Summer read: Make it free and make it worse?

If you make something free (or more formally remove user charges) does that mean it's considered so important that it should be a universal service? Or it's so marginal, unimportant, inconvenient or run-down that no one expects people to pay for it?

It's a question that's important for us to answer. This is because 'free' public transport has become a political cause in some cities, fashionable with some 'progressive' or 'radical' urbanists and environmentalists overseas. In Melbourne weaker strands of it are discernible when people seek to defend or extend the 'free' tram zone or within Infrastructure Victoria when arguing for lower bus fares. Such people, though well-meaning, are often ignorant of the true factors that drive major sustained patronage uplift and mode-shift, ie convenience and service quality, especially relative to car driving.  

Public telephones and automatic teller machines are two examples of services being made free as their number and coverage retreats. Are there parallels with public transport? Keep reading. 

ATMs

Let's look at automatic teller machines, which were rolled out from the '80s. If you saw something you wanted in the Trading Post or the newspaper classifieds and didn't have the cash laying around at home, you had to wait until a weekday to withdraw it from a bank branch. These had even more restricted opening hours than now so if you couldn't get there on a weekday between about 10 am and 4pm then you had no hope. Unless the seller accepted cheques, the concept which probably needs explaining to anyone much under 50. 

Initially the main benefit of ATMs was that they were operating when bank branches weren't. Then banks used the cover of the '90s recession to start closing branches. But they'd often leave an ATM. So every significant main street had one or more ATMs from each of the main banks.

Early on there were different systems, so that if you had a plastic card from one bank you couldn't use it in another bank's ATM if it was from a different system. That got resolved but you often had to pay a fee to use a different bank's ATM. So the thrifty had to hunt around for 'their' bank's ATM. 

Retailers got into electronic payment through EFTPOS and the larger ones (especially) offered cash out with purchases. So ATMs had competition for withdrawals. There were deals between financial institutions so you could withdraw cash from another institution's ATM for free. This was wonderful for user convenience as you could just use the nearest ATM. 

Bank branch closures seemed to abate for a while. Then they stepped up. This time though branches were removing all of their presence, including the ATM. But with 'free' ATMs and EFTPOS they could argue that opportunities remain for their customers to access physical cash banking facilities. 

Then banks started pulling out their ATMs. As long as there was an ATM from another bank they could claim that their customers still had access to cash withdrawal (and in some cases deposit) services. From the banks point of view fewer ATMs is more efficient. And it was cheaper for them to maintain less (and not charge) than to maintain more and charge people. So we ended up with no fees and less coverage. Having said that some still see opportunities in cash as some locations where there were once (free) bank ATMs now have non-bank ATMs which do charge for withdrawals. 

The banks are private profit-making businesses. They do not (and purists would argue should not) do anything not in their shareholder's profit interests. Making a service 'free' could just be an intermediate stop on the road to substantially downsizing or even ultimately removing a service. Though they'd argue that they're just responding to consumers' preferences with less use of cash.  

Public phones

Public phones are operated by Telstra. This area is more regulated than banking with Telstra subject to a Community Service Obligation in relation to the provision of services including public phones. They used to be coin only with call rates higher than from a home phone. Later they accepted various card systems for payment and even got the ability to send text messages. 

Notwithstanding CSOs there are way less public phones than say 30 or 40 years ago. While the CSOs may protect public phones in communities already with them they do not seem to be very effective in putting them into new estates. Hence walkability to a public phone along with that of other services like letter boxes tends to be much less in newer areas.  

The big change of course is mobile phone ownership and use. Up to the mid-late '90s they were expensive and rare. You did not use them for non-essential calls. But now almost everyone has one and calls are cheap. Not only that but they've evolved to be more like a personal electronic assistant with the ability to take photos, send data and post cat pictures on social media. 

Hence public phone usage has dropped. Telstra has still had to retain them under the CSO so it has looked at ways to reduce upkeep. Emptying cash containers was one of those costs. So it took the step of making calls from them free (within Australia). 

