanced information and positioning VAS.

Main Scenario

Market Factors Policy Factors

Carriers strategies are aimed at introducing positioning technologies in high volume loaded lorries.

Local Authorities are prompted by Central Government in building up ITS infrastructures. Delay in building up ITS infrastructures. Car Producers strategies are aimed at introducing positioning technologies in High/Medium Class Cars.

Scenario 1 Scenario 2

Policy Factors revised Technology Factors revised

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The translation of these scenarios into "rate of penetration" is presented with the following graphic:

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Figure 4 : Rates of penetration in % of lorries potential market

100 80 60 40 20 0 2000

2005 Main Scenario

2010 Scenario 1

2015 Scenario 2

2020

5.5.2 Multimodal segment

The following table shows the potential deployment of positioning technologies in multimodal transport sector over the period 2000-2020.Given the particular nature of this market, we limited our analysis to the fleet of containers and to expected flows in Europe over the period 2000-2020. Hypotheses are detailed in the following table.

Table 15 : Multimodal scenarios Scenarios Factors Technology Factors Market Factors Technology Factors revised Market Factors revised Hypothesis

Main Scenario

Scenario 1 Scenario 2

New information add-on services are introduced after 2005 Carriers strategies are aimed at introducing positioning technologies in containers' special fleet

New information add-on services are introduced before 2005ay in building up ITS infrastructures. Positioning systems produce management improvement. Carriers are stimulated to adapt special and standard fleet.

The translation of these scenarios into "rate of penetration" is presented with the following graphic:

Figure 5 : Rates of penetration in % of containers potential market

100 80 60 40 20 0 2000

2005 Main Scenario

2010 Scenario 1

2015 Scenario 2

2020

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5.5.3 Aviation segment

The following table shows the potential deployment of positioning technologies in aviation transport sector over the period 2000-2020. ­ In a first phase (2000-2005), the navigation satellite-based devices are just a supplemental means of navigation. The enrichment of the GPS signal (new supplemental signals, alternative and interoperable systems, etc.) gradually support the deployment of the navigation satellite-based devices as primary means of navigation1.

Table 16 : Aviation scenarios Scenarios Factors Policy Factors Hypothesis ICAO support the use of navigation satellite-based devices as supplementary means of navigation.

Main Scenario

Market Factors

Air-crafts delivered before 2010 are progressively retrofitted. The rate of adaptation is directly linked to plans of investment both of air transportation company and users

Delay caused by standardisation problems. Satellite-based system will be applied as primary means of navigation only after 2015.

Scenario 1 Scenario 2

Policy Factors revised

Technology Factors Technology enhancements and the building up of alternative satellite systems (Galileo) speed up the development of new devices. A satelliterevised based system could be used as a sole means of navigation after 2015

The translation of these scenarios into "rate of penetration" is presented with the following graphic:

Figure 6 : Rates of penetration in % of aircraft potential market

140% 120% 100% 80% 60% 40% 20% 0% 1997 2002 m a in 2007 S c e n a rio 1 2012 2017 S c e n a rio 2

1

ICAO define a primary means of navigation as a system for a given operation or phase of flight that must meet accuracy and integrity requirements, but need not to meet full availability and continuity-of-service requirements. Procedural restrictions apply to the given phase of flight since there is no requirement to have a sole means system onboard to support the primary system. 27/02/01

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5.5.4 Maritime segment

The following table shows the potential deployment of positioning technologies in maritime transport sector over the period 2000-2020.The majority of vessels are already equipped with GPS-based systems. We have focused our attention on the potential market for new advanced positioning systems and we have supposed that the new technologies will be mature after 2008.

Table 17 : Maritime scenarios Scenarios Factors Technology Factors Market Factors Hypothesis Technology will be mature after 2008. After 2008 passengers and special cargo ships gradually implemented their GPS equipment. Other classes of ships are less interested in adapting their navigation systems. Delay caused by standardisation problems. The new generation equipment will be effective after 2010. Positioning systems will produce real management improvement. Consequently, demand reaction will be stronger than expectations. Demand response will be lower than expected. This reaction is directly linked to 1) the high spreading of the present equipment and 2) the scarce improvement of the service quality .

Main Scenario

Scenario 1 Scenario 2 Scenario 3

Policy Factors revised Market Factors revised 1 Market Factors revised 2

The translation of these scenarios into "rate of penetration" is presented with the following graphic:

Figure 7 : Rates of penetration in % of vessels potential market

100% 90% 80% 70% 60% 50% 40% 30% 1998 2003

S c e n a r io 3

2008

M a in S c e n a r io

2013

S c e n a r io 2

2018

S c e n a r io 1

5.5.5 Rail segment

The following table shows the potential deployment of positioning technologies in maritime transport sector over the period 2000-2020. Given the particular nature of market (freights and passengers) we considered two different market drivers: the locomotives and the wagons. Moreover, we suppose that the innovation process is directly linked to effects produced by strong competition between rail companies.

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Table 18 : Rail scenarios Scenarios Factors Technology Factors Hypothesis Satellite positioning technologies offer strong advantages if compared with other technologies. Given the scarcity of resources, rail companies will adapt their stock gradually. Investment plans are lower than expectation. Strong competition starts after 2005 Passive policy: a strong competition start after 2007. Active policy: rail companies are strongly prompted by UE directives in introducing positioning technologies. Other systems (GSM-based) limited satellite technologies deployment.

Main Scenario

Market Factors Policy Factors

Scenario 1 Scenario 2 Scenario 3

Policy Factors revised 1 Policy Factors revised 2 Technology Factors revised

The translation of these scenarios into "rate of penetration" is presented with the following graphic:

Figure 8 : Rates of penetration in % of locomotives potential market

100 80 60 40 20 0 2000

2005

2010 Scenario 1

2015 Scenario 2

2020 Scenario 3

Main Scenario

Figure 9 : Rates of penetration in % of wagons potential market

100 80 60 40 20 0 2000

2005 Main Scenario

2010 Scenario 1

2015 Scenario 2

2020 Scenario 3

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5.5.6 Value forecast

The value forecasts for applications will start after 2008, when new advanced VAS are supposed to stimulate demand willingness to pay. Value forecast for equipment are based on current market prices and on their supposed development.

Equipment Value forecasts for equipment concern the period 2000-2008 only. After 2008 we suppose that the equipment price is incorporated in the service price. In other words, service providers will offer free-of-charge equipment to their customers, in order to rise service selling. This choice reflects trends already observed in other hi-tech markets (i.e. mobile telephony). Forecasts are restricted to three different market areas: Road, Rail and Multimodal. Forecasts have not been outlined for Aviation and Maritime. This choice is directly linked to hypotheses we have set to determine potential market. In detail, the majority of aircrafts and vessels are already equipped with GPS-based systems. We have focused our attention on potential market for the new advanced positioning systems and we have supposed that the new technologies will become mature after 2008-2010. Forecasts are based on assumptions set in the most predictable scenario. Equipment market price has been estimated using current market price and data obtained through the review of industry literature. The following graphs display the cumulated revenue for each transport segment identified as relevant for the aim of the study. This means that the market of equipment is the market represented by new sales in addition to the sales made in the previous years. Notice that no assumptions have been considered for life duration of the equipment: in fact, the graphs concern the cumulative value of all the sales made on the market excluding replacements. The forecasted cumulated revenues for equipment in road segment are $700 million in 2002 and arrive to $3.5 billion in 2008. For multimodal and rail transport the revenues will reach respectively $240 million and $80 million.

Figure 10 : Road Market: Revenue Forecast - Equipment (million $)

4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0

2 000

2001

2002

2003

2004 Cars

2005 Lorries

2006

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Figure 11Multimodal Market: Revenue Forecast - Equipment ($ Million)

250

200

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0

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Figure 12 : Market: Revenue Forecast - Equipment ($ Million)

90 80 70 60 50 40 30 20 10 0

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Service: Two alternative methodologies can be conceived to assess a potential market: a technology-driven approach, based on the assumption that demand is stimulated by technological enhancements; a demand-driven approach, based on the assumption that the awareness of new needs and the diffusion of new practices among end-users can interact with current technological paths, influencing their trend of development. Both approaches can be applied to assess GNSS application market. In detail, two different schemes can be conceived: a first model, based on the technology-driven approach, assuming that each technological enhancement is able to stimulate an existing but latent demand (i.e. once terrestrial augmentation ­ identified as VAS layer 2 in the methodology scheme adopted in the VAST project ­ will be developed, the demand for applications requiring VAS 2 can immediately display its potential).

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a second model, based on the demand-driven approach, assuming that technology is rather flexible. This means that demand is capable to influence the VAS layers enhancements, setting the pace of development of the different GNSS applications. As a consequence, the potential market of each application is influenced by end-users' behaviours. The working schemes of the two different models are displayed in the chart below. The chart highlights two different outcomes: the second model is a viable alternative but it is strongly based on results provided by a demand analysis. In fact end-users' behaviours are still unknown and operators contacted had not provided information about this topic. On the other hand all the experts agreed the fact that GNSS market is still technologydriven. Neither the first nor the second model are capable to determine the price and the relative expected trend up to 2020 of each application. A second-best solution can be provided using current market prices of GPS-based applications.

Figure 13 : Methodologies to assess market potential for VAS

Technology -driven forecasts

Assessing demand targets for each application Assessing VAS layers structure for each application

Demand-based forecasts

Assessing VAS layers structure for each application Assessing demand targets for each application

Hypotheses on technological development

Demand analysis

Hypotheses on equipment deployment

Hypotheses on endusers' behaviuor

Assessing Market Potential

Assessing Market Potential

Current prices and/or willingness to pay enable to forecast service values

Monetary Forecasts

As a consequence, the following scenario has been based on the first model displayed. In detail, the model is based on the following hypotheses regarding the expected enhancements in VAS layers' structure and the restraint provided by equipment diffusion:

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Hypothesis 1 : Each VAS layer can achieve three stages of growth and enhancement: an initial stage (10-20% of functionality) an intermediate stage (50-60% of functionality) a mature stage (100% of functionality) Hypothesis 2 : Each application has the possibility to successfully generate a market, but this possibility is tied to the stage of growth of the relative vector of VAS layer required (this vector is derived by WP1 output). Hypothesis 3 : the potential market of present and emerging applications is conditioned by the rate of penetration of the equipment. In other words, the rates of penetration of equipment have been used as a threshold for the deployment of applications. A more detailed explanation of the simulation model is reported in Appendix 4 of the deliverable D2. The analysis takes into account all transport segment and related applications as outlined in chapter 4. In detail: Road: analysis concerns both car and lorries segment, considering both present and emerging applications. Multimodal: analysis concerns both present and emerging applications. Rail: satellite navigation-based rail applications are mostly in the test or experimental phase. As a consequence only emerging applications have been considered. Aviation: The majority of aircrafts are already equipped with GPS-based devices. As a consequence the restraint based on equipment deployment does not work for present applications. On the contrary, emerging applications will require both enhancements in VAS layers and deployment of new advanced equipment. Maritime: The majority of vessels are already equipped with GPS-based devices. As a consequence the restraint based on equipment deployment does not work for present applications. On the contrary, emerging applications will require both enhancements in VAS layers and deployment of new advanced equipment.

The following table display the number of market drivers (equipped with positioning systems) that each application can achieve over the period 2000-2020. Forecasts do not consider the possibility of mobile equipment.

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Table 19 : Market drivers that each application can achieve

ROAD APPLICATION (car and lorries using the application - millions)

present applications emergency&mayday breakdown assistance route guidance and traffic info vehicle location fleet&freight management traffic info systems in public transport 2000 2010 2020 emerging application 14,7 74,3 159,4 speed management 14,7 85,0 159,4 lane control 12,3 79,7 159,4 accident management 14,7 85,0 159,4 re-routing 3,1 16,7 32,3 parking management 0,1 0,9 1,4 urban traffic control car pooling integrated city logistics road pricing and tolling behaviour registration 2000 2010 2020 n/a 71,7 159,4 n/a 71,7 159,4 n/a 85,0 159,4 n/a 85,0 159,4 n/a 67,2 127,1 n/a 63,7 159,4 n/a n/a n/a n/a 16,0 32,3 n/a 63,0 127,1 n/a 63,7 159,4

MULTIMODAL APPLICATION (containers using the application - millions)

present applications container management 2000 2010 2020 emerging application 0,0 0,7 3,0 tracking & tracing fleet management cargo management 2000 2010 2020 n/a 0,9 3,0 n/a 0,9 3,0 n/a 0,7 3,0

AVIATION APPLICATION (aircraft using the application - thousands)

present applications aircraft navigation 2000 2010 2020 emerging application 1,9 2,4 4,6 high precision navigation high precision approach & landing airport traffic management surveillance applications communication applications 2000 2010 2020 n/a 0,3 4,5 n/a 0,3 4,5 n/a 0,3 4,5 n/a 0,3 4,5 n/a 0,3 4,5

AVIATION APPLICATION (small aircraft using the application - thousands)

present applications aircraft navigation 2000 2010 2020 emerging application 22,4 24,8 41,1 high precision navigation high precision approach & landing airport traffic management surveillance applications communication applications 2000 2010 2020 n/a 0,5 20,1 n/a 0,5 20,1 n/a 0,6 20,1 n/a 0,6 20,1 n/a 0,5 20,1

RAIL APPLICATION (locomotives and wagons using the application - thousands)

present applications 2000 2010 2020 emerging application global management system track measurement & maintenance security control traffic info to passengers 2000 2010 2020 n/a 1,3 15,1 n/a n/a n/a n/a 0,3 1,3 n/a 0,4 1,3

MARITIME APPLICATION (vessels using the application - thousands)

present applications maritime navigation emergency & rescue operations 2000 2010 2020 emerging application 13,7 37,5 50,0 navigation aids 13,7 37,5 50,0 monitoring & control vessel traffic services 2000 2010 2020 n/a 4,8 31,5 n/a 4,8 31,5 n/a 6,0 31,5

Value forecasts for applications concern the period 2000-2020. The analysis is based on the following assumption. Hypothesis 1 : each market driver equipped with positioning system can access to all the services provided in the relative transport segment.

