On 19 February 2020, the Competition Commission released its reports on the provisional findings of the Land Based Public Passenger Transport Market Inquiry. Of the two reports published, we focus on the one which concerns metered taxis and e-hailing services.
And it is good news for metered taxis. The market inquiry is of the view that metered taxis should be free to roam without restriction and therefore price their trips in competition with the e-hailing services.
In 2013, e-hailing services reached South Africa with the introduction of Uber and quickly began disrupting the landscape of public transport. Those most affected by the disruption, the metered taxi owners, realised early on the danger posed to their future. This resulted in protest action. One of the main concerns raised by the metered taxis was that they were not able to compete effectively with e-hailing services.
But what exactly were their competition concerns?
The predominant problems highlighted by the Commission in its report were the area restrictions imposed on metered taxis and the way in which e-hailing services were able to price their trips.
Metered taxis are licensed to operate in certain areas only, often restricted to municipal boundaries. They must transport their passenger and return to a central depot before collecting another passenger. This increases wasted mileage and operating costs. E-hailing services, on the other hand, roam around freely, collecting new passengers in close proximity to those they have dropped off. Technically, e-hailing taxis are only meant to operate within restricted areas, but the restriction is difficult to monitor and enforce, resulting in more freedom of movement. This translates into greater efficiencies and lower fares charged to passengers using e-hailing services.
The necessity of area restrictions has been interrogated since the arrival of e-hailing services. It has become clear that area restrictions provide e-hailing services with an advantage over their metered competitors, the problem being that the restrictions limit access to passengers whilst driving up costs. Cost to passenger and cost to taxi owner have an impact on the different pricing models used by e-hailing services and metered taxis.
Metered taxis charge fares stipulated by the regulator or local metered taxi association. In contrast, e-hailing services follow a dynamic market approach where prices are determined by supply and demand. The potential problem with this, of course, is the occurrence of surge pricing. This is common after large sporting or music events. In these instances, e-hailing drivers, unaffected by area restrictions, are able to capitalise. In short, demand outstrips supply resulting in the increase of prices. The e-hailing business and pricing model poses a threat in a "winner takes all" market, which this arguably is. E-hailing services have greater freedoms and thus higher efficiencies, making them popular with passengers and ultimately more competitive. The metered taxis, without similar freedoms, are left behind.
Of course, metered taxi companies are not without fault for falling behind. Many have been slow to react to the technological innovation of e-hailing services and as such have not themselves embraced the necessary technology which would allow them to compete. Metered taxi owners have argued that their businesses are failing because the regulators are failing to regulate the e-hailing services and that the need to adopt new technology is an expensive barrier to entry. Herein lies the rub.
With the advent of the 4th industrial revolution (the tech revolution), regulators around the world have faced the conundrum of regulating innovation in order to protect established practices. South African regulators face this precise conundrum within the context of metered taxis and e-hailing services. Do the regulators increase regulation of e-hailing services and run the risk of quashing innovation, or do they allow e-hailing services to continue to out-innovate metered taxi services and run the risk of the loss of metered taxi companies? It would seem that the Commission is proposing to do neither.
The Commission has recommended that area restrictions be removed. The rationality being that they are no longer compatible with the changing market conditions and do in fact reduce competition. Only in certain areas, such as airports, are area restrictions necessary and permissible. It is also envisioned by the Commission that with the removal of area restrictions, the potential abuses of dynamic pricing (i.e. surge pricing) will be mitigated. These recommendations remain just that, recommendations – they are not enforceable at this stage. They do, however, indicate an intention to level the playing field between metered taxis and e-hailing services. Encouraging on a different note is that these recommendations perhaps indicate the approach the competition regulator intends to take in future – let them innovate.
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