CEO ARTICLE

Mar 01 2016

The question over the nature of regulation in our industry continues to loom as the biggest issue for our collective futures. At the risk of being thought of as predictable, I use my column this month to consider some of the features of the ridesharing business model which are important to the development of a sustainable set of laws and regulations which will create a dynamic, diverse and innovative commercial passenger vehicle (CPV) industry.

The VTA commissioned a paper from Dr of Economics John Shannon to examine the ways in which ridesharing is impacting the taxi industry around the world and specifically consider the future of price regulation in the context of this new competition. The following comments are drawn from this paper. The full document is available here.

“Uber is different from any other firm that has ever been involved in the market for passenger services. It has already raised over $10 billion and it has done this in ways that are quite unusual. With this sort of capital Uber has been able to expand quickly in many different countries without actually showing that it could generate profits.

“While Uber may offer higher service levels, much of the increase in their market share can be explained by their aggressive pricing policies. Like HIH Insurance and Onetel, Uber has shown that it can gain significant market share by cutting prices, but it has not shown that this strategy has actually generated sustainable profits.

“Uber is also different in the ways in which it treats the driver-contractors. After advertising median salaries of over $90,000 per year to attract the driver-contractors Uber has acted in ways which significantly reduced their returns and their ability to actually function as independent contractors. A recent extreme case was in Tampa where over the last year gross returns for drivers were reduced from $1.20 a mile to 95 cents a mile and then to 65 cents a mile. As the IRS estimate of the total cost of keeping a car on the road is $0.56 a mile in the long term this leaves the driver-contractor with a net return of 9 cents a mile.

“When we take into consideration the rapid rate of technological change along with the nature of Uber’s business strategy it appears that there is little to be gained by introducing complicated legislation that seeks to provide rules which can handle many as yet unknown situations.

“To ensure these technological innovations increase our social surplus and this increase is shared in a fair and reasonable way between consumers, drivers, taxi owners and firms such as Uber the best approach would be to implement a package of changes that help to make the market for commercial passenger services more competitive.

It is important to be clear that we as an industry are not, and must not, seek to be protected from competition with Uber. On the contrary, we are urging regulatory reform to embolden all CPV operators to more actively compete on equal terms. 

It is Uber, not the taxi industry, that is trying to prevent fair competition using a nonsense argument that what they do is provide a different service to a a different market.

This academic perspective provides a foundation for our arguments for the need to find a sustainable solution to the current inequality which will encourage new and emerging service types, put power back in the hands of consumers, and recognise the impact on industry participants through the State all while offering the necessary consumer safeguards for driver and vehicle safety.

We have explored one of the key areas of current inequality, fare regulation in more detail in the ‘The VTA on the future of taxi fare regulation’ article in this edition. The VTA’s full submission to the Essential Services Commission’s review of taxi fares is also available on our website.

Another related issue which continues to concern us is the ability of co-operative style networks in country and regional areas to set consistent fares for booked work at the network level. Finding a way to secure this right for co-operative style networks beyond the term of the current ACCC authorisation will be another key focus of our discussions with Government over the coming months.

David Samuel
Chief Executive Officer

Next article