Driven by the European Commission and by recent European Court of Justice rulings, hundreds of cities will be forced to open their local bus, tram, and subway systems to private competition over the next few years. Although deregulation will offer cities across the European Union a unique opportunity to create superior mass-transit systems, regional and municipal transportation authorities are doing little to prepare for the coming revolution. A misstep on the road to a more open market could be perilous.
As similar efforts around the world have shown, liberalizing transportation networks is particularly difficult. Transit authorities and local governments must balance the public-service obligation of providing affordable transportation for everyone with the need to create an efficient operating model.1 They must also ensure that private competitors have access to existing public rail lines and other infrastructure—a move that may mean breaking apart highly integrated value chains. Meanwhile, public owners looking for a quick cash infusion often sell their best assets cheaply but remain saddled with substantial payments for their employees’ pensions, health care, and severance packages. The quality of public-transit systems may plummet as private operators attempt to keep costs to a minimum.
Private players are already eyeing...