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Hypothesis 2 : values concern the price of a standard bouquet of applications and its supposed trend. Hypothesis 3 : the price of a standard bouquet is decreasing in the period 20002020. These assumptions allow to outlined the potential market related to each relevant transport segment. It is not practicable to detail these results for each single application. Market prices have been estimated using: the current market prices for GPS-based applications and prediction on their expected trend obtained through the review of industry literature. The following graphs displayed the cumulated revenue for services. This means that the value expressed each year is the market represented by new subscription in addition to the subscription automatically renewed. No assumptions have been outlined regarding the life duration of services. More pragmatically, the model is based on the assumption that each client will automatically renew the subscription. Notice that the price of the standard bouquet include the cost for the equipment before 20082. All of the curves show strong development of the market for Value Added Services during the first period (about 2002- 2015) and a lightly slowly growth after 2015 due to an occurred nearly saturation level. Rail market development is partially an exception because it starts very slow and it became more significant only after 2012.

Figure 14 : Potential Market for Road Applications

5 000 price of a standard bouquet ($) 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

45 000 000 000 40 000 000 000 35 000 000 000 30 000 000 000 25 000 000 000 20 000 000 000 15 000 000 000 10 000 000 000 5 000 000 000 total revenues ($)

price of a standard bouquet

total revenue

2

It has be noted that the study is referred to all the EU Countries. Differences in the pricing structure can be observed in all the EU Countries. This is particularly true for mass market applications (road segment). The prices adopted in this study reflect the differences observed. 27/02/01

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Figure 15 : Potential Market for Multimodal Applications

5 000 4 500 price of a standard bouquet ($) 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6 000 000 000

5 000 000 000

3 000 000 000

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1 000 000 000

-

price of a standard bouquet

total revenue

Figure 16 : Potential Market for Aviation Applications

5 000 4 500 4 000 price of a standard bouquet ($) 3 500 3 000 2 500 2 000 1 500 1 000 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1 000 000 000 900 000 000 800 000 000 700 000 000 600 000 000 500 000 000 400 000 000 300 000 000 200 000 000 100 000 000 total revenues ($)

price of a standard bouquet

total revenue

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Figure 17 : Potential Market for Rail Applications

5 000 price of a standard bouquet ($) 4 500 4 000 600 000 000 3 500 3 000 2 500 2 000 1 500 200 000 000 1 000 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 100 000 000 500 000 000 400 000 000 300 000 000 800 000 000 700 000 000

price of a standard bouquet

total revenue

Figure 18 : Potential Market for Maritime Applications

5 000 4 500 4 000 120 000 000 3 000 2 500 2 000 1 500 40 000 000 1 000 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20 000 000 100 000 000 80 000 000 60 000 000 total revenues ($) 3 500 160 000 000 140 000 000

price of a standard bouquet

total revenue

The simulation gives the following final figures for the potential market: in road segment the market will rise from $5 billion (in 2002) to more than $40 billion (in 2020); in multimodal segment the market will reach more than $5 billion, starting from not significant figures at the beginning of the period; in aviation, rail and maritime segment the market potential arrives respectively to $650 million, $680 million and $125 million.

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total revenues ($)

6. COST RECOVERY SCHEMES FOR USER GROUPS

6.1 Approach

The approach used for the third work package differs from most studies on the market potential of Galileo. This study assessed potential recoverable costs as a percentage of benefits for end users. Benefits for end users are defined as the reduction of costs and/or the increase of profit by using satellite navigation applications. This approach enables us to answer two important questions for Galileo: 1. What are the future benefits for the European economy from satellite navigation? (In other words: how much will the European economy depend on GPS in case Galileo is not developed?) 2. What are the recoverable costs from Galileo in the different transport segments? (This information helps to decide on the division of public and private shares in the PPP.) In order to assess the future benefits interviews with end users, branch organisations and experts in the broad transport field have been carried out. Since potential users do not always have a clear idea of the benefits that future technical developments might bring to them, this was the most difficult part of the study. Therefore, all existing, emerging and latent satellite navigation applications identified during the first phase of the VAST project have been used to challenge the interviewed persons and brainstorm on their potential future benefits. In this way, 16 applications have been identified for which benefits for end users could be quantified. These are described in the table hereafter. For all other potential applications no benefits could be quantified from interviews and literature.

Table 20 : Applications with quantified benefits per transport segment Road (freight segment) Road (passenger segment) Road (society segment) Fleet management Route guidance Mayday boxes for individual private cars Bus control system Public transport route planning Breakdown assistance Collision avoidance Traditional navigation Facilitating Automatic Identification and data Management System Facilitating AIMS for a one-man bridge Facilitating AIMS for river information service Facilitating Automatic Dependence Surveillance Rail positioning Rail global management system Rail land surveying Accuracy driven agriculture

Maritime segment Aviation segment Rail segment Non-transport

3

The potential recoverable costs are derived from these benefits by assessing the increased turnover of European industry from the sales of Galileo products and services for these 16 applications. Therefore, the potential benefits of all world-wide users and all current,

3

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emerging and future applications are multiplied with expectations on the adoption rate of satellite navigation, the market share of Galileo, the price of Galileo open access receivers and controlled access applications and the market share of European industry. Finally, to assess the recoverable costs, the potential recoverable costs are multiplied with the assumed levy and tax on the sales of Galileo product and services by European industry.

To assess the benefits and recoverable costs of Galileo, a lot of assumptions have been made on Galileo service level and market share, technical and economic developments and the calculation method for recoverable. Since these assumptions have a strong impact on the results they are explicitly mentioned in annex B (further assumptions on future size of user groups, market penetration,... are given in annex 2 of the deliverable 2).

6.2 Relevant aspects per market segment

This paragraph gives the relevant aspects of the significant applications per transport mode and identifies briefly the benefits and recoverable costs. The detailed results are given in annex 2 of the deliverable 2.

6.2.1 Road segment

Fleet management Fleet management can have significant benefits for transports of just-in-time products where an accurate forecast of the estimated time of arrival will increase the efficiency. Waiting hours for the driver or for the addressee are very expensive, and quality improves when clients can be informed on delays. Fleet management is also beneficial to reduce empty running and to reduce administration costs. It is expected that the reduction of waiting time using estimated time of arrival (ETA) information is 5 minutes per day. Furthermore, efficiency improvement by facilitating the reduction of empty running is expected to be 1%. It is expected that these figures are applicable to transport companies and companies with courier service, hence applicable to both trucks and local vans. This leads to the following results:

Table 21 : Fleet management results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 1,151 2008 4,086 4,046 405 41 43 160 2017 9,436 9,341 4.671 94 123 581

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The benefits for end users are more than 9 billion EURO for 2017, of which over 4.5 billion EURO is solely the Galileo part. This Galileo part consists for only a small share of CAS benefits, as CAS will be used on a relatively small scale in fleet management (e.g. transport of valuables and special transports). Benefits for society can hardly be identified and are assumed to be zero.

Route guidance In history, route-planning systems proved an efficiency gain of 5% of the transport costs. It is expected that dynamic route guidance systems will show at least the same efficiency gain, certainly if the systems are combined with traffic information. Traffic information services improve very fast at this moment, so it can be expected that the integration with route guidance will be completed in 2008. It is expected that the efficiency improvement is applicable to both trucks and vans in road freight transport. This leads to the following results:

Table 22 : Route guidance results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 923 2008 8,829 8,741 874 88 133 693 2017 33,061 32,731 16,365 331 559 3,095

Benefits for end users are about 9 billion EURO in 2008 and 33 billion EURO in 2017. CAS amounts for about 331 million EURO.

Mayday box for individual private cars in luxury segment Mayday boxes for individual private cars are already available. In combination with GSM several notification services exist. For the OAS Galileo service it will be difficult to capture a share of the market 10 or even 20 years after GPS based services are being commercialised. Concerning Galileo specific VAS for this segment there is no encouraging environment for service operators. For a joint service (Galileo + GPS) there will be a market, but we did not find industry experts who perceived this as a relevant segment of its own. There will be a very narrow segment of car owners willing to subscribe to Galileo CAS based Mayday services. Taking about 1 per cent of the totality of cars in 2008 (could equal 10 - 20 per cent of luxury cars + innovation prone and safety prone segments) this segment would add significantly to early financial flows for cost recovery. Nevertheless this one per cent share is rather optimistic for the year 2008. It will highly depend upon the early availability of Galileo based services / systems. The upper limit to this segment remains at about 5 per cent for several reasons. In 2017 the innovation prone car drivers will have newer technologies available. There will always be a strong GPS / OAS-based mayday service - for free or at very low cost.

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Benefits for end users: ·= Cost savings for car drivers from reduced insurance premium due to avoided / reduced costs of healing, reduced degree of damage and reduced probability of long term consequences. Indirect benefits for industry and/or society (very high potential; not fully quantified): ·= Treatment cost. ·= Survival chance. This application can be marketed globally. Prima vista its benefits for industry (90 million EURO in 2008 / 538 million EURO in 2017) as well as its recoverable costs from end users via industry seem small. But this mayday box application alone contributes to about 28 % to total indirect benefits for industry as well as the recoverable costs - and this early from the beginning (2008).

Table 23 : Mayday box results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 180 180 90 187 1,075 1,075 538 1,144 2008 2017

Bus control system Many service providers for passenger transport services are facing increasing pressure to reduce cost while increasing level of service quality is expected. In order to maintain a basic service level a reduction of busses / trains will lead to a decrease in convenience for passengers - esp. through the necessity of shifting / the chance of missing a connecting means of transport. Public authorities cover in many cases a significant part of the deficit in public transport. Some of these public authorities could be committed to pilot usage of Galileo based VAS given the chance of maintaining a service level / convenience level and reducing the cost. From the status quo the cost savings for the totality of bus operators (not coaches) would amount to about EURO 35,000 per 1300 km of road based service net per year. The basic business idea of this VAS application does not require CAS. But in order to offer guaranteed switching services about half of these VAS will probably be based upon some enhancements (here assumed to be covered by Galileo CAS). The other half will be based upon OAS. The benefits for end users amount to 87 million EURO per year. Benefits are even higher if compared to a scenario with no public transportation service / not even basic service levels in certain geographic areas. Benefits for end users: ·= Cost savings (less busses) for public transport providers while maintaining a basic service level (especially in rural areas).

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·= No increase in costs while augmenting the service level (especially in rural areas). ·= Public authorities are expected to push such systems: - to increase market share of public traffic against individual traffic (commuter traffic); - to decrease rush hour traffic density for commuters. Indirect benefits for society: ·= Environment benefit by reduction of pollution. ·= Integration of areas with little public transport infrastructure. ·= Where public transport remains at a competitive / attractive level a reduction in individual car traffic might add to further indirect benefits (less traffic jams, less individual mileage). This application is expected to be marketed in European countries only. Prima vista its benefits for industry as well as its recoverable costs from end users via industry seem small. However it contributes to about 7 % to total indirect benefits for industry as well as the recoverable costs - and this early from the beginning (2008).

Table 24 : Bus control system results x 1,000,000 EURO 2000 Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2008 87 43 4 43 22 22 2017 87 43 22 43 22 22

Public transport route planning From the interviews with bus companies, it comes forward that improving route planning (and thus a more efficient way of using the bus fleet) these companies may save 10 busses out of 1100 (1.1%), as a consequence of using satellite based route planning systems. It means, according to the same source savings around 1.6 million EURO per year. Assuming that these figures are representative some 3.7 billion EURO will be the benefits for the end users in Europe in the year 2017, under the assumption that 50% will use route planning systems by year 2017. In consequence of the raised service level it is expected the ticket income increases with around 0.03 EURO as a direct consequence of improved service due to the use of positioning systems. Furthermore the positive effects of the satellite based traffic management systems and/or the ticketing systems must be added to the mentioned benefits. The summarised results are as follows:

Table 25 : Public transport route planning results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 157 2008 1,137 1,137 114 0 0 0 2017 3,708 3,708 1,854 0 7 11

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Breakdown assistance The main benefit of `breakdown assistance' will not be the fast repair of the vehicle, but the reduction of traffic jams by optimising incident management, because it will help a breakdown truck to find the exact place of the accident faster. In quiet areas the search time can be neglected, but in areas with high-density traffic and complicated traffic interchanges the average search time for a breakdown truck is about 15 minutes in 40% of the accidents. It is expected that with an increase over the years from 3% to 34% of the use of positioning in the breakdown assistance sector, an average of 226 traffic jams per day can be prevented in Europe. This leads to the following results:

Table 26 : Breakdown assistance results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 0.03 2008 0.2 0.2 0.0 21 30 2017 1 1 0.3 265 362

Benefits for end users are relatively small for this application. Furthermore, CAS does not bring any benefits about, because it is expected that it will not be used with this application.

Collision avoidance With 42,000 deaths on the European roads annually ­ which means total direct costs of 15 billion EURO ­ road safety has been placed very high on the political agenda the recent years. The potential savings both for individuals and society as a whole are considerable if the number of accidents and deaths could be decreased. Collision avoidance systems could help minimising these figures. However there are still some important technical uncertainties about collision avoidance, mostly because of difficulties in getting exact data to use in a warning system. For avoiding a collision data are required to be accurate and up-to-date, while the Galileo system is not expected to be able to deliver data with the needed timing and precision, according to the interviewed authorities. However, if we assume that it is possible to introduce a collision avoidance system the potential benefits are considerable. 5% less deadly casualties on European roads would result in benefits of 749 million EURO per year ­ only as a result of fewer expenses for hospitals, doctors, administration and damage repair/maintenance. Beside this, there are more indirect productivity gains due to the fact that traffic accidents is the most common reason for death of persons under the age of 40 year ­ the most productive period of most lives. The benefits per capita of 5% less death in traffic in Europe sums up to 2 EURO yper year ­ for all European citizens. This leads to following results:

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Table 27Collision avoidance results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 2008 2017 n.a. 16 45 0 0 0 0 16 45 4 11 23 62

Benefits for end users are about 16 million EURO in 2008 and 45 million EURO in 2017. CAS accounts for more or less all activities.

6.2.2 Maritime segment

Traditional navigation In maritime transport the use of DGPS has become more and more common and is adopted by the International Maritime Organisation (IMO) and encouraged by the International Association of Marine Aids to Navigation and Lighthouse Authorities (IALA). At this moment the DGPS shore-based facilities are covering almost all-European waters and the increase of facilities in the rest of the world is planned or already established. This means that at this moment satellite navigation already offers a lot of benefits for maritime transport: in open water it replaces the use of the sextant, near the coast DGPS offers a quick, easy and accurate positioning. Galileo could therefore be considered as a competitor and back up for (D)GPS. With a price of receiver in ships of 100 EURO and a 100% adoption rate of satellite navigation in vessels, this leads to the following results:

Table 28 : Traditional navigation results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 1 2 2 0.18 0.01 0.02 2 2 1 0.08 0.1 2008 2017

The table shows that the total dependency on satellite navigation is about 1 million EURO in 2000. Furthermore, benefits come forward from the replacement of GPS by Galileo. No benefits come forward from CAS, as current satellite navigation is already done by an OAS. Therefore, indirect benefits for society are also nil.

