License article

All's not fare in Fels battle in taxi wars

AFTER years of clipping the ticket on most aspects of the multibillion-dollar taxi industry, the jig could soon be up for Reg Kermode's Cabcharge, which has entrenched itself as one of Australia's most powerful vertically integrated companies.

Kermode, the 85-year-old chief executive and chairman of Cabcharge, is facing unparalleled scrutiny and a potential dilution of his company's dominance in the $5 billion industry following the release of a review of the taxi industry by Allan Fels and the imminent release of a report into credit card surcharges by the Reserve Bank.

The report comes just as the group has lost its number one position in its key Sydney and Melbourne markets, according to the latest (March-quarter) Deutsche Bank taxi data. Cabcharge's Australia-wide market share is at 55 per cent, compared with GM Cabs' 30.8 per cent.

The taxi inquiry - the seventh since 1981 - puts the spotlight on Cabcharge nationally and questions its many tentacles. The recommendations include slashing the Cabcharge fee and removing mandatory network affiliation, which is dominated by a duopoly including Cabcharge.

Under the current system taxi drivers have to be affiliated with a network service provider, which costs $7000 a year in return for which the networks accept bookings from customers and transmits booking details to data terminals installed in taxis. In recent years, networks have broadened their dominance by providing ancillary services to operators and drivers, including finance, electronic payment processing, taxi licence broking and driver training. This has further entrenched the networks.

In Victoria, taxi licence conditions require that all taxis be fitted with an electronic payment system capable of processing the government taxi subsidy program known as the Multi Purpose Taxi Program (MPTP), with a small number of exceptions outside the cities. The only system able to process the cards associated with this program is the Cabcharge-owned system. The upshot is that Victorian taxis must be fitted with a Cabcharge EFT terminal. Electronic payments received through this system (Cabcharge charge card or credit and debit cards) are disbursed to the operator via the network.


The Fels taxi review reports that several taxi operators believe the networks exert too much control over the industry through ''their cross-ownership of licences, fleets and electronic payment systems; their brokering of vehicle sales and taxi licensing; and their perceived close relationships with Cabcharge.''

If the Victorian government accepts the recommendations, it will have a profound effect on the taxi industry and will put pressure on other state governments to follow suit.

Indeed, when Fels accepted the job of chairing the taxi inquiry last year he went to the RBA and asked it to investigate the surcharge levied by Cabcharge of up to 10 per cent as part of the RBA's review of retailers' surcharges. He saw this as a concern given Cabcharge's electronic payment processing system is found in 97 per cent of taxis.

In 2003, the RBA removed a ban on surcharges hoping to send cardholders ''price signals'' about the relative cost of different payment methods. It didn't anticipate some merchants, including Cabcharge, would profit from it. Consumers currently pay an average surcharge of nearly 2 per cent, which is well below Cabcharge's surcharge.

The RBA's payments system board, which includes governor Glenn Stevens, is believed to have signed off on card surcharging caps at 5 per cent. In New York City, about 50 per cent of taxi trips are paid for electronically, either by credit cards or debit cards. Passengers do not pay a surcharge for using credit or debit facilities. Drivers are not permitted to charge more for credit or debit than for cash payments.

Fels has also been in the ear of the competition watchdog over Cabcharge and competition. Australian Competition and Consumer Commission chairman Rod Sims confirmed he was looking at Fels' recommendations and expressed concern at the market dominance of Cabcharge. He blamed governments for creating the situation. ''Governments make it worse by insisting cabs use Cabcharge equipment,'' he said. ''This inquiry and other inquiries into the taxi industry are good because they shine a light on that. Governments need to take action.''

He said the ACCC could only deal with Cabcharge if it misused market power, and it did that in 2010 when it fined the company $15 million for admitting to three contraventions of the Trade Practices Act in a case that was settled out of court. Two of the three contraventions related to the refusal by Cabcharge to allow competing suppliers of electronic payment processing services for taxis to process Cabcharge's own branded payment products. The other involved engaging in predatory pricing - the cheap supply of Cabcharge's taxi meters for an anti-competitive purpose. The ACCC has forced Cabcharge to ensure that its charge card can be used on terminals installed by competitors.

Investors have pushed the Cabcharge stock down more than 6 per cent since the Fels report was released last Thursday, compared with an overall fall of less than 1 per cent in the broader market.

It is a sign that investors are concerned that structural changes could be afoot.

The only comment out of Cabcharge was a curious one. A spokeswoman said the company operated at a national and international level to provide a payments system for taxis and ''we do not get involved in the regulation of particular jurisdictions other than to determine whether it is commercially viable to continue operating there''.