The for-hire ground transportation sector has been traditionally comprised of on-demand or dispatched taxi services and prearranged service by limousine, black car, livery or sedan. Taxicab regulations in most jurisdictions allow for street hails and prearranged dispatch service with set rates of fare calculated through a taximeter, sometimes with a cap or limit on the number of taxi permits.
Prearranged limousine and black car service, whether called for-hire (as in New York City) or private-hire (as in London), are generally characterized by what they cannot do: i.e., pick-up street hails. Regulation of the for-hire sector allows for trade name or brand competition, an unlimited number of cars for growth and the ability to set fares without government regulatory approval or intervention.
While taxi services vary in terms of their quality and price from city to city, there is usually some level of stability or uniformity of fares and service levels within a particular city. The prearranged for-hire market, globally and even locally, varies in terms of price, vehicle quality and professionalism, from company to company. In most countries, taxicab service is regulated at the local level, while limousine and for-hire prearranged service is regulated at the local, state, or provincial level – and rarely is either service regulated at the national level. There has been little consistency in the type of government agencies responsible for regulating such services, with anything from a police department to a mass transit agency or transportation department, to consumer affairs agencies or public utilities commissions, with the general approach being that taxicabs are regulated more tightly and extensively than high-end premium limousine services.
Despite decades of evolution of such services, not much has changed, with the exception of taxicabs and limousines accepting payment by credit cards and using automated dispatch systems, which have been disrupted by smartphone technology.
A little over 10 years ago, the world was introduced to the smartphone. Shortly after, a smartphone application (app) revolution delivered ground transportation services to passengers’ fingertips. But companies that sought to disrupt the market, such as Uber, Grab, MyTaxi and Lyft, chose to develop national or international brands with apps to deliver traditional taxi services. These companies engaged in market take-over strategies by developing a hybrid-model of on-demand taxi service and private limo-like car service. The result was on-demand service delivered in a fancier vehicle (in some instances) and the meter was replaced by a pre-calculated fare shown as part of the booking process – auto-synced to charge a passenger’s credit or debit card.
These disruptors took advantage of the disparities in regulation, and also operated for some time without any licensed drivers or vehicles, claiming they first were technology companies, and then claimed they were engaged in peer-to-peer sharing of private vehicles. Neither was true, and in the U.S. and abroad, many regulators responded with cease and desist orders, fines, vehicle confiscation and even criminal charges. This article explores the different approaches undertaken by regulators and the pushback by incumbent taxi and limo industry members across several continents – starting with the U.S. – where it all began.
After being faced with a shut-down of their businesses, Uber and Lyft started to craft their own legislation. These companies started in Colorado and then in California in the U.S., creating a new category of licensing known now as Transportation Network Companies (TNCs), allowing for looser insurance standards, relaxed criminal background checks and easy entry requirements to facilitate unlimited and quick growth. Loose regulation has provided more prompt, but sometimes risky, service that eventually has led to driver income declines.
TNCs also provide precise pick-up and travel time projections and cashless transactions – but with demand pricing (sometimes 2-3 times the normal fare), as well as driver and passenger rating systems. With the U.S. now having a near uniform version of TNC laws, it has created a complicated and, many say, uneven system of regulation among transportation services. Various governments outside the U.S. have not been as welcoming of the disruption, with the exception of large cities with poor taxi systems.
The U.S. approach to TNC regulation has been driven predominantly by tech-based capitalism, one in which market disruptions are accepted as the norm. As of June 2017, 48 states have passed legislation facilitating the operation of TNCs. With the exception of New York City, most jurisdictions in the U.S. have broad-based laws governing TNCs.
In NYC, by far the largest market in the U.S., app-based companies are regulated by the NYC Taxi and Limousine Commission (TLC) under a pre-existing category known as for-hire vehicles, including limousines, liveries and so-called “black cars.” In August 2018, the New York City Council approved new rules to restrict the number of ride-hailing vehicles and to establish driver wage rules. Elsewhere in New York and in the U.S. (with the exception of Chicago, Seattle, Portland and Washington D.C.), TNCs are regulated at the state level.