Facilitating Automatic Identification and data Management System (AIMS) At harbour entrances berthing and transhipment can be optimised by sending on line positioning information to the shore in order to get a more accurate assessment of the estimated time of arrival (ETA). The position can be send by the ships transponder, but also Galileo's small communication channel might be used for this application, a so called

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Automatic Identification and data Management System. It is assumed that the reduction of waiting time at harbours for each vessel is reduced by half an hour.

Table 29 : AIMS results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 35 35 4 0.003 0.003 114 114 57 0.041 0.1 2008 2017

Total dependency on satellite navigation in Europe in 2000 is nil, since the application is not in use at present. Furthermore, benefits for end users are about 35 million EURO in 2008 and 114 million EURO in 2017. These benefits come forward from OAS, of which Galileo takes about 4 million in 2008 and 57 million in 2017 for its account.

Facilitating AIMS for a one-man bridge In the future satellite navigation could provide more benefits to maritime transport. In nonrestricted waters (e.g. open sea) the improved reliability of Galileo might open the way to accept satellite navigation facilitating the Safety Of Life At Sea (SOLAS). In theory this could lead to a one-man-bridge. In restricted water (e.g. harbour entrances and approaches and other waters in which the freedom of manoeuvre is limited) the improved accuracy of Galileo might assist the bridge and/or pilot to navigate and manoeuvre. These benefits will only appear when the satellite signal facilitates new transponder like systems such as Automatic Identification and data Management System (AIMS). This could all lead to a reduction of staff on the bridge (and not, like often mentioned an improvement of safety or routing).

Table 30 : AIMS for a one man bridge results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 190 395 276 276 620 1,287 2008 2017

The total dependency on satellite navigation in 2000 is nil, as AIMS and a one-man-bridge are not in use at present. Benefits for end users are about 276 million in 2017. These benefits consist fully of CAS. It is expected that in 2008 the willingness to implement a oneman bridge will not be present. Therefore, benefits for end users are nil in 2008.

Facilitate AIMS for River Information Service A River Information Service (RIS) consists of three elements: ·= Traffic image on board: the radar-based tactical traffic image is completed with an Automatic Identification and Data Management System (AIMS) and Electronic Chart Display and Information System (ECDIS).

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·= Logistic information: AIMS technology provides real-time information on the whereabouts of all vessels equipped with a transponder. ·= Fairway Information Service: Information about the indicated routes. One of the elements of the AIMS is a GNSS-receiver, providing accurate navigation data. Therefore, focus will be on the benefits of this system. In Incarnation (1999), the benefits of AIMS for all vessels on the river Waal are estimated. These benefits come forward from : ·= Reduction of delays at locks. ·= Casualty reduction. ·= Reduction of traffic delays. It is expected that the benefits are applicable to total inland waterways in Europe. This leads to the following results:

Table 31 : AIMS for river information service results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 2 2 2 4 3 3 3 8 2008 2017

At present, satellite navigation is hardly applied in inland waterways. Therefore, total dependency in 2000 is nil. Benefits for end users are about 3 million EURO in 2017, which all come forward from CAS.

6.2.3 Aviation segment

Facilitate Automatic Dependence Surveillance Satellite navigation is a precondition for implementing Automatic Dependence Surveillance (ADS) and time synchronisation. Subsequently, ADS plus time synchronisation are preconditions for implementing (i) air traffic management and (ii) advanced movement guidance control. The benefit for end users of advanced movement guidance control is sufficient capacity when the weather is bad (in other words: a bad visibility). The benefit for end users of air traffic management is a reduction of `delay minutes'. The benefits of both these systems can account for a reduction of much inefficiency in air traffic today and for accommodating growth of air traffic in future. These are core elements of an action plan of EUROCONTROL (1999), which aims at a capacity improvement of the number of flights of about 100% in 2017 from now. It is expected that satellite navigation accounts for 5% of this improvement.

Table 32 : Automatic dependence surveillance results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 480 480 432 972 2008 2017

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It is assessed that full application of satellite navigation within aviation can only be realised from 2017 onwards. This means that the total dependency of satellite navigation in 2008 is nil. Furthermore, there are no benefits from satellite navigation in 2008. In 2017, the benefits for end users are about 480 million EURO, totally coming forward from CAS. Indirect benefits for society follow from a decrease of travelling time for passengers, due to a reduction of delays and amount up to 236 million EURO in 2017.

6.2.4 Rail segment

Rail positioning Interviews with user groups show that security control is the application, which seems most promising in rail (freight) transport. At present, a pilot in five European countries is set up for positioning with passive beacons along the rail track. This system is incorporated in a European specification: ERTMS (European Rail Traffic Management System). It is expected that this system will become the European standard of positioning in rail transport. Implementation of the system is expected to start in 2008 and should be finished at about 2020. The costs of these beacons are about EURO 11,000 per kilometre track. For the Netherlands, with about 4,000 km track, this results in a potential saving of EURO 44 million4, when satellite navigation is applied instead of this system. Generally, satellite navigation seems more interesting in sparsely populated areas. Therefore, on a European level satellite navigation seems more favourable for other European countries than the Netherlands, because: ·= There is more track in those countries, and therefore more beacons are needed. ·= There are relatively less trains in those countries, which means less costs for installation of satellite navigation systems on board of the trains. For continents like Africa and Asia satellite navigation would mean a great leap forward in safety. Furthermore, satellite navigation is `vandal-proof' and relatively simple to implement. This leads to the following results:

Table 33 : Rail positioning results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 2,567 2,567 2008 2017

It is expected that satellite navigation can only be applied for rail positioning from 2017 onwards. Therefore, total dependency in 2000 and benefits in 2008 are nil. The benefits for end users in 2017 are about 2.5 billion EURO, totally coming forward from CAS. OAS will not be used for rail positioning. The indirect benefits for industry are zero, as the benefits of producing the equipment for rail positioning equal the benefits when the alternative beacon system is applied and produced.

4

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Rail global management system Tracking and tracing is part of this global management system. Compared to other transport sectors, rail freight transport lags behind in the application of tracking and tracing systems. Generally, the functions of tracking and tracing can be divided into two categories: 1. Tracking and tracing of equipment. 2. Tracking and tracing of cargo. Each of these categories allows for improvements, like for example a better utilisation of existing capacity of equipment and information on the position of cargo. For tracking and tracing of equipment, it is expected that this results in a 20% efficiency gain. This leads to the following results:

Table 34 : Rail global management system results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 63 63 6 0.02 0.04 88 88 44 0.17 0.3 2008 2017

At present, satellite navigation is hardly applied for a rail global management system. Therefore, the dependency on satellite navigation in 2000 is nil. Benefits for end users in 2017 are 88 million EURO, which all come forward from OAS services.

Land surveying Authorities responsible for rail infrastructure maintenance may benefit from more precise and less costly land surveying. The employment of equipment and manpower would be more efficient when based on satellite based services and it is expected that productivity will increase by 5-10%, which is quite significant. As operation costs of a typical land surveying team is usually around 135 EURO on an hourly basis, in Denmark alone approximately 16,200 productive hours are used yearly for land surveying, which equals up to 1,080,000 productive hours used in Europe. This leads to the following results:

Table 35 : Land surveying results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 n.a. 2008 6 6 1 0 0 0 2017 9 9 5 0 2 2

Benefits for end users are about 6 million EURO in 2008 and 9 million EURO in 2017. Nearly all benefits are related to OAS.

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6.2.5 Non transport segment

Accuracy driven agriculture The use of satellite data would be beneficial to accuracy driven agriculture, which means that the use of manure, fertiliser and pesticide could be widely reduced. The agricultural machinery combined with the use of accurate satellite data will provide the exact amount of manure, fertiliser or pesticide onto a given field. According to the interviewed agricultural experts, the potential benefit originating from accuracy driven agriculture would account for about 33 EURO per hectare. The total agricultural area in Europe is 128.4 million hectare, and the interviewed experts expect that 25% of the total area will be accuracy driven within some years ­ latest by the year 2008 ­ although they notice that this estimate could be quite optimistic. This leads to the following results:

Table 36 : Agriculture results x 1,000,000 EURO Annual benefits of GPS satellite navigation for European end users Annual benefits of satellite navigation for European end users * consisting of OAS (Galileo & GPS) ** using Galileo OAS * consisting of Galileo CAS Increase in annual turnover of European industry (sales in Europe) Increase in annual turnover of European industry (sales world-wide including Europe) 2000 n.a. 2008 1,061 1,061 106 0 0 0 2017 2,122 2,122 1,061 0 8 11

The benefits are more than 2 billion EURO for 2017, of which 1 billion is solely the Galileo part.

6.3 Cost recovery

According the communication from the Commission, the total cost of the Galileo Programme, including a security and safety certification, is currently estimated to be between 2.2 and 2.95 billion EURO. Recurring costs are estimated to be between 140 million and 205 million EURO per year, beginning in 2008. This chapter shows how these figures relate to the assessed benefits and recoverable costs from this study.

6.3.1 Results on benefits for European end users

Next table sums up all benefits of satellite navigation for European end users for the years 2008 and 2017:

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Table 37 : Benefits for European end users x 1,000,000 EURO Satellite navigation 2008 road freight segment road passenger segment Fleet management Route guidance Mayday boxes for individual private cars Bus control system Public transport route planning Breakdown assistance Collision avoidance Traditional navigation Facilitating AIMS Facilitating AIMS for a oneman bridge Facilitating AIMS river information service Facilitating ADS Rail positioning Rail global management Rail land surveying Accuracy driven agriculture

4,086 8,829 180 87 1,137 0 16 2 35 0 2 0 0 63 6

Annual benefits Galileo OAS

Galileo CAS

2017

9,436 33,061 1,075 87 3,708 1 45 2 114 276 3 480 2,567 88 9

2008

405 874 0 4 114 0 0 0 4 0 0 0 0 6 1

2017

4,671 16,365 0 22 1,854 0 0 1 57 0 0 0 0 44 5

2008

41 88 180 43 0 0 16 0 0 0 2 0 0 0 0

2017

94 331 1,075 43 0 0 45 0 0 276 3 480 2,567 0 0

road society segment maritime segment

aviation segment rail segment

non-transport Total

1,061

15,504

2,122

53,074

106

1,514

1,061

24,080

0

370

0

4,914

The total annual benefits of satellite navigation are estimated at 15 billion EURO in 2008 increasing to 53 billion EURO in 2017. More than 90% percent of these benefits will be derived from open access services. This means that, in case Galileo will not be developed, European economy would depend on GPS services for at least 15 billion EURO per year in 2008 up to 53 million EURO in 2017. This might be a strategic political argument for the development of Galileo. In case Galileo is developed it will conquer a market share in the open access satellite navigation and dominate the market for controlled access services. Next figure shows the benefits of Galileo OAS and CAS in the different transport segments.

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Figure 19 : Benefits of Galileo

25000

20000

) benefits (x 1,000,000

15000

10000

Non-transport segment Rail segment Aviation segment Maritime segment Route segment

5000

0

OAS 2008

OAS 2017

CAS 2008

CAS 2017

The benefits are dominated by the road segment, especially the application route guidance. The market share of Galileo in the open access market will grow from 1.5 billion EURO to almost 25 billion EURO. The benefits from Galileo controlled access service increase from 370 million in 2008 to 5 billion in 2017. These benefits mainly come from the road and rail transport segment, although also maritime and aviation have their share. The benefits from Galileo-based applications highly exceed the initial and recurring costs. Even the value added service of Galileo CAS exceed the recurring costs from Galileo already from the start in 2008. This would mean that the development of Galileo would be an economical profitable case for European end users. But is it also profitable from a financial point of view?

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6.3.2 Results on recoverable costs

As mentioned in the approach the potential recoverable costs are equal to the increase of turnover by European industry from the sales of open access receivers and controlled access application equipment. Next figure shows this turnover from sales to European end users and world-wide.

Figure 20 : Turnover

9000 8000 7000

) Turnover (x 1,000,000

6000 5000 4000 3000 2000 1000 0

Europe 2008 Europe 2017 Worldwide 2008 Worldwide 2017

Non-transport segment Rail segment Aviation segment Maritime segment Route segment

The annual turnover in Europe increases from around 500 million EURO in 2008 to 2.6 billion EURO in 2017. World-wide the turnover increases from 1.5 billion EURO to 7.6 billion EURO5. The turnover on world-wide sales is about three times as high as the turnover in Europe. This is a result of the fact that the magnitude of the users group per transport segment is much bigger, but the assumptions on market share in the open access service are quite conservative related to the market share in Europe. Naturally, only a fraction of this turnover will actually flow to the investors in Galileo via kind of a general levy on receivers, equipment and services. Besides that costs might be recovered via tax on the sales of Galileo products and services. At this moment it is unclear how and how much of this turnover can flow back to the investors for Galileo. When we assume that 1% of the turnover can flow back (by a general levy on receivers and equipment) to the Galileo investors, the recoverable costs from world-wide sales amount 15 million EURO per year in 2008 to 76 million EURO per year in 2017. Recoverable costs from sales to European end users amount 5 million EURO per year in 2008 to 26 million EURO per year in 2017.

5

The remark must be made that for 2017 a turnover from the world-wide sale of Galileo-products in the rail segment is assessed at 187 million EURO/year, but since this turnover is a replacement of the turnover on the sales of passive beacons along rail tracks, this is not calculated as additional turnover for European industry. 27/02/01

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Tax income to the government from world-wide sales would increase from 265 million EURO per year in 2008 to 1,323 million EURO per year in 2017. Tax income to the government from sales to European end users would increase from 88 million EURO per year in 2008 to 453 million EURO per year in 2017. Compared to the expected annual operational costs of Galileo around 200 million EURO per year, this would mean that a (over the years increasing) part of these recurring costs can be recovered via kind of a general levy. The tax income to the government would be more than sufficient to recover the rest. Full recovery of operational costs would request a levy of 13% in 2008 decreasing to 3% in 2017. The height of the levy on Galileo receiver, application equipment and services will depend very strongly on users willingness to pay for Galileo. Next paragraph describes factors that will influence the willingness to pay over time.

