Uber runs into trouble with governments all over the world
Earlier this week, the Bombay High Court weighed in on the legality of services offered by ride-sharing platforms like Uber Technologies and Ola (ANI Technologies). Mumbai isn’t alone. It’s a battle being fought across the country — from Delhi to Kolkata, Bengaluru to Bhopal. Along with the legality of such services, what’s being contested is surge pricing (higher fares when demand peaks).
This comes after the Centre, in October last year, issued guidelines to set a broad direction, calling the ride-sharing platforms on-demand IT-based transportation aggregators — in the process, distinguishing them from taxi operators.
It specified requirements like a certain fleet size, a 24×7 call centre, screening, monitoring and training of drivers and use of GPS.
“Regulation should focus on public interest outcomes, like consumer protection as well as competition. Regulation should not contain protectionist supply caps that close the market to new entrants…,” says an Uber India spokesperson. Yet clarity eludes and protests have surged. Not just in India.
Uber, the global cheerleader of the ride-sharing industry, is reportedly fighting over 170 legal cases, from the US to Canada, Germany to the UK, Brazil to Korea.
And depending on where you look, the issue at hand varies. It’s the Uber drivers in the US. It’s the taxi unions in Canada. In June, city mayors of at least 10 cities — from New York to Paris — came together to evolve a common framework to regulate sharing economy firms like Uber and Airbnb, the vacation rentals platform.
What’s going on here?
Is Uber a taxi operator or a technology company offering its platform to drivers? Are Uber drivers its employees or independent contractors? As the sharing economy grows on the back of technology, disrupting many industries from hotels to taxis, governments, regulators and judiciary would do well to deliberate and respond rather than seek a quick fix.
The sharing economy is here to stay. PricewaterhouseCoopers estimates that global revenues from top five sharing economy activities, including homestays and ride-sharing, could grow from $15 billion in 2014 to $335 billion in 2025. And think tanks from the US to Europe and Asia are putting out research reports backing the sector; and the European Union has openly supported it.
Led by technology, this is a fast-growing, evolving business where speed of change will always outpace regulation. The government would do well to go for regulation with a light touch, allowing for flexibility. Users would like service providers to focus on user safety, driver insurance cover and background checks. Regulators should keep customer well-being at the core, enable competition and curb monopolists — be it Uber or taxi operators.
In India, Uber and Ola drivers are already complaining that their earnings have crashed as their incentives have been slashed. Wait for new problems to show up. Here’s what they, along with consumers and regulators, could learn from other economies grappling with the Uber-led sector:
Steering Towards Safety
This must start in California — the heart of world’s innovation — where Uber is headquartered and launched its services first.
It was the first state to legalise and regulate ridesharing services in 2013, with the emphasis being public safety. By establishing a new category called Transportation Network Company, ride-sharing companies like Uber were mandated to obtain a licence, conduct criminal background checks on drivers, set up a driver-training programme and offer a commercial insurance policy coverage of $1 million per incident.
The regulatory framework has been evolving as new battlefronts have opened up. First, it was the protesting taxi drivers who were hurting.
A new issue about insurance coverage arose when a driver of UberX (a lower-priced service where drivers use their own private vehicles) accidentally killed a girl in California in 2013. Uber said the driver was not covered by its insurance at the time as, even though he had the Uber app open, he did not have a passenger in the car.
So technically, Uber said, he wasn’t working for the company. Since then the government has evolved an insurance policy to ensure drivers have coverage. In 2014, Uber was sued for poor background checks (not doing fingerprint identification) and charging bogus “safe ride fees”.
Now, the big battle is if its drivers are employees (as some Uber drivers are claiming) or independent contractors (as Uber claims) and whether they have the right to unionise. Classifying them as employees would considerably jack up costs, including social security, for Uber.
But as the sharing economy (often called gigs economy) grows, governments are thinking hard about it. Uber, battling class-action suits from its drivers, had recently arrived at a $100 million settlement on their employee status earlier this month, only for it to be rejected by a court last week.
It isn’t just about regulation. The new issue now in California is who will regulate Uber and other players. In 2013, the California Public Utilities Commission had set rules. But now the state is considering that drafting of rules, their implementation and enforcement should be handed over to the state transportation agency.
Green Light for Cheap Ride
Uber services were launched in 2014, triggering reactions from the city’s law department, which started fining its drivers as it considered them illegal. But the Competition Bureau, an independent federal law enforcement agency, intervened, saying ride-hailing services could lead to better prices, convenience and service for people.
Taxi drivers have been at the forefront of protests. Late last year, as a video of a taxi driver threatening an Uber driver and its passenger went viral, the city government asked KPMG to submit a report.
It offered three policy routes: the city could get rid of the fixed number of licence plates but set a significant licence fee for new plates; a fee-per-trip model for Uber drivers; and monitoring taxi performance and increasing the number of taxi licences if the service is slow. This would entail investment in data analytics.
Earlier this year, amid rising protests by taxi operators, the city council sat through a marathon debating session — 18 hours over two days — amid pressure from its citizens for cheaper and more reliable services, and legalising cab-hailing apps like Uber.
The council, announcing that they are “taking the handcuffs off the taxi industry”, created a new licensing category for Uber and also brought in a sharp 40% cut in licensing fee for the traditional taxi drivers.
The council rejected the demand for installing cameras in app-based vehicles but said it would revisit the issue after a year when it had enough data on it.
Besides the mandatory $2 million in liability insurance, the council brought in other changes, including eliminating a $1.5 service fee for customers paying by debit/credit card.
