Bus transport regulation must ensure that services are provided in accordance with government policy which can include accessibility to rural services, rural poverty reduction, development of the private sector, and public safety. It must ensure that public need for mobility is satisfied, that services provided are of appropriate quality and safe, both for the general public and users, and that fares are affordable and appropriate to the level of service provided. Regulation comprises three axes: 1) quality and 2) quantity of service provided, and 3) fares.
Quality regulation covers many characteristics of transport service. The most important relate to safety, which covers many areas, such as standards to ensure appropriate and safe vehicle design, procedures for enforcement of safe bus operations, and licensing of operators, maintenance personnel and facilities, and drivers. Quality regulation also covers the enforcement of environmental protection measures and setting norms for the level of comfort to be provided to waiting and travelling passengers. Quality regulation is universal and essential, especially for safety, but its coverage and enforcement, even the underlying logic can vary greatly from one country to another. It can also, over the years, become outdated and need revision. Under-regulation or inadequate enforcement of quality is common since in a rapidly growing economy a richer population require more stringent standards, whether for safety or comfort, and at the same have the resources to pay for it.
Quantity regulation defines the service level. It concerns route licensing, which can be on a route-by-route basis, specifying the number and size of vehicles to serve each one, the frequency of service to be provided, and even the schedule to be followed, and the extent of competition, if any, allowed on for each route or geographical area. In deregulated transport systems it can be minimal, leaving operators complete freedom to choose routes (even if service exists already), frequency, schedule and bus size. Controversy has raged for almost a hundred years about how much regulation is appropriate (see case study) and it is certain that there is no right answer. It depends on the extent to which the transport market in a given area can rely on competition to find the best possible matching of demand with supply without external intervention. It raises fundamental questions: to what extent can markets be relied upon to find alone best equilibrium between supply and demand? Can we even be sure that government interference in market forces will ensure better service? The inability of world financial markets to function with insufficient regulation has been clearly demonstrated recently and catastrophically: is rural bus transport different? The prevailing tendency is towards deregulation, on the assumption that market forces, if not ideal, are better guides to service provision than public administrations.
Some regulation remains necessary. Free market fanatics may hold that, under full deregulation, transport supply, left to itself, will eventually, under the tender mercies of cut-throat competition, arrive at an ideal situation where passengers are completely satisfied and profits are adequate. However, it will take a long time to do so, and anarchic conditions, with wildly fluctuating fares and service, could prevail for a long time.
In fact it probably will never get there. The market is far from perfect; actors, whether operators or users, especially in poorer countries, do not have full knowledge of the market to allow them to adapt services to shifting demand or even of the real costs of doing so. In any case, the cost structure of public transport firms, with heavy investment in fleets and facilities, impedes setting up in new markets and adapting rapidly to change in existing ones. Competition is never fair: some operators are bigger and richer and can destroy smaller competitors using well-tried predatory practices to establish a monopoly in which they provide just enough service to maximize their profits but with little or no regard to the needs of passengers; smaller operators may respond by cutting costs, by reducing safety (if quality regulation is ineffective), through operating poorly maintained vehicles and promoting reckless driving to save time. Thus they may also undermine the balance sheet of ethical firms.
But how much regulation and of what? Minimal regulation is perhaps be the only option for very poor countries where demand is dispersed and people are poor. Any attempt to apply strict safety standards for vehicle design and operation, and enforce rigorous licensing procedures for operating personnel, will simply put local transport services out of business, leaving everyone worse off than before. Quantity and fare regulation can be forgotten about: it would be useless in any case as the regulatory agency would have neither the market knowledge nor personnel or funds necessary to enforce it. In fact, it must be assumed that in these countries complete deregulation, with the exception of roadside controls on vehicle safety, is the only option, despite its consequences in terms of poor quality services and high accident rates.
In economies rapidly growing richer, it can be fairly certain that some of the regulations touching the quantity of services have become obsolete and it is generally recomended that they all be reviewed periodically. They may be weak because the country has reached a higher level of development or excessively strict because the ruling ideology may also have changed and with it a shift to a more positive attitude to the private sector. Previously, demand may have been weaker and dispersed and people poorer; with more modest expectations for transport quality. Cities and towns, the principal destination of rural trips, were smaller and less developed. Ex-colonies may have inherited the strict principles of public administration of their colonizer, already inappropriately stringent when they were put in place and now obsolete, unenforceable and probably neglected.
Fare affordability is important, both socially and politically, and maximum permitted fares are generally enforced, although sometimes with little economic logic underpinning them. It is certain that fares must respect user ability to pay since mobility is vital in rural areas for economic and social reasons. However, it is counterproductive to expect the private sector to provide service at a loss, or to force operators to waste time and money on administrative procedures often necessary to apply for fare increases. If operator revenues are squeezed excessively they may go out of business and be replaced by informal operators, if at all, who may increase fares, restrict services and ignore safety measures. Remaining operators, to stay in business, may themselves be obliged to cut back on safety to reduce their operating costs. It goes without saying that mechanisms for setting fares must be reviewed: do they reflect changes in operating costs? are they affordable for users and sufficient for operators? Do they promote rational allocation of services to routes or areas at different times of day, month or year? Do they favour unduly one group of travellers over another? Does the review process impose an excessive burden on transport management?
In conclusion, quantity regulation should be periodically reviewed to determine to what extent they impede or promote good transport services and to verify whether regulations governing service quality, particularly safety, are appropriate, effective and enforceable. In rural areas, where demand is dispersed, innovative services, perhaps using IMT adapted for carrying passengers are necessary to link villages to towns and rural bus circuits. Quantity regulation is not justified in this case. Operators must be allowed complete flexibility to choose routes, schedules, and types of vehicles. Since conventional operators are unlikely to be capable of providng such services, village-level informal or semi-formal groupings should be encouraged. Quality licencing should be restricted to appropriate safety measures, but it must be appropriate to the level of risk involved: what additional risk is incurred by passengers as compared to the alternatives available to them?