6.4 Willingness to pay

6.5 Sensitivity analysis on results

As stated before the results strongly depend on basic assumptions. This chapter shows the influence of changes in assumptions and variables on the resulting benefits and recoverable costs. This sensitivity analysis is carried out for 3 reasons: We have defined three scenarios on the global diffusion of Galileo based services (calculation of the consequences of different sets of pessimistic / optimistic adoption rates for all different applications / independent market segments with different diffusion mechanisms). Identification of driving forces behind the computed results: due to the long-term character of the forecast slight variations in input data estimates could change outcome significantly (calculation of impact from numerical variation in input data) Willingness to pay is not derived from stated behavioural intentions to pay / to buy but is defined as a share of the benefits / cost savings for end users. The partition of these benefits between VAS service providers and end users will be determined in bargaining and market processes. Therefore 3 levels of the willingness to pay have been entered into the sensitivity analysis (see paragraph 6.3). In the sensitivity analysis no scenario on different economic developments in various parts of the world has been entered. We did take into consideration differences in the future growth rates for cars, trucks etc in different parts of the world, but did not regard differences in economic activity etc.

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6.5.1 Approach

The sensitivity analysis followed a 6 step approach: 1. Harmonisation of the medium scenario across all identified applications. 2. Development of pessimistic and optimistic scenarios (main input variables only). 3. Internal validation and communication of early draft results across all partners. 4. Calculation of impact values for input variables. 5. Description and interpretation of results. 6. Validation / comparison of results to estimates on SatNav VAS in other publications.

1. Harmonisation of the medium scenario across all identified applications Estimates of European industry's market shares have been different for freight, passenger and public authorities segments due to the bottom up approach (interviews with industry experts). For purposes of the sensitivity analysis these had to be harmonised. 2: Development of pessimistic and optimistic scenarios (main input variables only) Adoption of Galileo does neither follow a random path in totally independent market segments nor will it be the same in 16 segments / applications. Therefore 4 market types have been defined with different sets of optimistic and pessimistic scenarios for adoption rates. Adoption rates for the medium scenario were taken from the bottom up calculations in the annex 2 of the deliverable 3. The four market types are: Small to medium private industries in road freight. Small to medium private industries in maritime freight. High security applications. Mass-market. 4: Calculation of impact values for input variables The scenarios follow a technology diffusion / adoption logic. For some input variables (especially growth rates in cars, trucks in different geographic regions) no comparable logic was available. In order to avoid a "general numerical variation exercise" the mere numerical variation in input variables was completely separated from the computation and analysis of the 3 scenarios. We computed consequences of a 10 per cent variation in growth rates etc upon the main output variables Benefits for end users. Benefits for industry. 6: Validation / comparison of results to estimates on SatNav VAS in other publications The study team tried to work out comparisons to estimates on SatNav VAS in : GNSS-2 Comparative System Studies, Phase 1 (Issue 4 Revision A, Jan 19th 1999) Technical Note 1, Macroeconomic Business Case.

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VAST Deliverable D2 "Report on future market of commercial applications of GNSS" (draft version October 29th 1999).

6.5.2 Limitations

The sensitivity analysis did not take into account: Economic development scenarios (e. g. boom in economic activity in Africa by 2010). Interactions between input variables (e. g. faster growth rates leading to potentially faster substitution rates enhancing adoption rates for Galileo ...). System dynamics effects (feedback loops from output variables to input variables). Alternative measures to increase efficiency in transport processes (e. g. harmonisation in European air control; legal steps to reduce traffic jams / individual mobility). Basic assumption was a basic transport infrastructure comparable to today.

6.5.3 Results of three scenarios

The results on sensitivity analysis are as follows:

Table 38 : Sensitivity analysis results Summary Sheet from Sensitivity Analysis (x 1,000,000 EURO) Pessimistic Medium Scenario optimistic Scenario Scenario 2008 2017 2008 2017 2008 2017 12,458.0 41,724.6 15,504.3 53,073.2 23,615.8 79,723.7 12,238.3 39,463.3 15,133.4 48,159.1 22,952.5 73,421.8 1,223.8 19,731.7 1,513.3 24,079.6 2,295.2 36,710.9 219.8 2,261.2 370.9 4,914.1 663.3 6,301.9 235.3 162.2 931.8 859,4 3,886.1

Total of variables (all applications) Benefits for end users Consisting of OAS Using Galileo Consisting of CAS Turnover industry from sales to European end users

Taking the medium scenario for orientation purposes the results of the sensitivity analysis show for the totality of identified and quantified applications: A benefit for end users from SatNav VAS of 15.5 billion EURO/year in 2008. Already in 2008 the CAS segment will amount to 370 million EURO per year. Benefits for end users derived from Galileo will increase in 2017 to a level of 24 billion EURO (OAS) and 4.9 billion EURO (CAS). The realisation of Galileo will stimulate European industry through benefits for industry with 162 million EURO per year in 2008 and almost one billion EURO per year in 2017. Even under a pessimistic scenario (slow adoption rates, late start of operational Galileo services, low market shares for European industry, low willingness-to-pay) the benefits for end users from Galileo OAS and CAS will amount to 22 billion EURO per year in 2017.

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Under an optimistic scenario (market pull, higher adoption rates, higher willingness - to - pay) Galileo will stimulate European industry through benefits with almost 860 million EURO per year in 2008 and 3.9 billion EURO per year in 2017. Benefits for end users will generally be influenced to a much lesser degree by the scenarios than benefits for industry. This is due to the willingness-to-pay and market strength of European industry influencing only the benefits for industry. Concerning the individual outcome-"drivers" - a 10% variation in: growth of trucks in Europe per year and / or; growth of local vans in Europe. has the strongest impact upon the benefits for end users. Other impacts for each individual input variable can be taken from the deliverable 3 annex 5.

Table 39 : impacts Down from medium scenario Total of variables (all applications) Benefits for end users Consisting of OAS Using Galileo Consisting of CAS Benefits for industry 2008 20% 19% 19% 41% 100% 2017 21% 18% 18% 54% 75% 2008 52% 52% 52% 79% 430% 2017 50% 52% 52% 28% 317% Up from medium scenario

To summarise the results there is more upward potential for Galileo - as long as The service will be operational in time and. European industry will start building market shares in commercialising SatNav VAS from early on. Even industry experts had not yet reflected on the willingness to pay and contingencies for their behavioural intention to use or switch to Galileo or SatNav VAS. Information and communication to those segments will be a necessary step before bargaining on PPP. It cannot be taken for granted, that some of the core user groups / beneficiaries of Galileo are already familiar / aware of their benefits. The computations for benefits for industry are rather a test for plausibility than a behavioural intention of beneficiaries to actually pay for the system in 2008.

6.5.4 Comparison of results to estimates on SatNav VAS in other publications

The study partners tried to work out comparisons to estimates on SatNav VAS in GNSS-2 Comparative System Studies and VAST Deliverable D2 "Report on future market of commercial applications of GNSS". Results (estimates) in those studies are different in many aspects. Finally the study team thinks a judgmental comparison of these documents is not feasible for the following reasons: Different geographic regions (esp. Deliverable D2) computes results for Europe defined as the existing EC in 1999. Growth in the transport sector will be

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significantly different in the remaining parts of Europe and in North America. Variations in growth rates for vans and trucks have a strong impact on the outcome. Different outcome variables: other studies refer to users, sales and potential adopters. Within this document outcome variables are: benefits for end users and indirect benefits for industry. Different definition of SatNav VAS: GPS, EGNOS, GNSS-2, CAS or OAS.

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7. PUBLIC PRIVATE PARTNERSHIP MODELS

Our research highlighted 3 likely PPP models which have been matched with payment structures, risk factors and financing mechanisms. Deliverable D4 "Report on Public Private Partnership models" provides more detail on PPP issues and solutions and gives detail on generic PPP models and risk factors.

7.1 Approach

Public Private Partnership (PPP) is considered as the main organizational principle for the design, building, operation and finance of Galileo. The PPP concept shall ensure private interest, developing and financing of the Galileo system and shall use the public sector to achieve value for money through optimal private sector innovation, efficiencies, management and risk sharing. The work package 4 has followed the methodologically logic of the complete VAST project and the rationale of the PPP approach, which is elaborated in the first part of the Deliverable D4. The basic elements of the PPP approach include at least the following three issues:

Figure 21 : Key issues of PPP

Public

Public/Private

Private

To pay

To take risks

To finance

The figure illustrates that in a continuum from public-shared-private partnership the key questions is to answer, which parties will pay for the services, which parties will the take the project risks and which parties will finance the project.

Payment First of all PPP is about the payment of services. Who will pay, how much, when and by which means? Therefore, the future satellite application and market development have been evaluated. The results from work package 1 on the present, emerging and latent value added service development have been scanned and related to the feasible PPP models.

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Also the future market size and market penetration rate have been included in the analysis to justify and test the feasibility of the different PPP-models. The potential market penetration in year 2010 and 2020 has been estimated to determine revenues from equipment sales and value added services. Finally the benefits for users and the recoverable costs have been used to further qualify the specific PPP-models. Risks The allocation, management and control of risk factors are some of the key issues, which needs to be taken into consideration if a successful PPP shall be established. In the work package 4, a wide number of risk factors have been evaluated : Technical, organisational, political, regulatory, market, financial, legal and administrative risks. The list of risk factors is by no means complete, but indicate some of those that is perceived to be important. The risk factors have been analysed regarding their relevance for Galileo and the party (private, public, shared) with the key competence to either take, manage or control the risk factor as been assessed.

Financing mechanism The financing requirements of the PPP-models varies along the four different phases (definition, design, build, operation) of the European satellite project. Public and private partners will probably have different roles during each of the four phases, which subsequently means that also the financial contribution from the public and private parties will change considerable during the lifetime of the project. The financing mechanism and possible role and contribution from the public and private parties has, therefore, been analysed regarding their feasibility towards the identified PPP-models.

PPP-schemes To provide knowledge about the strengths and weaknesses of different PPP-schemes different generic PPP-models for the organisation, finance and management of infrastructure projects have been studied. The two most relevant (concession and joint venture) have been analysed more into detail regarding their respective advantages, disadvantages, organisational features etc.. Also the key institutions (vehicle company and promotor) have been described to provide a basis for the subsequent matching of the PPP-models with the other variables. Finally a set of principles for risk allocation in the concession model has been presented and these principles have been pointed out for the key actors : Principal, Promotor, lenders, equity investors, operators, constructors and suppliers. Matching of payments, risks and financing mechanisms Three likely PPP-models are matched towards the identified potential payment structures, risk factors and financing mechanisms. To establish an appropriate context the current aims and objectives of Galileo are first outlines. Based on this the three most likely PPP-models have been constructed (100% private concession model, shared concession between public

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and private parties, shared joint venture). This matching exercise is broken down into the definition, design, building and operation phase and leads to the proposal of feasible roles of the public and private parties involvement in partnerships throughout the lifetime of the project.

7.2 Likely Public Private Partnership model

7.2.1 Preliminary remarks

While certain functions in the Galileo programme phases are clearly suited to be a public responsibility (like policy and regulations issues) or private responsibility (like contributions and management of private resources and technologies) certain functions and tasks may be the responsibility of both public and private sector. These Public Private Partnerships arrangements can be very attractive as they can have significant impact on public costs (by permitting cost sharing with the private sector), on incentives to private enterprise (by dividing and mitigating risks associated with certain activities), and on the quality of services provided (as a result of market responsiveness). They can also increase the development of new products and services for the upcoming Galileo market. This chapter present the discussion of applicability of different Public Private Partnership models for the Galileo programme matched against the results of the work carried out in work packages 1 to 3 as well as the risk factors and potential financing sources identified in this work package. Three dimensions will define the framework for the matching discussion of PPP in this chapter. PPP matching with the identified: ·= Payments: From applications (WP1), potential markets (WP2) and revenues (WP3) ·= Risks: Technical, organisational, administrative, legal etc. financial, market, political, regulatory,

·= Financing mechanisms: Public, private, shared etc. The matching process will be the following: First the potential financing sources will be evaluated through a revision of the Communications from EC on Galileo and related documents, which outline the current set of aims, objectives and financial mechanisms that have been proposed (Deliverable D4, chapter 5.1). Secondly, three PPP models, which seem to suite these overall requirements of Galileo, will be presented in general form and their respective strengths and weaknesses will be discussed (Deliverable D4, chapter 5.2). The private sector will be segmented regarding their potential financing interest (Deliverable D4, chapter 5.3). Thirdly, the attributes of the three PPP models will be matched in schematic form with the potential payments, risks and financing mechanisms. Finally, the matching of the attributes with the Galileo requirements will be discussed.

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7.2.2 Aims and objectives of Galileo

Following the Commission's Communication of 10 February 1999 on Galileo ­ involving Europe in the next generation of global satellite navigation services,' Commissioner Kinnock set up a task force with the objective of examining how a public private partnership (PPP) could be developed in order to enable the implementation of the plan to establish Galileo.