Overall, the regulatory framework applied to TNCs is lighter than the one applied to the taxi industry. To date, no jurisdiction has established any cap on the number of TNC vehicles. There is no regulation setting fare levels, only disclosure of fares. With regards to passenger safety, most drivers are not required to undergo stringent background checks. The only universal regulation in the U.S. seems to be insurance requirements based on two time periods: before and after the driver has accepted a ride.
Due to the lax regulations imposed on TNCs, it is not surprising that the biggest market player of them all, Uber, has been under intense scrutiny after a wave of highly-publicized scandals and crises, including gender discrimination, sexual assault allegations, hiding details of a mass data breach from regulators, tax miscalculations that cost its drivers tens of millions of dollars and the use of secret software to dodge regulators.
Moving northward, we find the Canadian approach to TNC regulation is more cautious than the U.S. Although TNCs operate in 20 of Canada’s 30 largest metropolitan areas, their jurisdictional footprint is minimal: Uber only operates in three provinces (Ontario, Québec and Alberta) and Lyft operates in only one city, Toronto.
The regulatory frameworks surrounding TNCs are still relatively nascent in Canada. In Toronto, Uber was legalized in 2016 after a long battle with the city. In Québec, Uber was ordered to follow stricter regulations in September 2017, threatened to quit but later backtracked. In Manitoba, there is ongoing debate to allow municipalities to set rules pertaining to TNCs. In Saskatchewan, the provincial government passed an act in May 2018 outlining how TNCs should operate, but there are still uncertainties surrounding fare regulation. In British Columbia, despite years of lobbying by industry players, TNCs are not legal and the provincial government is working to pass TNC regulations. As the TNC industry continues to spread throughout Canada, provincial and municipal governments are looking into a more conciliatory approach to regulation.
Latin America & South America
Moving southward to Latin America, one of the world’s most heavily urban regions, regulations on TNCs are even more preliminary than Canada. Historically, countries in this region are tied to traditional transportation such as taxis, buses, trains and metro systems. Things have changed, however, over the past three years. In large cities such as Mexico City, São Paulo, and Bogota, limited public transit capacities have inevitably pushed passengers towards TNCs. In 2015, Mexico City was the first city in Latin America to regulate TNCs, requiring a 1.5% ride tax, a yearly permit fee and a minimum vehicle value. Other regulators in the region have been slow to adapt regulations due to the constantly changing landscape involving new players, mergers and acquisitions.
2018 may be a pivotal year for TNC regulations in several South American countries. In Brazil, a bill regulating TNCs was signed into law in May, allowing local governments to institute rules and requiring drivers to have insurance coverage, as well as social security contributions. Prior to the signing, Brazil’s Congress had voted to eliminate certain requirements from the initial bill, including special license plates and driver ownership of vehicles, which was a victory for Uber, which lobbied heavily against stringent regulations. In Chile, regulations were imposed in June, requiring TNCs to register as paid transport companies with tax obligations and requiring drivers to maintain a professional license and vehicle insurance, in addition to undergoing criminal background checks. In Argentina, lawmakers in the Mendoza province passed the country’s first TNC law in July, paving the way for the entry of Uber, Cabify, and other companies. It is likely that other governments in Latin and South America will follow suit to legalize and regulate TNCs in the region.
Europe & Eurasia
Across the pond from the U.S., European countries have adopted a more cautious and stringent approach to TNC regulation than the U.S. In the European Union (EU), regulators view the new business models and innovations with caution, until the full consequences are determined. In December 2017, the European Court of Justice (ECJ) ruled Uber to be a transportation provider subject to the same rules as taxi services, and not a technology company. The ruling was a legal blow to Uber and other TNCs as it meant stricter national regulations, as well as requiring licenses to operate in each and every member state.
In April 2018, Uber was dealt another blow when the ECJ ruled that all 28 member-states were allowed to “prohibit and punish the illegal exercise of a transport activity such as UberPop (similar to UberX in the U.S.), without having to notify the commission in advance of the draft legislation laying down criminal penalties for the exercise of such an activity.”