Free payphone calls was great for the unphoned and/or unhomed. But otherwise it didn't make a lot of difference given that most people had an affordable communications option right in their pocket. The lesson is that if there's a choice between (a) free and less accessible and (b) affordable at your fingertips then people with a choice will go with (b) almost every time.

With better (private) alternatives available to most people payphone usage has thus gone from a mainstream to a marginal residual experience since the '90s. Its survival depends on a political willingness to maintain a community service obligation rather than market demand. 

Parallels with public transport

Of the two above examples the phone analogy is the one nearest to public transport. This is because many people have access to fast convenient alternatives (eg driving) that are either at your door or in your pocket. Also, like telephone CSOs, our public transport has significant regulation in that fares apply across all modes and operators cannot unilaterally cut timetabled services without government approval. The history of public transport becoming a marginal transport mode in many cities (notably in the US) is not dissimilar to the move from public to private (mobile) phones. It's also notable that US transit fares often appear low by our standards. 

If you do make public transport free but don't improve the service then you are competing with walking and cycling more than you are with driving. Whereas if you use the money to make public transport better (faster on average door to door, achieved through a combination of higher frequency, better speed, priority over cars and reformed routes) then the relativities between mechanised modes change. Better service induces higher usage, at least some of which will have come from driving. Fare revenue and the cost-recovery ratio will likely also be higher, especially if improvements mostly boost off-peak services on routes with high patronage potential. That creates a virtuous cycle. 

People don't make phone calls as much as they did in the past. But when we do we think less about the charges. Whereas in the past we did for anything more than a local call because calls were timed. Value-conscious or less time-sensitive people took advantage of lower off-peak call rates. There are some parallels with transport where the system offers cheaper off-peak fares. We tend not to do that in Melbourne except for some weekend trips, cases where all your travel is after 6pm and before 7:15am Early Bird weekday train travel (which is free).

The case for cheaper off-peak travel is generally stronger than across the board fare cuts and much stronger than removing fares. This is for multiple reasons including higher travel/fare elasticity, the low and often almost zero marginal cost of carrying more passengers and non-transport social benefits. It's also politically attractive due to the low amount of revenue forgone. While we don't have the very high train fares that the UK has, you could argue that there are a few cases where our fares are uncompetitively high, eg some short trips, family V/Line travel and discontinuities in the fare scale such as between Lara and Geelong. Reform in cases like these have merit, though even here there are service-related obstacles like low weekend train frequencies. 

One could argue that any increased usage generated from a fare cut can build momentum for service increases which leads to another virtuous cycle. One could argue that the 2007 Zone 3 removal did just that for Melbourne train commuters, though a lot of people got a lot of bad service for a long time. And much of the growth came from other factors such as CBD employment and gentrifying inner areas (who didn't get a fare cut) so this point is debatable. It has been argued that Early Bird free fares helped redistribute train loadings away from the peak by providing an incentive for those who could start early to do so (at the cost of filling station parking earlier as buses were not included).  

Our tram network has a relatively flat timetable with off-peak frequencies not much lower than peak frequencies, at least during the day. But trains and buses are often different and taking a 'service first' approach to off-peak travel is preferable if I had to choose between one or the other.

Summary

Making public transport free risks 'residualise' a service and start a downward spiral since there are no (at least partly) offsetting financial gains from trying to make the service better and boosting usage. There may also be lower expectations from users that cause bad service to be more accepted ("Do you expect anything better - you didn't pay to use it?"). When service is so bad that usage drops then the constituency of users willing to advocate for improvements falls. And those users left (and left behind) have been of a demographic considered to be taken for granted voters in historically safe seats (though the 2022 federal and state elections resulted in some interesting shifts).  

It's also a bit of a one-trick pony. Making it 'free' is a one-off whereas boosting service offers a pathway to continuous improvement that make public transport a driving alternative for more trips for more people for more of the day. For example starting with off-peak frequency and bus network reform then graduating up to bus lanes, busways, light and heavy rail etc. 

In a world of multiple transport choices, public transport's role and contribution is most effective where it is good and affordable rather than bad and cheap (or free). You want it to rival driving rather than active transport. That means making it good before making it cheap and instead of making it 'free'.