Financing mechanism The Commission Communication on Galileo proposed a four point financing strategy6: Substantial financing on European level through the EU budget (notably TENs and R&D) and through ESA, Additional funds through involvement of other EU member states' agencies or institutions, Mobilisation of additional finance or achievement of savings through international co-operation with Third Countries such as Russia, Canada or Japan, Complementary finance by developing a public private partnership. As far as EU funding is concerned, it was suggested that the transport TENs budget and the Community's R&D Framework Programmes could be used to provide some 620 million Euro up to 2006. This was to be complemented by ESA funding of around 500 million Euros. As to the participation of other EU bodies or the possibilities of international co-operation, the Communication only pointed to the potential without giving precise figures. Similarly, the Communication identified the potential of PPP without developing it extensively. The Communication, however, already clearly pointed to the need to establish revenue streams, some of which were likely to require regulatory action and firm political decisions, to give industry the confidence to invest and support the development of a successful PPP. The Galileo communication identifies the project cost between 4300-6000 million Euro (corresponding to an investment cost between 2200-3000 million Euro plus the costs associated to 15 years of operation). This would include a minimum private investment of some 700 million Euro. An additional annual operational cost of 140-200 million Euro would have to be recovered through revenue streams. First calculations indicate that an annual "secure" revenue stream of at least 300 million Euro needs to be generated in order to finance private investment and operation of the system. Four possible revenue streams have been discussed: General levy on receivers, which could generate a secure revenue stream from the mass market Controlled access service for commercial application (Canal+ model) Controlled access service for safe/security critical applications also based on direct payment Combination of the positioning/navigation signal with an integrated communication function

6

EU, DGVII : Chairmans report on the Task Force on Public Private Partnership : For the European Contribution into a New Generation of Satellite Navigation Services. Brussels, 31. May. 1999. 27/02/01

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The Communication raise concern about a number of risk factors, which to some degree are very similar to the ones described in details in the deliverable D4: Political, institutional, market, third party liability, financial technical and schedule risks. Organisation & PPP The project is conceived to go through four distinct phases that might overlap in actual calendar time. Definition phase in which the feasibility study is completed, the infrastructure is detailed, the regulatory and commercial environment is defined and the private partners are taken on board. Design/Development phase in which the infrastructure is developed and validated. Private finance is put in place and a Special Purpose Vehicle company (SPV) set up. This should be a single, legal, organisational entity, established between the public and private parties, with the duties and responsibilities of the project "owner". Deployment phase in which the complete system is put in place and the operations worked up. Operation phase in which the services are offered and the system is maintained and developed The timing and execution of these phases is illustrated in the following temporary organisation diagram for the Galileo project7:

Figure 22 : Proposed PPP project plan

1999

JUN Decision to implement GALILEO

2000

DEC

2001

JUN

2002

2003

2004

2005

2006

2007

2008

2009

Definition Phase

Test and Validation Phase

Deployment Phase

Start of Operations

Strategic Decisions: E.U. institutional framework

PROGRAMME DEVELOPMENT BOARD Commission, ESA, National Agencies (with responsibility for pooled financial resources)

GALILEO Administration

Technical task force

Integration with Augmentation (GNSS1...) Ground/Space Segments Applications

VEHICLE COMPANY (DBOT)

7

Thomas Barrett, ibid. 27/02/01

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Currently, the project is in the definition phase jointly managed by EC and ESA through a distinct Programme Management Board. It is planned that the organisation should transform into next phase (design/development) by the end of the year, which is illustrated in the below figure showing the key institutional building surrounding the PPP organisation the coming year.

Figure 23 : Galileo PPP institutional building

Definition phase

Galileo Steering Committee

Subsequent phases

2001

Galileo Steering Committee

Users' Platform

including: EUROCON TROL, EUMATOMA, ERTMS users group, ERTICO

Programme Management Board (PMB) Executive Programme Secretariat (EPS)

Galileo Administration

Promoter s, EOIG, potential investors

EC Funds

EC Project Office

ESA Project Office

ESA Funds

EC Funds ESA Funds

Galileo Vehicle Company

Private Funds

EC Contracts

ESA Contracts

Vehicle Company Contracts to industry

What is not covered in the Communications so far is how the PPP will develop in the following phases (after definition). However, the above institutional building should, by the end of the year, lead to the establishment of a Galileo Vehicle Company. What kind of contracts, risk allocation, revenues streams and financing model will be chosen are still open questions. Therefore, the following chapter will present three generic PPP models, which could be of inspiration to the up-coming decisions, which are to be taken regarding the next steps of the Galileo PPP.

7.2.3 Three likely PPP model for Galileo

Three likely PPP-models are presented in this chapter mainly based on the examinations of general PPP schemes and the above mentioned requirements and objectives of Galileo. Based on the findings three likely PPP-models are elaborated. However, it must be emphasised that PPP concerns the whole spectrum between public and private finance and that PPP-models are rather the outcome of negotiations and detailed evaluations of the technical, organisational, economical state and risks of the concrete project than the input to the project. The danger of describing models to detailed, strict and precise now is that you exclude other financial, organisational or economic feasible possibilities ­ or actors (public/private) - which might become expedient at a later stage. Therefore, the three described PPP models have

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been kept in a rather general form that could be viewed as the possible extremes of the PPP spectrum relevant for Galileo, and which, therefore, could be very helpful in the following definition process. The three PPP models described more detailed have been chosen as a consequence of the general evaluation of PPP schemes from Deliverable D4 and the more specific organisational requirements for Galileo. As mentioned the models must be considered as extreme generic models, which more specific division of responsibilities, risks, revenues etc. only can be discussed, when the actors, investors and private organisations involved have been revealed on the basis of their concrete offers and expression of interests. The three models are: 100 % private investment in the concession model (private concession) Shared investment by private consortium and public authorities in the concession model (shared concession). Shared investment by private consortium and public authorities in a joint venture. In the following sections these three models are presented, and their generic features related to the Galileo project organisation.

100 % private investment in the concession model

In this model the Principal (public authorities) grants a concession to a private consortium through tender to design, build, finance and operate the Galileo system. All investments are taken care of by the private sector. At the end of the concession period the private consortium will or will not transfer the facility to the Principal, depending on the agreements that have been made. The private consortium will need to have a steady cash flow over the concession period coming from several sources such as from the sell of appliances or any other forms such as include levies or shadow tolls. Chapter 5 and 6 of this report show that the forecasted revenues especially the first years are very low. By no means they will be sufficient to generate enough cash flow to the private consortium to pay its debt service and make a reasonable return on equity. This implies that the Galileo project cannot be carried out solely through the private sector. Even though investments can still be funded fully privately, public payments (or the enforcement of a levy) Galileo Steering are needed to generate cash flow.

Committee

The other important conclusion that can be drawn from chapter 5 and 6 is that the benefits for European society from the Galileo system are expected to be very large. This might justify Galileo an annual public payment to the Galileo Vehicle Company during the operation phase.

Figure 24 : PPP model 1

Administration

private

100 % Private funding

Galileo Vehicle Company 100 % private

public

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In this 100% private sector, investment concession model, the tasks, responsibilities and risks are clearly divided between public authorities and the private consortium. This is a clear advantage because the chance of arguments, re-negotiations and thereby associated coordination and transaction costs for all parties, decreases.

Shared investment by private consortium and public authorities (concession)

A second PPP model would be to share investments between the private consortium and the public authorities. The Galileo Vehicle Company would then have two shareholders: The private consortium and the public authorities. Either one of both would probably like to have at least a substantial part of the shares, e.g. 40% of 50% to assure its control. To the public authorities a shared investment would give control to a larger degree than the 100% private investment option. The private consortium might prefer this model to the previous because it would imply more commitment from the public authorities to the well-being of the Vehicle Company. On the other hand, private parties might be averse to the public interference into the Vehicle Company, afraid of someone else looking into the kitchen.

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Figure 25 : PPP model 2

Galileo Steering Committee

Galileo Administration

50 % Private funding

Galileo Vehicle Company 50/50 private/public

50 % public funding

Galileo contracts to industry

A possible complication of this model is that the relationship between the Principal and Concessionaire might become a little opaque. The public authorities are represented both as a Principal and as a concessionaire where all possible interest interweaves and contrasts as a result. As such, this model might also create new organisational and coordination risks rather than reduce it.

Shared investment in a joint venture

The above described models are concession models in which the Principal (Programme Development Board/Galileo Administration) has a very clear contractual agreement to the Concessionaire on the dividing of tasks, responsibilities and risks. As demonstrated in chapter 3 on the theory of PPP-models, in a Galileo Joint Venture public and private parties share the responsibility and risks, usually in proportion to their share. Like in the above described model both public and private parties invest in a separate Vehicle Company. The main difference with the Concession model is that most of the risks are not allocated beforehand in a Concession contract but are taken jointly. This creates uncertainty to both public and private parties and therefore, generally, parties prefer the concession model to the joint venture model. However, in some projects it is simply not possible to divide the risks beforehand because nobody can oversee them. In case the majority of the risks cannot be assessed beforehand a joint venture should be considered.

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7.2.4 The participation of private sector

So far, the participation of the private sector has been taken for granted in all three PPP models. Which private parties actually have a dedicated interest to participate as investor and/or risk taker has not been analysed. Principally the private sector, seen as an industrial/commercial sector, can be divided into:

·= Manufacturers ·= System integrators ·= Service providers

The following figure tries to describe a possible understanding of the private satellite market segmentation. Currently manufacturers have been the first to express a clear interest in the project. Specifically, the operators and manufacturers belonging to this group have interests strongly connected to infrastructure construction and some are presently also involved in the Task Force on public private partnership.

Figure 26 : Potential private industry sector investor segmentation

launch services

components software launchers equipment

space segment

satellite equipment transmission technologies

ground segment

ground infrastructure ground segment equipment

service provision

signal distribution free-of-charge services integration services

applications

revenue generating services

MANUFACTURERS SYSTEM INTEGRATORS SERVICE PROVIDERS

Generally, enterprises in the space segment are unable to determine the future market structure of the rather long time horizon of the Galileo project, though companies are aware that value is turning from network and equipment to services. The different sustain given to GALILEO unveil a struggle between operators that consider this project as a strong business opportunity to better their relative positions and operators that do not want to lose their authority in driving the market development. Therefore, the companies do not have the same vision with regard to the sector's future and thus pursue different market objectives and plan development paths, which do not

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completely coincide. The picture produced is of a rather dynamic market, open to different possible developments, in which it is difficult to predict the strategies that companies will adopt. It seems, therefore, quite clear that there is an interest from satellite manufacturers. These companies are mainly interested in designing, building, launching and financing Galileo and also capable of doing so. However, the running and promoting of the Galileo System is not one of their core competences and it is feared that once the system is up and right, the interest of these companies might deteriorate. For this reason, it is considered important to include companies in the PPP that have interest in the operations. However, from several meetings it has appeared that these companies, Service Providers or other downstream actors such as application equipment manufacturers, are not so much interested in up front investments. One reason for this can be that they simply do not have the means. If they are going to invest now they will have to wait eight years before they can expect a return, which is too long. Generally spoken, these companies are not of the size that is capable of doing substantial investments. Second reason is probably that it is not their core business to make strategic investments in infrastructure necessary for their services or application equipment. A third reason might be that there's no guarantee that up front investments will give them a lead in the competition with other downstream actors. It would, therefore, be beneficial to all parties (public authorities, satellite manufacturers and service providers and other downstream actors) if service providers and other downstream actors could join the PPP at a later stadium. This implies that the PPP-structure must be flexible. One of the possibilities to achieve this is perhaps to sell shares of the Galileo Vehicle Company to service providers in the operational phase.

Summary of PPP models

Although three different Public Private Partnership models have been presented basically they can be categorized into two main organisational types: Joint Venture and Concession PPP. The main difference between these two types lies in an allocation of risk and in the type of financing agreements between the public and private sectors. In the Joint Venture type of Public Private Partnership the risks (and the profits) are shared in the proportion to the relative investments of the public and private sectors in the project. A pure Concession Public Private Partnership model implies a clear division of risk allocation and financing only by private means. The following table summarizes the main characteristics and differences between these two Joint Venture and Concession types of PPP arrangements:

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Table 40 : PPP model ­ characteristics and differences

PPP model Characteristics

Joint venture

Investments are shared between the public and private sector in various financial packages

·=

Concession

Investments are undertaken up to 100% by private sector through concession agreement with the public Government

·=

Advantages

·=

All parties involved are equally concerned with achieving the objectives established for the project, i.e. to optimise all elements of costs, benefits and risks ­ and that the expertise of both sectors can be used in the whole life cycle of the project Suites best projects where risks are difficult to assess and foresee No clear allocation of risks and responsibilities, which means that unforeseen risks can lead to a situation where the company not will be able to repay debts to lenders etc Potential restriction of competition, when public sector enters into an alliance with a private consortium

Gives a better allocation of risk and less friction between public and private parties, if risks can be clearly identified from the beginning Public and private parties can ex-ante divide the identified risks by contractual arrangements regarding responsibility for risks factors like: technical, financial, liability, demand, performance, completion, delay, pricing, market etc. Not very suitable for projects where risks and contractual responsibilities are impossible to identify and divide ex-ante

·=

·=

·=

Disadvantages

·=

Generally, the Concession model is perceived as the most proven and the most preferred as it provides a better allocation of risk from the organisational and management perspectives with more clear focus on objectives and significantly less cultural friction between the private and public sectors. Therefore, the Joint Venture type of PPP arrangements is generally applicable only in situations, where it is difficult or simply impossible to identify the risk, and when consequently these unknown risk factors must be shared between the involved parties (like in scientific, research or explorative operations). Generally, this does not seem to be the case for the Galileo programme. As discussed previously, the main risks (technological requirements, market potential, political framework and legal and regulatory issues) are to a great extent controllable, i.e. can be identified and allocated. Concession type of PPP, where concession for the establishment of a Galileo Vehicle Company, is granted to a private company seems therefore to be the preferred overall partnership model for the Galileo programme. However, the possibility of the formation of a Joint Venture company should still be open, especially, in the early phase of the Galileo programme life-time, where perceived risks will be extremely high and to some extent unknown, and therefore could be shared by both parties.

7.2.5 Matching of PPP models with payments, risks & finance

The following paragraph match the identified risks, possible payments and investments within the concession and joint venture type of PPP-arrangements.

