Uber, Taxis and Transformations

22 Dec 16

The mobility revolution can serve societal goals better by aligning to local needs and urban planning requirements

The past two decades have seen the face of telecommunication change beyond recognition. In the next two decades, we predict that mobility will likewise see transformation to a new avatar that will bear little resemblance to what we use today.

There will be many dimensions to this change. Technology will offer electric and connected cars and even autonomous driving. Ever growing cities will require mobility to conform to a denser, more energy efficient urban architecture. Above all, social and cultural transformations will emphasise individually customised mobility within a digitised and sharing economy.

Among many, one manifestation of change will be triggered by the emergence of app-hailed cars like Uber, Lyft, Didi-Chuxing, Grab and Ola. Over the past week, this topic has seen heightened media interest following the visit of Uber’s CEO. These enterprises are disrupting a service — traditional taxis — that can trace their formal origins to 1654. Over the centuries, taxis have evolved to a predictable pattern across the world. Usually the services and their tariffs are regulated. The drivers usually are organised in some form of labour union and are in turn subject to screening for health, proficiency and often criminal record. Vehicles are often required to meet environmental, safety and user access regulations in response to societal concerns and priorities.

Uber disruption

Into this regulated domain, Uber, Lyft, Didi, Ola, Grab and several others, have emerged as powerful forces of disruption. By creating an app-based mobility-as-a-service platform, they aspire to render car ownership as well as several forms of public transit obsolete within a few decades. These disruptors have a lot to offer to steamroll over incumbents. They leverage technology (smartphones, apps) and ubiquitous connectivity to endow considerable efficiency to a historically regulated and lethargic sector. They improve driver and asset utilisation by efficiently exploiting real-time information and entrepreneurial drive of individual operators. In the modern idiom, they harness a distributed enterprise leveraging dispersed capital. This renders their balance sheets asset light — a factor that their investors love.

This blend of affordable fares, low capital demands, and flexible, user-friendly service has caused these services to appeal not only to commuters but also to municipalities and local administrations that are under pressure around the world, to reduce the losses in their unprofitable local transit services. Centennial, a suburb of Denver in the US, offers to pay riders for use of Lyft to reach the municipality’s new Rapid Transit Light-rail services. Pinelas Park in Florida offers travellers in certain sectors a subsidy on their Uber fare, after factoring that this was cheaper than operating non-profitable bus routes. Such blurring of the public-private modal divide is accelerating as communities balance goals of mitigating congestion, relieving pressure on parking and balancing budgets for thinly used public transit routes.

Due for a correction

Many fear all this is too good to be true and the time will come to pay the piper. These rapid developments have brought in their wake many unresolved issues that span labour markets, fair and open competition, and consumer protection.

At the core, their business models are based on rapid scaling up, capture of significant market share and the hope of long-term profitability after a period of investor-financed, below-cost pricing to entice customers, as they drive traditional taxi companies out of business. At the same time, drivers are enticed to the franchise by the promise of better than par daily earnings which may be unsustainable as fleet size increases and profitability comes into focus. An analyst has observed that Uber’s current financials are “staggeringly unprofitable”.

As is typical in such situations, there is a race for scale. That race is driving global consolidation of service providers. Didi-Chuxing, the “Uber of China,” is funded by Tencent, Alibaba and Apple, and has the deep pockets to take the fight to Uber. They have effectively formed an alliance involving financial stakes in Lyft in the US, Ola in India and Grab in Southeast Asia. In China, Uber had been engaged in a bruising battle with Didi for market share. This was perversely and abruptly halted when motivated shareholders of both organisations brokered a peace that has left Uber with a minority stake in Didi and allowed Didi to take over Uber’s share of that market. Didi’s China operations are now three times as large as their competitors combined. Many fear that the viability of these organisations will depend on their acquiring such near-monopolistic scale.

With such concentration of market power in providing services, one may assume that their unprofitable operations will soon be rendered profitable. Fares that were too good to be true will evaporate. Both consumers and drivers may face an aggregator/employer wielding enormous leverage. Such an outcome should be of significant concern to communities and regulators, given the trend to blur the divide between for-profit private modes and usually subsidised public modes.

We argue that communities and their governments can and should participate in orchestrating a positive trajectory for this mobility sector that leverages technology and business innovations while carefully protecting longer-term societal interests.

Elements of a roadmap

This orchestration will need to embody some fundamental principles:

Promote open, fair and vibrant competition: The disruptors have laid bare the calcified inefficiencies that the existing regulatory regimes had encouraged. Threatened by disruption, many legacy taxi operators are now finding new apps and tools to improve the efficiency of their game. Competition can boost everybody’s game to the benefit of all. Cleverly, perhaps, the disruptors often ignored all existing rules, acted as though they were not really taxi companies, and subverted the intent of all regulations, both the old and inefficient as well as the productive and well-intentioned. If the old regulatory emperor had no clothes, what should the new regulatory regime wear? Should they maintain some form of uniform rules governing unpredictable surge prices, acceptable wage rates and driver benefits to level the currently non-level playing field and promote meaningful competition? And, how should regulators re-align mandatory vehicle standards? Should regulations require low-emission vehicles, easy access for passengers with disabilities, automated door-locks? Surely, there cannot be one set of rules for taxis and another for Uber/Ola/Didi. In such a fast-clockspeed environment, how frequently must the regulatory regime be re-tuned to maintain open and fair competition among a fast-growing diversity of public and private modes and services?

Support technology and business innovation: Variations like motor-cycle taxis, Uber-pool and Ola-pool promise to further lower cost and congestion. But, if one can pool four riders, why not eight? Cities like Helsinki in Finland and San Francisco in the US have also experimented with app-hailed, crowd-sourced, dynamically routed mini-vans that transport 10-15 people, complementing public transit – another innovation well suited to populous Indian cities. Yet, in India, share-autos and mini-buses operate with handcuffs. As the data processed by these organisations increase they are able to leverage analytics to deliver even better efficiencies and customer service. A city’s mobility architecture must remain open to evolving technologies and business innovations. Above all, it must ensure that user interests are protected.

Align to urban planning policies and “smart city” infrastructure: Mobility has emerged as one of the top three priorities as urban communities plan for the future. Data from around the world reveals that cities with efficient mobility can enjoy an advantage of over 10 per cent in local GDP over those burdened with tottering services. India faces a further opportunity to harvest economic efficiencies as it moulds a vibrant, future-ready urban mobility architecture by linking it to on-going “smart city” investments.

China had long ago learned to leverage the magnet of its market to secure favourable terms from foreign investors. Can India secure a favourable deal from global investors as it transforms its urban mobility?

This article taken from The Hindu BusinessLine was written by Dr V. Sumantran, Dr Charles Fine and Dr David Gonsalvez.

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