In London, by far Uber’s biggest European market, the ride-hailing company was banned from operating in the city last year due to its “lack of corporate responsibility in relation to a number of issues which have potential public safety and security implications.” However, after Uber agreed to reform some of its business practices, a British appeal court judge later ruled that Uber vehicles can stay on the road for 15 months. Despite this, it is clear that the regulatory environment in Europe is becoming more difficult, not only for Uber, but TNCs in general.
In Italy, France, the Netherlands and Finland, Uber has faced suspensions over its UberPOP service. In Bulgaria, Denmark, and Hungary, Uber has been banned altogether. Uber may exit several more European markets if it does not anticipate a sufficient return on investment.
In terms of Eurasia, in particular Russia, the Federal Antimonopoly Service (FAS) approved the merger of Yandex (also known as “Google of Russia”) and Uber at end of last year, but stipulated that the combined company not prohibit drivers from working for competitors. The joint venture controls only 10-12% of the total taxi market, allowing other taxi apps – such as Gett and InDriver – to flourish.
In the Middle East, there are still inadequate or unclear regulatory frameworks surrounding TNCs. Due to uncertainties concerning their operation, licensing and tax requirements, TNCs often operate in legally gray areas. Where regulations exist, they vary widely from country to country.
In Dubai, United Arab Emirates, TNCs are required to hire only licensed taxi drivers from incumbent companies and must align their fares to official tariffs. This is meant to prevent what is seen as unfair competition from TNCs, such as Dubai-based Careem, also known as “Uber of the Middle East.”
Most national taxi companies in Dubai are government-owned or -backed, such as the Dubai Taxi Corporation, a subsidiary of the Road Transport Authority (RTA). At the same time, the RTA has partnered with TNCs to improve transportation offerings across the United Arab Emirates (UAE). For example, Careem includes all taxis on its platform, making Dubai’s entire for-hire sector accessible through one platform. In Abu Dhabi, the capital of the UAE, the for-hire vehicle regulator TransAD requires TNCs to charge 30% more than taxis, and this has caused Uber to suspend its services in 2016, roughly three years after its launch. Careem also halted its operations around the same time but has returned to the city this year by launching a less expensive car service.
In Egypt, possibly the biggest market for ride-hailing in the Middle East, TNCs were only legalized in May 2018, after facing legal and regulatory setbacks since 2014. The new law specifies – among other topics – licensing fees and data sharing requirements. In Saudi Arabia, a recent ruling allowing women to drive may affect the revenue of TNCs (women account for roughly 80% of Uber and Careem’s passengers), as well as future tweaks to regulations to cater to female drivers. TNCs are undoubtedly expanding in the region, but there are still countries such as Jordan, Oman and Turkey, where the government has opted for regulatory protection for the taxi industry by banning TNCs.
In Africa, many governments seem to have been caught off-guard by the rapid development of TNCs and are rushing to put regulations in place. Last year, Ghana became the first country in Africa to have a Standard of Understanding (SOU) signed between its Ministry of Transport and Uber. The SOU provides holistic guidelines for TNC operations and sets forth regulations for both companies and drivers.
In in April 2018, following several attacks on Uber drivers by taxi drivers last year, the government of South Africa passed regulations to license and regulate TNCs in the same way as metered taxis. In Kenya, after a series of protests from drivers concerning wages, the Ministry of Transport has agreed to look into fares and commission rates.
There are still several countries with regulatory uncertainties in Africa. In Morocco, the regulatory framework only recognizes taxis under registered associations. As a result, Uber exited the market in early 2018, despite operating in a legal grey area since 2016. In Nigeria, one of the biggest economies in the region, has prohibitive regulations that have hampered the growth of TNCs.
The approaches taken in the Asia-Pacific region are wide-ranging, depending on the country or region. In China, DiDi Chuxing, often referred to as the “Uber of China,” currently operates with more than 21 million drivers and is expanding rapidly. What is unique in China is the fact that taxis and TNCs are generally positioned for different market segments, with TNCs offering higher quality (and more expensive) door-to-door services.
After several run-ins with regulators, the Ministry of Transport in 2016 finally issued regulatory guidelines for TNCs and even instructed local governments to promote the booming industry. The Chinese government has vowed to tighten rules to crack down on unlicensed services, tax evasion and data breach.