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Financial mechanism

Due to the long time schedule and high level of required investments during the Galileo life cycle and high apparent value of money to a private investor risking funds - the associated risk will generally be perceived as very significant by the private investors. The associated risk during the Galileo programme life cycle will, generally, be perceived as very significant by the private investors. This despite the fact that most of the previously identified risk factors in the test and validation, deployment and operational phases of Galileo-programme can clearly be allocated either to the public or private sector. Allocation of risk factors to the public sector does not necessarily mean that they will not be taken into consideration by the private sector and still perceived as very significant ones. Primarily, this is due to the long time schedule, high level of required investments and high apparent value of money to a private investor risking funds. Generally, significant financial commitment by the public sector will, therefore, still be required to reduce these uncertainties. The reason for the rather low contribution from the private actors in the first phases are that the potential market revenue and therefore the potential revenue collection and contribution possibilities are the most uncertain factors to Galileo. It can be argued that many of the (OAS) applications and services identified in work package 1 represent significant potential revenue possibilities and controllable risks and should, therefore, be "natural" for the private sector investment and financing, but still the timing and size of these revenues are very unsure. Also the potential number of users and the size of the market identified in work package 2 could indicate that the investments in Galileo can be attractive for the investors with medium to long-term investment horizon (institutional investors, pension funds etc.). However, the results of willingness to pay assessment carried out in work package 3 are very uncertain and cannot be precisely quantified. Also, many applications and services (mainly CAS type) appear to have limited market and thus revenue opportunities - other than fees paid through tax resources by public agencies or service levy - and may carry significant technical risks. The financing of these packages will probably be best carried out by the public sector. It seems, therefore, that the pure Concession model (i.e. 100% private investment) is not totally applicable for the Galileo programme. The identified risks and their allocation throughout the Galileo programme lifetime (to public, private or private and to public sector, as discussed in details in chapter 4.6 of the Deliverable D4) play a key role in determining what type of partnership and financing scheme is most appropriate and effective for which phase. Generally, the private sector will face (or perceive) a substantial risk in each phase of the Galileo programme with many of the identified risk factors beyond control of the private sector. Therefore, the public sector will need to mitigate these risk factors by substantial financial involvement in all phases of the Galileo programme ­ as discussed in the following. The definition phase of the Galileo programme is currently an ongoing process initiated and financed by the public budgetary funds. An establishment of a public special purpose company (or other dedicated organisational unit) to prepare the project for tendering can be

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evaluated in this early phase. This could address some of the private sector concerns about continuity and integration between the definition and the following phases The later phases of the programme, where the concession will be granted to private Vehicle Company (promoter) can, theoretically, be based on the significantly higher involvement of private investors. Currently, this assumption is being verified by inviting the private companies/legal entities to express their interest in establishing Public Private Partnership and following process of evaluation of incoming proposals and short listing of 2-3 promoters with best business models. The analysis conducted during the earlier stages of this project (work packages two and three) points clearly that the public sector must be highly involved and fully committed to financing of "start-up" test and validation phase for Galileo-programme. The demand and revenue risks and/or uncertainties are perceived as very high here. This seems to be valid for all the identified segments and applications - especially within the mass-market sector (road and non-transport segments) - characterised by high price-elasticity and direct competition from the current free of charge GPS system (or its next generation). The professional market (aviation, maritime and rail sectors) seems to be much less costdependent, but on the other hand the technical requirements and technological risks are higher. In addition, the conducted analysis has primarily focused on the European market leaving the potential global market out of the assessment scope. Therefore, results of market size assessment are quite uncertain and the potential market seems difficult to be precisely quantified. Availability of frequencies is another high importance risk factor affecting the whole Galileoprogramme and, therefore, concerning the private companies. Availability of frequencies are the prerequisite for the operation of Galileo and the sufficient spectrum range is a precondition for implementing CAS type of applications. Involvement by the public sector at this stage should be relatively large to mitigate the existing risks and thus to increase the penetration of private enterprise. In the following deployment and implementation phase the private investments will constitute a relatively higher part of the total investments but the public funds are also highly required here. The technical risk associated with the deployment of satellite systems and its financial consequences (direct construction cost, lost revenues etc.) is the main reason, why a combination of public and private investments and actions together is necessary to support private involvement in this phase. First in the operational phase of the programme, where service provider(s) will run and promote the established Galileo infrastructure and other private downstream actors (like equipment manufacturers) will actively enter the market scene, the public financial involvement could, theoretically, be much smaller. However, due to the previously mentioned market uncertainties and revenue potential, the public sector should also be strongly financially committed in this phase and, as concluded in paragraph 7.2.3, actively support the downstream actors to join the market. The public sector should probably not act here as a direct investor but rather as a provider of guaranties or other financial measures minimising the market risk.

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It seems that although Public Private Partnership arrangements can be used to reduce overall cost for Galileo programme, substantial public investments will be required throughout the programme lifetime. As illustrated in the following figure, the relative level of necessary public financial involvement will change in different phases of Galileo programme (as the result of changing risks) - from the very significant one in the early stages of the programme to more moderate, or potentially very low in operational phase.

High

Operation

Revenue opportunities and contribution

Deployment Test and validation

ing f as n o r cre tio to In ribu e sec nt at co priv the

Private Definition Partnerships Public

Low Low High

Risk factors

Figure 27 : PPP arrangements

Up till now the financing mechanism for Galileo has been regarded like a linear mechanism, which to some degree covers the fact that the public and private partners will have different roles during each of the four phases, which subsequently means that also the financial contribution from the public and private actors will change considerable during the lifetime of the project. One indication of this likely development has been elaborated by the European Investment Bank (EIB). The EIB present a scenario for the financial mechanisms, where the main funds for Galileo definition and design phases occurs from the public side (EU, ESA, EU Member States, EIB), while the private investors (Commercial banks, capital markets, EIF etc.) enters the finance ­ and risk sharing ­ in the building and operation phases. This is illustrated in the following table:

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Table 41 : Financial options for the four phases

PHASE 1 BUDGETARY FUNDS ADVANCE PAYMENTS EQUITY REVENUE / LOAN GUANTEES (FULL / PARTIAL / CONTINGENT) LOANS UNDER GUARANTEE EU TENs/ RTD PHASE 2 EU TENs / RTD budgets ESA EU Member States ? EU Member States ;

8

PHASE 3 EU TENS Budget ESA EU Member States Strategic Investors ; Institutions EU Member States Commercial Banks EIF / Monolines Commercial Banks Capital Markets EIB / KfW Commercial Banks Capital Markets EIB / KfW EU TENs Budget -

PHASE 4 Strategic Investors ; Institutions EU Member States Commercial Banks EIF / Monolines -

-

EIB / KfW

LOANS NON-GUARANTEED

-

?

Commercial Banks Capital Markets

INTEREST SUBSIDIES EQUIPMENT LEVY SHADOW TOLL CONTRACTUAL RISK SHARING TRANSPONDER LEASE COMMITMENTS

-

Equipment Manufacturers EU Member States Equipment Suppliers Equipment Suppliers Equipment Suppliers Major Users Equipment Suppliers

EU TENs Budget -

The proposed financial mechanism for Galileo from EIB validates the findings from the VAST project, which indicate that it is difficult to allocate risks between public and private partners in the first two phases, which subsequently requires high public funding, while the third phases should be able to bridge the public and private risk taking profile leading to more equal financial contribution in this phase, which probably could turn into a self-financing model for Galileo in the fourth phase.

Risks

The importance of ex-ante risk allocation has been outlined in chapter 4 of the deliverable D4. In this section the identified risks will be related to the three PPP-models, which have been presented previously in this chapter. One of the important outcomes from the risk analysis was that most of the risks that seem to appear already in the definition and design phases, typically were risks that belongs to the area of public and/or shared competence. Generally, risk factors, where the private sector has the main competence, seem to appear in later stages (design, build, operation). For the definition and design phase it makes it difficult for the "100% private concession model" to be implemented right from the beginning: According to the eight point list of principles for risk allocation in the concession model (the detailed list is given in the chapter 3.5 of the Deliverable D4) it will be very difficult for the private sector to control ­ or to accept ­ the risks occurring in the first phases under commercial, organisational and technical viable conditions. The logic of risk allocation requires the participation and heavy presence of the

8

Thomas C. Barrett, European Investment Bank ; Framework for the Comeerical Use of Outer Space, Brussels, 2 December 1999. 27/02/01

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public sector in these early stages, ruling out a 100% private concession in this period. From a concessionaire point of view shared investments are the minimum requirements for the first phases ­ probably even a joint venture (joint undertaking) could be the most feasible model. However, in the later stages of the project - building and operation ­ the private sector is able to fulfil the principles for risk allocation in the concession model much better. Therefore, for the later stages of the project, the joint venture model should defiantly be ruled out, as revenues should start to appear and the market and technical risks thereby be controllable. Suitable PPP-models should be concessions evolving from shared responsibility in the building phase to dominate private presence in the operation phase. In sum, there seems to be a slight tendency towards that the private sector has the competencies to manage and control the technical, market and financial risk factors, while the public sector has the competencies to manage organisational, political, regulatory, legal and administrative risks, which should make it possible to negotiate a rather clear risk allocation. However, especially in the first phases (definition, design) it is difficult to assess the extent and consequences of many risk factors, while the allocation (but not necessarily the extent and cost) of the identified risks seem to be easier to allocate in the build and operation phases.

Payments

In this section the market aspects, the possible payment structures and the potential revenue steams of Galileo will be related to the three different PPP models. One of the clear results of the market analysis from chapter 5 was that no significant bottlenecks seem to occur from the application and/or service provider industry for the design, building or operation phase of Galileo. Applications and valued added services (present, emerging, latent) seem to be in a controlled, steady and reliable development process and are generally expected to be ready for market take-off as soon as the necessary infrastructure is provided. No preference for any of the three PPP models can therefore be extracted from this part of the study. Though, it could be said that the application and service development gives no restrictions for the concession model, as there are no significant difficulties (no risks) found in work package 1 for the project organisation established as concession. The same tendency can be found, when the potential future market is quantified and the possible market penetration rates are estimated. The road sectors (the number of cars, lorries, containers etc.) seems to evolve into very attractive mass markets for GNSS based equipment and service providers ­ and the by far most attractive revenue streams will be the ones linked to the road transport sector. Though the real market take up ­ and thereby attractive returns and revenues from investments will first arise, when the systems are fully operational from year 2010 and onwards. This quite long time-span from the first investments to the first revenues means that the not all three PPP models seem equally feasible for the definition, design and building phases. The "100% private sector concession" model seems to be unsuitable for the early phases taking into consideration the mentioned industry and

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financial structure of the satellite sector (paragraph 7.2.4) as only few (if any) will be able to operate with such a long time pay back time. In fact the "100% private concession model" requires a much more steady cash flow and revenue streams during the design, building and operation period if this model should be the chosen one. Despite the attractiveness of the market it is therefore very questionable if any other than either the "mixed 50/50 concession" model or the "joint venture" PPP is suitable for this market in the early phases (design, building). Seen from a positive perspective potential the identified revenues and recoverable costs between 4.5 and 47 billon Euro (work package 2) are, despite the big difference between the best and the worst case situations, very attractive market figures9. Based on these figures it actually seems to be good reasons to be optimistic regarding the future markets and revenue streams, which suites both the concession and joint venture model. However, seen from a more critical perspective, it is important to take the basic assumptions and the methodologically difficulties presented previously strongly into consideration, which makes the construction of reliable business plans for the satellite applications and service market based on the figures from work package 2 quite difficult. For instance, it has not been possible to integrate the spectrum of the most important variables and risk factors in the market calculations and revenue forecasts. It is first in the phase of operation ­ where Galileo probably also will be attractive for service providers and other down stream industry actors ­ that revenue streams will start to attractive. As mentioned previously, when revenues are guaranteed and reliable the most suitable PPP model is actually, in that case, the "100% private concession" PPP model as the risk of arguments, re-negotiations, and the risk of high transaction and coordination cost in this model are at the lowest. In sum, based on the forecasted payment and market structure of Galileo there seem to be arguments saying, that the definition and the beginning of the design phase most feasible could be set-up as a joint venture (joint undertaking) as the revenue and market risks (as well as other risk factors) is this period are quite significant. When the design (test and validation) and building (deployment) phase is entered a more precise risk allocation should he reached, which means that this period probably could be best suited with a concession contract with quite even public and private participation (50/50). Revenues are still to small in this period to set-up are more private dominated (up to 100%) concession contract. However, when Galileo is fully operational the risk of high transaction costs is higher in a 50/50 concession model between public and private partners, than in a concession model with higher and more dominant private participation. Therefore, a "up to 100% concession" model should be initiated in the operation phase, which stimulates satellite manufacturers, service providers and other down-stream industry actors to join the consortium. This could be done by selling shares of the Galileo Vehicle Company to service providers in the operational phase and thereby gradually evolve the concession into a nearly 100% public concession contract, when the system is fully operational and revenues are granted with limited risks.

9

On top of this could revenues from outside Europe and from non-transport sectors be added, that only could make the market for equipment and services even more attractive. 27/02/01

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7.2.6 Summary

The matching of risks, payers and financing mechanisms is complex as it is not possible to isolate any factors. However, during this chapter 7.2 some of the strengths and weakness of the three generic models have been summarized regarding the adaptability towards the identified market structures, risks factors and financing sources. The open question is, which parameters could be the decisive ones? The following table illustrate one simplified hypothesis, which is based on main findings of this chapter:

·= Joint ventures (joint ventures) will be suitable for the design phase as risk factors are difficult to allocate ex-ante, ·= Shared concession: is suitable for the building phase because in this phase risks can be allocated, the need for cash flow increases, no market revenues are generated and the need for public finance is substantial, ·= Private concession: is suitable for the operation phase because in this phase risks decrease and should become more easy to allocate, market revenues increases, the need for public finance decreases and private investments raise.

Table 42 : Hypothesis on suitable models for design, building and operation of Galileo Payment Definition

No market payment, fully public funded. PPP not necessary No market revenue PPP necessary JV suitable Minimal market revenue Cash flow needed JV less suitable Market revenue raising Market size expanding JV not suitable No market payment, fully public funding PPP not necessary No market revenue SC could be suitable Minimal market revenue Cash flow needed SC suitable Market revenue raising Market size expanding SC less suitable No market payment, fully public funding PPP not necessary No market revenue PC not relevant Minimal market revenue Cash flow needed PC less suitable Market revenue raising Market size expanding PC very suitable

Risks

Medium risks Risk difficult to allocate Preparation of JV

High risks Risk difficult to allocate JV very suitable

Finance

No private finance Full public finance PPP not necessary Limited private finance High public finance JV suitable Shared public private finance JV less suitable Private finance dominate Small public finance JV not suitable No private finance Full public finance PPP not necessary Limited private finance High public finance SC suitable

Shared public private finance SC very suitable

Design Joint venture (JV) Build

High risk Risk can be allocated JV less suitable Small risks Risks can be allocated Medium risks Risk difficult to allocate SC not suitable High risks Risk difficult to allocate JV less suitable High risk Risk can be allocated SC suitable Small risks Risks can be allocated SC less suitable Medium risks Risk difficult to allocate PC not suitable High risks Risk difficult to allocate PC not suitable High risk Risk can be allocated PC suitable Small risks Risks can be allocated PC very suitable

Operate

Definition

Design Shared concession (SC) Build

Operate

Private finance dominate Small public finance SC suitable No private finance Full public finance PPP not necessary Limited private finance High public finance PC not suitable Shared public private finance PC less suitable Private finance dominate Small public finance PC suitable

Definition

100% private concession (PC)

Design

Build

Operate

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8.

VERIFICATION OF VAST DELIVERABLES

As explained in the Chapter 1 (Objectives), in order to ensure the quality and exactness of the VAST deliveries, service provider panel meetings have been organised throughout the VAST project.

