Published : 4 years ago, on 25/01/2021

By Philippe Vappereau, Chairman, Calypso Networks Association

As children, we are told: “Don’t put all your eggs in the same basket.” A simple warning, but sensible advice. If you risk everything on a single option, you face a highly unfortunate position if that option fails.

Yet “putting all eggs in one basket” is a strategy we see all too often in the business world. The associated promise of a strong return on investment or of simplifying technical complexities is tempting. However, this is ultimately a risky strategy and the consequences can be devastating.

Managing unexpected events  

Recent high-profile events in the telecoms world are a case in point.

In May 2020, Bloomberg reported that the U.S. Department of Commerce had moved “to prevent chipmakers using U.S. technology from supplying Huawei.” The Taiwanese chip manufacturer, TSMC, which uses some American components in its chips, subsequently halted new orders from Huawei and ceased all shipments to the company in September 2020.

Huawei reportedly depended on TSMC for a large majority of its semiconductors. In a period of less than three months, an essential part of its supply chain had been completely disrupted. And while the challenges may have arisen virtually overnight, solving them is unlikely to be a quick fix.

It is a clear reminder of the potential for unexpected events, whether political, economic, or otherwise, to directly affect supply chains. Of course, where a supply chain is single-source, or near-enough single-source, it is even more vulnerable to the damage of such eventualities. Simply put, if a supplier becomes unviable, there is nowhere else to go.

Equal access challenges

Philippe Vappereau

A single-source supply chain is also disproportionately vulnerable to competition-related challenges, as demonstrated by another recent story from the telecoms industry: American graphics chip specialist NVIDIA’s recently announced acquisition of British semiconductor and software company, ARM.

The acquisition immediately prompted concerns about a potential conflict of interest, “since ARM’s clients would become dependent on a business with which many also compete for sales.” The BBC’s technology correspondent summarised the problem: how would ARM’s “hundreds of other customers now have faith that they will have equal access to its technology?”

Together, these examples from the world of telecoms illustrate the importance of companies ensuring that they do not depend on just a single supplier. It is a lesson which multiple industries would do well to learn, including transport ticketing, where the supply of critical components is essential at all levels. This includes even the “smallest” foundational level: the card chip.

Multi-source in transport ticketing 

A reliable public transport system and, in turn, a reliable public transport ticketing system, is essential. Even amid the most stringent lockdowns of 2020, skeleton services remained operational in most cities and towns across the world. This raises the stakes for a robust supply chain as in the case of a shortage of critical components, services could not just stop. In the past, operators in such a situation have been forced to open access to their systems for free, a damaging move with revenue-hitting consequences.

At the same time, it’s also worth remembering that the sheer size of the industrial players in the chip industry almost makes the transport card market negligible. This fact alone poses a considerable risk if semiconductor producers ever decided to prioritise chip supply. More generally, the best interests of the transport ticketing industry simply do not have to be a priority for these suppliers.

Public Transport Operators (PTOs) and Public Transport Authorities (PTAs) who choose to work with just a single supplier are also subject to the more routine, though no less significant, issues associated with single-source chains. For one thing, PTOs and PTAs would be inadvisably vulnerable to any difficulties affecting their single supplier, whether regulatory, financial, or otherwise. They may also risk being locked into a service which becomes increasingly expensive over time, stuck with a contract which delivers a diminishing ROI.

In some respects, it’s hard to see why a business would countenance this level of risk. This brings us to another key problem: many PTOs and PTAs are unaware that they are part of a single-source supply chain. When they tender for cards, it may appear that they have many options from many different suppliers. But they may not know that behind the card is ultimately the chip, which is often from a single supplier.

The benefits of open standards in transport ticketing

Open technology offers an alternative that is free from any manufacturing monopoly and is more cost-effective and adaptable to future developments. Open standards specifically foster equal access and fair competition, enabling players to have confidence that multiple sources of supply exist, and that the failure of one source will have a minimal impact on their operations. This confidence is empowering, giving the industry the space to drive innovation and service optimisation.

Industry-wide collaboration with the goal of simplifying ticketing for all players through open standards must now be a priority. The transport ticketing market has needed to evolve rapidly in the wake of the pandemic, with the dominance of proprietary systems only intensifying. As we move into 2021, it’s time for public transportation to reduce market fragmentation and equip itself with a robust ticketing and payments system, ready for the future challenges and opportunities of the post-pandemic landscape.

About Philippe Vappereau:

Philippe Vappereau is the Chairman of CNA. He has over 30 years of knowledge and experience in the transport and mobility sector, and leads the association in its efforts to advance open systems that support seamless, consumer ticketing needs. Prior to joining CNA in 2008, Philippe held senior leadership positions at RATP and Ixxi. He holds a diploma in Engineering from École Supérieure D’électricité (Supélec).