In other regions of the Far East, such as Japan, South Korea, Taiwan and Hong Kong, TNCs have made very few inroads. Thus far, taxi operators in these countries have been influential in dissuading regulators from allowing TNCs to compete head-on.
Many drivers in Japan appear to be adverse to the concept of using personal vehicles for business purposes. Also, most passengers do not feel the need for a differentiated service in light of the superior quality of the traditional for-hire service and public transit system.
The scenario is somewhat different in Southeast Asia, where regulators have struggled over the past five years to keep up with the pace of demand for TNCs (particularly Grab and GoJek), due to the lack of transportation options. Policymakers in several countries have, however, begun to step up after facing a severe backlash from the incumbent taxi industry.
In Indonesia, the Transport Ministry has required TNCs to be registered as transport companies to ensure they meet safety requirements. In Thailand, the military government has banned the use of personal vehicles as TNCs. In the Philippines, the regulator in Manilla has set a cap on the number of TNC vehicles. In Malaysia, the transport ministry recently announced that TNCs will be subject to the same regulations as taxis. In Singapore, the city-state’s anti-trust body has proposed fines on Uber and Grab due to a virtual monopoly and warned that it may require the companies to “de-merge.”
In Australia, regulators have been relatively receptive to TNCs, as evident from the fact that TNCs are now legalized in all states and territories. As a result, Australia has become the battleground for major TNCs such as Uber, DiDi and Ola, in addition to other local startups. The latter two companies, Ola (from India) and DiDi (from China), have only started their operation this year, which is a first for both companies to venture into Western territory.
This is not to imply that the regulatory regime in Australia is lax or predisposed towards TNCs. In New South Wales, TNC drivers are required to undergo stringent medical, criminal and car-safety checks. In Tasmania, drivers are similarly required to pass police and medical assessments, but their vehicles must pass an initial inspection, followed by subsequent annual inspections for vehicles older than three years. In the Northern Territory, the rules are less stringent for TNC vehicles, with those older than nine years being allowed to operate.
One of the most pressing issues for taxi regulators today is whether they should compensate incumbents in the traditional taxi industry for their losses on the grounds of fairness or political obligation. Most state regulators in Australia have opted for compensation in the form of monetary compensation, as opposed to continued regulatory protection from competition. With the legalization of TNCs, taxi owners/drivers are expected to receive up to A$250 million in NSW; A$494 million in Victoria; A$100 million in Queensland, A$120 million in Western Australia, and A$31 million in South Australia.
This article offers a broad survey of TNC regulations around the world, from which businesses, investors and policy-makers can hopefully gain insight into the evolution of for-hire transportation regulation and the many different approaches to smartphone application transportation technology. For all the ways that TNC regulation represents a departure from traditional for-hire vehicle regulation, the regulatory regime is still fundamentally reactive, because it is responsive to changes in technology and business models. Nonetheless, case studies around the world are abundant by now and, moving forward, regulators and private industry should be able to gauge the efficacy of a particular policy or business model before implementation.
Regulatory changes have not necessarily kept track with technology changes and advances, and this reactionary approach may not be the best alternative in light of the convergence of ride-hailing with autonomous driving and shared mobility in the near future. The hodgepodge of different approaches shines a light for those in the U.S. that Uber is not necessarily the international dominant force many think it is.
The war of the apps is far from over, and the cycle of regulation-to-deregulation, and back to more regulation, is just turning a corner. Many new and other international players may emerge as the industry’s Facebook and could leave existing players much like MySpace – the fledging social media platform that was eclipsed by Facebook. Now Facebook is not the flavor of the day, with other apps and related platforms enticing different types of consumers – such as Twitter, Instagram, Linked-In and Snapchat.
Different demographics are using different platforms, but many are copying one another in terms of functions, and the same is likely to happen in the transportation app market, with marketing and investment dollars playing a greater role than regulation and service delivery over time. We are not there yet, and in fact some may say we are still in the Dinosaur age with automated vehicles on the horizon.
This is not the last World App Tour – and we will need to circle the globe often to keep track of the rising tides of innovation and tectonic forces that will shape transportation on our planet over the coming decade.