8.1 Approach

The approach followed was to present the results of a study performed by a fully independent consortium composed of a consultancy company expert in GNSS, transport market research and economic institutes and a university to professional industrialists. To that end, meetings have been organised with industrialists and service providers really involved in the satellite navigation field.

8.2 Role of the service provider panel

The role of the Service Providers Panel was to assess the results of the work already done and to propose, as necessary, inputs to improve the outcomes quality. Regarding the global objectives of the VAST project (chapter 1), this process was set-up to identify missing commercial applications of GNSS, to better determine the future market structure, to better evaluate cost recovery possibilities and to gather remarks and reactions on PPP models. The objective was also to benefit from the expertise of the panel of service providers in pointing out potential problems linked to implementation of the identified services and in assessing their interest in future VAS.

8.3 Composition of the service provider panel

Industrialists and service providers who have actively participated to the meetings combined very complementary skills and fields of activity. Moreover, the European geographical representativeness of the service providers was extremely well balanced (Italy, Spain, UK, Belgium, France, The Netherlands, Germany...) to ensure that the difference of culture and market particularities are well taken into account. The list of companies involved, including a short description of their activities is provided in the Deliverable D5.

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8.4 Organisation of service provider panel meetings

Since mid 1999, the GNSS activities have strongly soared in Europe due to the starting-up of the definition phase of Galileo. Most of industries or service providers involved in satellite navigation field are now often requested to assist or organise workshops, taskforces, working group etc... .In that context, it becomes difficult to convince available experts to contribute to each European project. Therefore, to ensure an appropriate presence of relevant experts, each service provider panel meeting was organised in side of some other GNSS events. In this way, the first service provider panel meeting was organised in June 99 in Amsterdam (16/06/99, Okura hotel), taking benefits of the potential presence of Service Providers to the ITS Conference. Moreover, the first meeting has been held in collaboration with another European project called TESSYN (Trans European Satellite based SYstem for Navigation). This collaboration has allowed to benefit from complementary study results, to stimulate stronger debates and to take advantage of the TESSYN partners expertise. The second service provider panel meeting was organised in January 2000 in Brussels (27/01/00, Genesis office) in side of a plenary meeting of OREGIN (the European Organisation of GNSS Industry of equipment and services co-ordinated by FDC). The first service provider panel meeting was scheduled on a whole day including a working lunch for the attendees and the second lasted on a full afternoon. These meetings took into account the progress of each work package.

8.5 Service provider panel meeting outcomes

The service provider panel meetings have been very useful for the VAST project thanks to the active and constructive participation of the attendees. The meetings have shown that many service providers are interested in using Galileo and in providing value added services (VAS) but need to be convinced that they can take benefit of this new system. Market figures and assumptions related to the aviation and maritime domains have been refined and consolidated, taking into account the comments from attendees. Comments related to the cost recovery schemes and PPP models have been taken into account directly in the first issues of the deliverables D3 and D4. Feelings gathered from each attendee on the VAST project were very positive. Many participants showed a great interest to receive the final issues of this project, especially regarding the cost benefits and the Public Private Partnership. The outcomes of these meetings allowed to refine the final results of the VAST project improving notably the quality of each deliverables.

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9.

CONCLUSIONS

The numerous services offered by the integration of satellite navigation systems into transport have a great potential to support the transport efficiency which is a priority for the European Union. This leads to an important market of commercial applications in all modes of transport where the number of potential users is extremely important, where a large demand already exists and where the development of positioning systems based on Galileo seems promising. The identification of the market, the analysis of the potential benefits and the possibility to recover costs from those Value Added Services (VAS) should contribute to state on the feasibility to approach a self-financing of GNSS on the medium term and to assess the different options for public private partnership. In that context, the VAST project has concentrated on providing appropriate information in order to help the European Commission to take relevant decisions.

Identification of GNSS applications

The first workpage of the VAST project has identified a very large number of present, emerging and latent GNSS applications and their related VAS. It points out that all kinds of domains (road, maritime, rail...) and users (single private, single professional, haulage companies...) are concerned by satellite navigation and show an increasing level of interest for this technology. The road transport segment is the most significant segment both in terms of number of applications and number of potential users, and should be the leading satellite navigation market in the coming years. As regards user requirements, the accuracy level required for most applications identified in the framework of the VAST project does not seem to be a critical point. However, integrity and service guarantees are often stringent parameters, especially when safety critical aspects are at stake. Finally, the current need for many applications to have a reliable communication service in order to maintain the full functioning of the related application has been clearly underscored.

Present and future market for VAS

The second workpackage has identified the present and future market for VAS over the period 2000/2020. An important output of the second phase of the VAST project is that current trends in technology field are re-shaping future scenarios. In other word, market players have to deal with two different developments: a first scenario, based on the assumption that the `Next Generation GPS' will remain the core of the GNSS; a second scenario, based on the hypothesis of a successful deployment of GALILEO.

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The results on the supply structure show that presently market players' behaviour is directly influenced by the uncertainty outlined above. The assessment of market players' behaviour has highlighted different positions with regard to the opportunity to support the EU strategies of development. The main demand requirements is already perceivable and is similar to those observed in similar market (i.e. mobile telecommunications). The final output of this second phase is the assessment of the potential market over the period 2000-2020 based on different scenarios. The market dimension trends in monetary terms for both the equipment and applications have been estimated using current average market prices and a technology-driven approach for assessing Value Added Services. The forecasted market for the equipment in road segment starts from about $700 million and arrives at $3.5 billion in 2008, in terms of cumulated revenues. For multimodal and rail transport the revenues will reach respectively $240 million and $80 million in 2008. The forecasted market for Value Added Services and applications in road segment will rise from $5 billion (in 2002) to more than $40 billion (in 2020). In multimodal segment the market will probably reach more than $5 billion in 2020. In aviation, rail and maritime segments, the market will arrive respectively to $900 million, $680 million and $150 million.

Recoverable costs

The assessed annual benefits of satellite navigation for European end users are estimated at 15 billion EURO in 2008 increasing to 53 billion EURO in 2017. These figures exceed the cost of the Galileo system by far (averagely a factor 50). From this we can conclude that, from economical point of view, the argument to develop Galileo in order to make European economy less dependent on GPS is a valuable argument in case the probability that in the future GPS will not be delivered to European end users is expected to be at least 2%. Benefits will mainly occur in the road segment, which is by far the transport segment with the largest potential user group. The benefits in the road segment are mainly related to open access services where the competition or co-operation with GPS will be of significant importance. Benefits in other transport segments are more related to controlled access services and are expected to appear later in time because regulatory and institutional barriers may delay the acceptance of the safety and security level. The assessed annual turnover in Europe increases from around 500 million EURO in 2008 to 2.6 billion EURO in 2017. World-wide the turnover increases from 1.5 billion EURO to 7.6 billion EURO. So, the potential recoverable costs exceed the annual operation costs of Galileo. However, since only a minor fraction of these potential recoverable costs will actually flow back to the Galileo investors, we must conclude that the system will not pay for itself. When we assume that 1% of the turnover can flow back (by a general levy on the world-wide sales of receivers and equipment) to the Galileo investors, recoverable costs increase over the years from 15 million EURO per year in 2008 to 76 million EURO per year in 2017. Under this assumption they are significant smaller than the increase of tax on sales income to the

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government, which is assessed at 265 million EURO per year in 2008 to 1,323 million EURO per year in 2017. Restricted to the sales to European end users the recoverable costs increase over the years from 5 million EURO per year in 2008 to 26 million EURO per year in 2017. Tax on sales income to the government increases from 88 million EURO per year in 2008 to 174 million EURO per year in 2017.

Public Private Partnership

Based on the generic characteristics of PPP schemes three Galileo PPP models have been selected (private concession, shared concession, joint venture) and matched towards the identified future market structures (payment), risk factors and financial mechanisms:

Finance: Although Public Private Partnership arrangements can be used to reduce overall cost for the Galileo programme, substantial public investments will be required throughout the programme lifetime. However, the relative level of necessary public financial involvement will change in different phases of Galileo programme (as the result of changing risks) - from the very significant one in the early stages of the programme to more moderate, or potentially very low in operational phase. Risks: There seems to be a slight tendency towards that the private sector has the competencies to manage and control the technical, market and financial risk factors, while the public sector has the competencies to manage organisational, political, regulatory, legal and administrative risks, which should make it possible to negotiate a rather clear risk allocation. However, especially in the first phases (definition, design) it is difficult to assess the extent and consequences of many risk factors, while the allocation of the identified risks seem to be easier to allocate in the build and operation phases. Payment: The forecasted payment and market structure of Galileo indicate that the definition and the beginning of the design phase most feasible could be set-up as a joint venture (joint undertaking) as the revenue and market risks (as well as other risk factors) is this period are quite significant. When the design (test and validation) and building (deployment) phase is entered a more precise risk allocation should he reached, which means that this period probably could be best suited with a concession contract with quite even public and private participations. Revenues are still to small in this period to set-up are more private dominated (up to 100%) concession contract. When Galileo is fully operational up to 100% private investment (concession model) should be initiated, which stimulate satellite manufacturers, service providers and other down-stream actors to join the consortium. This could be done by selling shares of the Galileo Vehicle Company to service providers in the operational phase and thereby gradually evolve the concession into a nearly 100% public concession contract, when the system is fully operational and revenues are granted with limited risks. The final hypothesis of the study is that: ·= Joint ventures (joint undertakings) will be suitable for the design phase as risk factors are difficult to allocate ex-ante,

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·= Shared concession: is suitable for the building phase as risks can be allocated, while the need for cash flow increases, no market revenues are generated and the need for public finance is substantial, ·= Private concession: is suitable for the operation phase as risks decreases and should be easy to allocate, market revenues increases, the need for public finance decreases and private investments raise.

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10.

REFERENCES

This chapter presents the references used within each work package and mentioned in the project deliverables.

WP1 References

Reports and specialized documents

Frost & Sullivan n° 3352 report "European Global Positioning Systems Market" (1998) Frost & Sullivan n° 5551 report "North American Global Positioning Systems Market" (1998) Forward Concepts report "GPS'99 a Commercial Market Analysis" (1999) US Department of Commerce report "Global Positioning System" (1998) Financial Time report "Intelligent Transport Systems, a review of technologies, markets and prospect" de Paul Tucker (1998) AZTech Intelligent Transportation Systems: Model Deployment Initiative for the Phoenix Metropolitan Area 1998 Intelligent Transportation Systems - Project Books 1999 Advance Public Transportation Systems - Deployment in the United States - Update January 1999 Advance Public Transportation Systems - The state of the Art - Update January 1999 Guidelines for Review of National ITS Deployment Strategy - 1999 Intelligent Vehicles and the Intelligent Vehicle Initiative - 1998 Trends In The Use Of Intermodal Freight Identification Technology - 1998 The National Intelligence Transportation Systems - Deployment Strategy 1999 In-Vehicle Navigation System - Model Deployment Initiative 1998 TransGuide® Technical Brochure - Texas Department of Transportation

European reports

INES TRANSINPOL GNSS2 Comparative system studies SAG/98/3: Report on Commission Activities related to space November 1998

Specialized reviews

Global Positioning & Navigation News (Phillips Business Information Inc.) The Intelligent Highway (Transport Technology Publishing) Rail Systems Technology (Transport Technology Publishing) ITS Inside (Transport Technology Publishing) GPS World (Advanstar Communications) Aviation Week & Space Technology Air & Cosmos

Conferences

GNSS 98 IBC Conference "Mobile, Location & transport telematics Services"

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Multi-modal Education Workshop Mobicity 99 TEN - TELECOM Workshop ­ 1999 Semler, J. / Döller, H.: The Austrian Broadcast Network ­ A Value Added Service for Precise Navigation. ION Technical Meeting 1997

Contacts

Prof. Dr. Hofmann Wellenhof, Technische Universität Graz DI. K. Legat,Technische Universität Graz Dr. R. Weber, Technische Universität Wien Dr. Lechner, Telematika, Deutschland DI. Dr. Fink, Siemens Österreich DI. P. Devillers, Frequentis , Österreich Dr. R. Pfliegl, ALCATEL Österreich Ing. Hackl, Austrian Airlines, Österreich Dr. Döller , DGPS Gmbh, Österreich Prof. Dr. Sterz, AKH Wien, Österreich Mag. Paul Reither, Group 4 Wien,Österreich Ing. Semler, ORF Wien, Österreich Mag. Seitz, Donau Transport Entwicklungs GesmbH, Österreich Mag. A. Mitterecker, High Tech Marketing DI. Dr. H. Leopold, Telekom Austria, Wien, Österreich Dr. Peter Porzer, Zentrum Für Telekommunikation, Wien, Austria

WP2 References

Reports and specialized documents

Frost & Sullivan n° 3352 report "European Global Positioning Systems Market" (1998) US Department of Commerce report "Global Positioning System" (1998) Booz-Allen & Hamilton "Survey of the Satellite Positioning Industry in Europe" (1997) Guidelines for Review of National ITS Deployment Strategy ­ 1999 Databank Consulting "Il mercato europeo dei sistemi telematici di bordo" (1999)

Data sources

United Nations "Annual Bulletin of Transport Statistics for Europe and North America" (1997) "Annual Bulletin of Transport Statistics for Europe and North America" (1998) Eurostat: "Carriage of Goods 1996 ­ Railways" UIC "Supplementary Statistics" Airbus "Global Market Forecast 1998-2017" (April 1998) "Global Market Forecast 1999-2018" (June 1999) European Conference of Ministers of Transport "Trends in the Transport Sector in 1997" (1998) "Short-term Trends Survey" (1999) "Rail Freight Transport on National Networks" (1999) The Containerships Market in 1998

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"World Fleet Statistics" (1995) "World Fleet Statistics" (1996) "World Fleet Statistics" (1997) Review of Maritime Transport (1998) CCFA ­ Comité des Constructeurs Français d'Automobiles

European reports

INES TRANSINPOL

Specialized reviews

GPS World (Advanstar Communications) TRL NEWS (Transport Research Laboratory) AIR & SPACE Magazine

Conferences

TEN - TELECOM Workshop ­ 1999

Web sources

Aviation FAA CAASD ASHTECH NAVCANAD A ECAC-CEAC ICAO ENAV ESA EUROCONT ROL AIRBUS IATA US NAVY Road ACCESS ITS ERTICO ITS ON LINE Maritime TRIMBLE US COAST GUARD Canadian Coast Guard Canadian Hydrographic Service IMO US NAVY News FINANCIAL TIMES SOLE 24 ORE Rail US FEDERAL RAIL ADMINISTRATION UNION PACIFIC UIC RAILWAY GAZETTE INTERNATIONAL RAILWAY AGE Multimodal INFORMARE FORUM DELLO SHIPMENT E DELLA LOGISTICA CISCO ­ Centro Italiano Studi Containers

Contacts

Equipment Manufacturers DSNP (F) Mannesmann VDO AG (D) Equipment Integrators Global Telematics plc. (UK) Trimble Navigation Ltd. (UK) Service Providers AGRS (NL) Telespazio (I) Raniero Pasquali, Space Systems and Services ­ GNSS2 Task force * Alessandro Bernardo, Space Systems and Services * Stefano Carlini, Space Systems and Services * Luca Del Monte, GNSS Task Force Others ANFIA (I) ­ Associazione Nazionale Fra Industrie Auromobilistiche

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AUSITRA (I) ­ Assoposte Avionik Zentrum Braunschweig (D) ­ Consulting Centro Studi Promotor (I) CNR (I) ­ Consiglio Nazionale delle Ricerche & Felici, PF Trasporti II ** Ericsson Telecomunicazioni SpA (I) ESA - Cheli, Strategies and development ** FIA ­ International Automobile and Touring Clubs Association FS SpA (I)- Antonio Laganà, Divisione Infrastrutture ** Magneti Marelli - Bruci, Infotelematica ** Progesi (I) -Destasio, Director ** TIM (I) -Roberto Fedi, Infomobilità ** Telecom Italia SpA (I) - Zilli, Direzione Business, Progettazione * Binelli, Direzione Business, Progettazione **,Spaziani, Direzione Business, Marketing **, Travaglini, Direzione Business, Vendite ** * Persons contacted for validation of preliminary results, ** Face to face interviews

WP 3 & 4 References

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th

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Produced documents (external dissemination)

Presentation to service providers

-Power point presentations have been made during service provider panel meetings.