It has also eliminated an $820 taxi training course for drivers. It said that the taxi operators will have exclusive rights over taxi-hailing services and access to taxi lanes. Unlike taxi operators, Uber pricing will not be regulated.
But it allowed taxi drivers to offer reduced fares when pre-arranged through an app. Vehicles cannot be more than 10 years old. The latest is that the taxi associations have launched a $200 million class action suit against the city of Ottawa for allowing Uber to operate.
Mind Your Language, Too
Uber launched in London in 2012 and has been fighting a tough battle. With over 25,000 cabs under it, Uber has faced protests from black cab drivers, who claimed its services are “illegal” and “driving them out of business”.
Last year, under pressure from taxi drivers, Transport for London (TfL) sought clarity from the court if the Uber app was a taximetre and if so could be illegal. But the court ruled in Uber’s favour.
The tussle continues. Earlier this year, TfL issued a new set of guidelines to regulate the industry and curb Uber’s growth. From October it mandates that foreign private hire drivers (the sector in which Uber operates) must prove their proficiency in English by taking a costly (£200) written test (that Uber claims is tougher than the test for British citizenship).
Further, TfL mandates that any changes in Uber’s operating model, including pricing and new product, must be notified in advance, which Uber says will slow down the rollout of new features. TfL also requires that Uber run its 24×7 customer call centre in London, which will mean it cannot use its large call centre in Ireland that it started early this year.
Also, Uber says, the rule is discriminatory as a similar rule does not apply to black taxis, which use online complaint forms. And, finally, TfL demands that Uber drivers must have commercial insurance for the whole year, even for the months they may not be working. Many Uber drivers work only at a certain time of the year.
Uber which had successfully dodged some tough regulations — like a five-minute waiting period between ordering a ride and the ride starting, which was under consideration last year— is seeking a judicial review of TfL’s latest rules. Uber is garnering support from its users, sending emails to them with a link, which has a pre-drafted email to petition its case with the mayor.
Amid curbs in countries like France, Spain, Germany, the European Union Commission has backed ride-sharing apps, saying: “The sharing economy is an opportunity for consumers, entrepreneurs and businesses, provided we get it right….
We invite member states to review their regulation in the light of this guidance and stand ready to support them in this process.”
Sorry, No Big Discount
In July, China legalised ride-sharing apps, effective November, with certain policy guidelines. This was just around the time its homegrown Didi Chuxing — which claims 80% market share in China, doing 10 million rides per day — acquired Uber’s China business.
The on demand transportation industry in China is expected to touch a $200 billion valuation in the next five years. The government wants to encourage online bookings and non-cash payments for the rides.
The policy mandates that drivers of ride-sharing vehicles must have a licence with three years of driving experience and no record of violent criminal or driving offence.
The app’s user data must be stored and used on mainland China and should be kept for a minimum of two years. Cars used for rides cannot be older than eight years, cannot have more than seven seats and should not have done over 600,000 km. Local authorities have been given room for setting pricing limits.
Didi is creating a development fund that will help accelerate the integration and close partnerships between ride-sharing apps, taxi operators and drivers. However, these new rules will need to be adopted at both the provincial and municipal level for which ride-sharing companies have to apply and secure new licences.
The government will encourage private car pooling too, but will require them to install safety features like security alarms and GPS. All drivers must register with local taxi regulators. The state council also indicated that taxi franchise fees will slowly be phased out as the services move online.
The guidelines also advise companies to “not disturb the normal market order by operating at the prices below the cost of operation” and resort to deep discounting.
Freeway for All
Singapore has among the world’s highest taxi-topopulation ratios. Yet, its taxi services have faced many issues.
Commuters have had problems getting taxis during peak hours, in remote areas and in bad weather. One-shift taxis coupled with their low mileage per day have meant constrained supply.
The Land Transport Authority (LTA), a statutory body under the transport ministry, tried many measures to tackle the issue, including setting taxi availability standards in 2013, and setting the per taxi minimum mileage threshold at 250 km per day.
In 2014, it tried a new taxi information system that used heat sensors and cameras to locate waiting commuters and relay it to taxi operators.
It also launched a mobile app Taxi-Taxi@SG that showed the location of waiting taxis and commuters to boost availability. Despite so many measures, it was the launch of ride-sharing apps like Uber that improved the situation.
It also offered government a chance to recalibrate its transport policy. Around 2013, drivers with Uber and Grab (the two prominent players) operated unfettered. They were not required to hold vocational licences but had to incorporate their own company to meet LTA’s regulations that disallow individuals to offer a chauffeured service.
While they were allowed to take bookings through their apps, they could not pick up passengers from the streets or taxi stands. LTA did not regulate fares and let ride-sharing platforms set it, based on distance, location and demand.
In 2014, LTA brought in a light-touch regulation. It required taxi-booking apps with at least 20 taxis to register with LTA. Pushed by taxi operators seeking a level-playing field, the government undertook a sixmonth review before issuing a policy this April, which will be effective in 2017.
So far exempted from getting vocational licences, which were mandatory for taxi operators, Uber and Grab drivers will be required to attend a 10-hour course, clear tests on regulations and passenger safety to obtain a Private Hire Car Driver’s Vocations Licence (PDVL).
Both permanent residents and work permit holders are eligible. They need to register their cars with LTA, which will also do their background and medical screening.
While LTA legalised carpooling services in 2015, it limited such rides to two a day. The minister in-charge said that innovations benefiting commuters should not be obstructed.