Abstract for conferences and reports:

-Abstract to ION/GPS 99 -Abstract to GNSS 2000 selected as poster. -Abstract for SPACE COMPENDIUM report -Abstract on VAST project required by industrialist (SEXTANT, Galileo Industry, ...). -Abstract for the 50th IAF congress selected as presentation

Presentation to individual contacts:

-Presentation of the VAST project to OREGIN members -Presentation made for the following individual contacts: Contacts from NEI: Binnenvaart Nederland, Information center for Dutch inland navigation, Mr. Nick van Haag Breakdown truck company Delisse, Mr. Delisse Breakdown truck company Vogelaar, Mr. Vogelaar Brinks Waardetransport, transportation company of valuable goods, Mr. Hoogeveen European Datacomm Holding company EDC Nederland B.V., Mr. Arnold-Kees van Rongen Jan Joanknecht & Vieveen B.V., consultant information and communication technology, Mr. Jan Joanknecht KLM Royal Dutch Airlines, Mr. Ben Berends Ministry of Transport, Public Works and Water Management:

·= ·= ·= ·=

Directorat General of Civil Aviation, Mr. Maarten B. Deul and mr. Robert J. Verbeek Directorat General for Freight Transport, Mr. Marten G. Koopmans Directorat General for Freight Transport, AVV, Mr. Willems Directorat General for Passenger Transport, Mr. Han Zwijnenberg

National Aerospace Laboratory NLR, Mr. Axel van den Berg and Mister Jaron Samson Nefkens, consultant telematica inland navigation, Mr. Piet Nefkens Netherlands Institute of Navigation, Mr. Jac Spaans Pakhoek Shipping B.V., Mr. Johan Gouma Railned B.V., organisation for capacity and safety improvement Dutch Railways, Mr. J. Poort Rail Inframanagement Dutch Railways, Mr. van Eekelen and mr. Vissers Transport and Logistic Netherland, branche organisation Dutch road freight transport, Mr. Willem van Eck VDO Cars Systems, Mr. Martin Toonen Contacts from WUW: Prof. Dr. Hofmann Wellenhof, Technische Universität Graz

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DI. K. Legat,Technische Universität Graz Dr. R. R.Weber, Technische Universität Wien Dr. Lechner, Telematika, Deutschland DI. Dr. G. Fink, Siemens Österreich DI. P. Devillers, Frequentis , Österreich Dr. R. Pfliegl, ALCATEL Österreich Ing. Hackl, Austrian Airlines, Österreich Dr. Döller , DGPS Gmbh, Österreich Prof. Dr. Sterz, AKH Wien, Österreich Mag. Paul Reither, Group 4 Wien, Österreich Ing. Semler, ORF Wien, Österreich Mag. Seitz, Donau Transport Entwicklungs GesmbH, Österreich Mag. A. Mitterecker, High Tech Marketing; Wien and all information sources in the empirical market research on satellite navigation demand in austrian transport companies, land surveing companies and public authorities. This study is part of the VAST Project and was executed during April and May 1999. DI. Dr. H. Leopold, Telekom Austria, Wien, Österreich Dr. Peter Porzer, Forschungszentrum für Telekommunikation

Contacts from PLS Consult: Manager Peter Sonne, HT, Greater Copenhagen Bus Operator Manager Stefan Fjellemark, Greater Copenhagen Bus Operation IT Manager Torben Ruberg, Falck Group Chief Officer of County of Aarhus (DK), Mr. Ole Dahl Government Official Jan Sørensen, The Danish Road Directorate Managers Jørgen Holck and Steen Johnsen, The Danish Ministry of Transport Johan Nielsen, The Danish Transport Council IT Manager Jesper Joergen Jensen, The Danish State Railways Freight Transport Organisation Operation Manager Anders Holm and Surveying Manager Lars Busk, The National Danish Railway Infrastructure Agency Manager Hans Munk, Copenhagen Subway Anne Mette Joergensen and Per Hoeg, The Danish Meteorological Institute Stame Viladsen, The National Survey and Cadastre Authority in Denmark The Danish Agricultural Advisory Centre, Manager Finn M. Andreassen The Civil Aviation Administration in Denmark, Manager Lennarth Villestofte Royal Danish Administration of Navigation and Hydrography, Manager Ib Pfor-Weis

Various documents and information:

- Documents sent to PPP task force.

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-

ANNEXES

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ANNEX A

DEFINITIONS

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The following definitions have been proposed in early 1999 to guaranty a uniform terminology in the VAST project. These definitions have been approved by the Commission at the beginning of the study. Some of them may be inadequate in an other context. ·= GNSS (Global Navigation Satellite System):

GNSS is a system based on a satellite component providing positioning, navigation and precision timing services world-wide.

·= GPS (Global Positioning System):

GPS is a currently operational GNSS initially developed for military purposes and controlled by the US DOD. It provides services broken down into one controlled access service (mainly for military users) and one open access service. These services are free of direct user charges. No liability arrangements may be envisaged.

·= GLONASS (GLObal NAvigation Satellite System):

GLONASS is a currently available GNSS developed and controlled by the Russian MOD, providing free of direct user charge services. Features of GLONASS are similar to features of GPS. However, current availability is lower due to a lack of operational satellites, and its future seems uncertain due to Russian budgetary difficulties. This later fact limits the confidence of potential users and therefore restricts the development of GLONASS receivers and the deployment of GLONASS value added services.

·= GNSS1:

GNSS 1 is made of core elements (GPS and GLONASS) and of Space or Ground Based Augmentations of these core elements. The core elements provide a service free of direct user charges. The US Space Based Augmentation of GPS (WAAS) which will cover at least the CONUS, will provide a service free of direct user charges. The European Space Based Augmentation of GPS and GLONASS (EGNOS) which will cover at least Europe (ECAC Area), and local ground based area augmentations will provide services which should be paid by people who will benefit from them (the level of public contribution for EGNOS can change over the years). The development and first operation can be fully funded by the public sector with the target that the system will be able to finance itself at the end of a "transition period". GNSS1 will provide for independent system monitoring and increased performances. The 3 regional space based components of GNSS1 (EGNOS, WAAS and the Japanese MSAS) will provide a world-wide seamless service.

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User equipped with GNSS1 receivers will be able to use more reliable, more available and more accurate GNSS information from 2003.

·= Modernized GPS:

Modernized GPS will come from a US GPS modernisation program currently being developed. Modernized GPS will have better performances than the current GPS, especially in terms of integrity and accuracy. It will be operational in 2008. However, Modernized GPS will remain under US control and without any liability.

·= Galileo:

Galileo is a core element of a future GNSS to be developed by Europe with a Russian participation. When operational (in 2008), it should replace EGNOS and GLONASS. It will be fully compatible and interoperable with GPS (or Modernized GPS) which will constitute another core element of this future GNSS. Galileo will propose 2 main service types: An Open Access Service available free of direct user charges, offering similar performance to Modernized GPS (Open Access Service: Standard Positioning Service (SPS)), A controlled Access Service offering guarantee and liability.

·= Basic GNSS Services and core space elements of a GNSS:

GPS, GLONASS and Galileo Open Access Service are considered as "core space elements" of a GNSS and provide the Basic GNSS Services. From a user perspective, a basic GNSS Service cannot be reduced to a more basic feature.

·= Value Added Services (VAS):

Value Added Services are designed to provide service enhancements over the GNSS basic services, to improve their quality (accuracy, integrity, availability...) or to offer combined services (navigation, communication, information...). Financing of the operation of these services will be based on user charging mechanisms. They are composed of 3 layers. VAS Layer 1: Satellite based service enhancements. This layer comprises value Added Services based on satellite technology. They are divided into 2 groups: Satellite based services (augmentation systems) designed to increase the technical performances of the Basic GNSS Services like accuracy, integrity and availability. GNSS 1 (EGNOS, WAAS, MSAS) systems are considered, for the purposes of this study, as VAS (VAS 1.1), Satellite based guaranteed and liable services (Galileo Controlled Access Service) (VAS 1.2).

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VAS Layer 2: Terrestrial enhancements. This layer comprises VAS based on terrestrial systems. They are divided into 2 groups: VAS designed to provide the basic service, as provided by the core GNSS space elements, in areas not covered by these space elements (tunnels, underground parking, inside buildings, urban canyons, under intense foliage...) (VAS 2.1) VAS designed to enhance the basic service (increased accuracy, integrity...) in local areas (e.g. DGPS) (VAS 2.2).

VAS Layer 3: Application layer. This layer comprises service enhancements designed at the level of the user equipment. This layer is divided into 2 groups: Services based on the combination of other functions within the user equipment. It includes software enhancements (map matching, integrity check by RAIM algorithms...) hardware integration or coupling (odometer, inertial sensors, digital maps...) and use of databases (database on dangerous chemicals, on relevant locations...) (VAS 3.1), Services based on the combination of the GNSS service with other different kind of services as communication, traffic information, internet... (VAS 3.2).

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ANNEX B

BASIC ASSUMPTIONS AND PROJECT LIMITATIONS (WP3)

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To assess the benefits and recoverable costs of Galileo, a lot of assumptions have been made on Galileo service level and market share, technical and economic developments and the calculation method for recoverable costs. Since these assumptions have quite a strong impact on the results they are explicitly mentioned in this report. Further assumptions per application on future size of user groups, market penetration, etc. are listed in the variables sheet in annex 2 of the Deliverable D3.

Basic assumptions on technical and economical developments

The future development of transport (dimension, transportation methods, etc.) might have strong impact on the potential use of satellite navigation. Therefore the assumption has been made that: The scenarios for future development of transport do not show any dramatic changes (which is quite reasonable in a regulated market). For example a grow in traffic flow of e.g. 300% is out of the question, because in that case it is not possible to forecast usage and benefits of applications.

The future services and quality of Galileo satellite navigation is not yet decided. Also the quality of GPS block IIf and other competing and/or co-operating systems can not be foreseen completely. Therefore the following assumptions have been made: this deliverable will consider Galileo and GPS as functionally the same (interoperable) systems for the mass market, with controlled access service (safety guarantee) and a small communication channel as two Galileo value added services. Applications that need a controlled access service level will fully depend on Galileo, since GPS will probably not be able to provide such a service; Other (organisational / process optimisation) measures and local communication technologies (Tetra / radio) will not cannibalise the window of opportunity for satellite services (such as bus control services); The service level of Galileo is assumed as follows: Accuracy: horizontal 4.0 m; vertical 7.7 m. Accuracy of time info: 30 ns Integrity: 2*10exp(-7) per 15 sec. Alarm time: 6 sec. Alarm limit: 10 m horizontal; 20 m vertical Continuity risk 8*exp(-6) per 15 sec. Coverage: global

For the open access service level Galileo is tailing GPS that already has built up an important market share. The assumption has been made that: Galileo market share will grow from 10% in 2008 towards 50% in 2017.

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Basic assumptions on the calculation of revenue streams

There are several potential revenue streams for Galileo. Potentially costs can be recovered by a general levy on receivers, a "Canal+" model for the direct payment of subscribers to the controlled access services for commercial or safety/security-critical applications, or a revenue stream via an integrated communications function. Since the recoverable costs do not necessarily relate to the way they are recovered, the following assumptions have been made to calculate the recoverable costs: Since the recoverable costs will be generated via industry selling receivers, application equipment and services to the end users, the recoverable costs are calculated as an arbitrarily chosen 1% of the increased turnover of European industry as a result of these sales. The way this contribution to the Galileo investors is organised is not taken into account. EU-states will receive an increased income as a result of the tax to the government on the sales of receivers, application equipment and services. This tax income has been chosen as 17,5% of the increased turnover of European industry as a result of these sales. It is assumed that for the open access service the increase of turnover for industry is based on the average price on a Galileo receiver, costing 40 EURO and an economic lifetime of a receiver of 5 years. It is assumed that for the controlled access service the increase of turnover for industry is based on the price of the total application, which at the most equals the benefits of that application per user.

Project limitations

Since the VAST project focuses on the value added services of Galileo in transport, the Deliverable D3 had to made certain assumptions on the scope of the study: this deliverable only takes into account the benefits and the competing market for satellite based navigation systems (excluding e.g. terrestrial systems); this deliverable focuses on satellite navigation in transport, meaning the physical movement of persons or goods; this deliverable focuses on the Galileo applications mentioned in VAST deliverable 1, i.e. added benefits derived from interviews with end users,. It did not specifically search for new applications.

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