'Ridesharing' service may cause trouble for taxis
Fairfax Media's Ben Grubb and NSW Taxi Council chief executive Roy Wakelin-King discuss Uber's new low cost 'taxis' on 2UE.PT0M0S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-375ef 620 349 April 24, 2014
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The biggest business story today isn’t on the business pages. (Well, it wasn’t until now.) It’s Ben Grubb’s coverage of Uber’s disruptive technology threatening the very powerful, very well-connected taxi industry and the predictable reaction from those with billions of dollars to lose.
Following Grubb’s coverage of how Uber allows people to circumvent the highly regulated taxi monopoly with its layers of rent-seekers, the next step will be a test of the New South Wales Government’s integrity: will the new premier side with the consumer, competition, innovation and improved productivity – or the vested interests of the industry incumbents and the government’s own existing revenue streams?
Left behind ... Uber's evolution is showing up the taxi industry. Photo: Louie Douvis
A very large amount of money is at stake. Using Deloitte Access Economics figures prepared for the Taxi Council (and therefore in keeping with the rich tradition of such commissioned consultants’ reports), there were 5,647 plates just in Sydney last year with each plate worth the better part of $400,000. Call it $2.2 billion. Then there’s Cabcharge, the biggest of the networks, with a market capitalisation of $480 million. Deloitte says annual NSW taxi revenue is $1.3 billion, there are 17,500 direct equivalent full time jobs and the industry generates $1.15 billion “in total value added” to the NSW economy. It also notes that the NSW government itself is the biggest lessor of taxi licenses with 600 under lease, providing the treasury with $20 million in annual revenue.
But it’s not just the money – it’s the connections. The taxi industry around the nation has specialised in ingratiating itself with both sides of politics. As a small public example, the industry’s heavyweight champion, Reg Kermode’s Cabcharge, donated generous six-figure amounts to Labor and Liberal alike, as has the Taxi Council. Cabcharge board and management appointments have had the occasional government flavour - Neville Wran the most obvious when he became a director with a gift of 250,000 shares. Coincidentally, Cabcharge has received gifts of effectively free taxi plates from the NSW government.
Interestingly, there’s family history for Premier Baird in those free Cabcharge plates. When his father, Bruce Baird, was Transport Minister in the Greiner government, he refused a department recommendation to gift the plates. When the Carr government was elected, they were handed over with all the attendant windfall profit.
Uber’s model of internet-enabled “ride sharing” threatens a lot of investment. Cabcharge’s share price has already been on the slide thanks to the snail’s-pace change to its 10 per cent surcharge on credit cards. (Another example of the industry’s power? The card companies – Visa, Mastercard, American Express – haven’t been game to take action over that unjustified surcharge after the Reserve Bank of Australia empowered them to do so.)
It’s predictable that the first reaction is to have taxi drivers complaining about unfair competition, but as various studies, such as Professor Alan Fels’ Victorian review have shown, the drivers are people most exploited by the industry structure. If there was greater clarity about where Uber intends to take its system, there’s every chance taxi drivers would be better off outside a system that’s constructed primarily to justify the price of the artificially created and maintained government licences.
Someone briefly wanting to hire a driver with a car should be a simple and reasonable basis for a business transaction, but it’s been turned into an inflated monster. I’m sure Deloitte’s effort for the Taxi Council didn’t mean to paint a picture of stuffed system, but try this:
“The NSW taxi industry operates under a co-regulatory model, where the NSW Government sets the standards, stipulates maximum fares, and issues licences and accreditations. The networks monitor and assist the Government in enforcing industry standards for operators, drivers and vehicles. The NSW Government also has a team of inspectors in the field monitoring compliance.”
And the government decides how many plates are issued, in consultation with the industry, of course.
Cabcharge and others who have taken the risk of investing in licences and a market that exists at the whim of government are far from alone. Google is one of the investors in Uber, putting US$250 million into the company last year as part of a transaction that valued it at US$3.6 billion. Google of course has played a major role in disrupting another old industry – newspapers. New technologies do that – but newspaper publishers can’t go running to governments demanding protection from that change.
Cutting out the layers of middlemen and women in the personal transport business would represent a considerable productivity gain. Those gains would come at the cost of the incumbents. Stopping Uber’s evolution would come at everyone else’s cost.
Standby for sob stories about people who have bought taxi plates and now risk losing some of their capital due to competition and new technology. If anyone cares, there are sob stories about people who invested in video rental shops, in lawn mower repair businesses, in newspapers. Anyone expecting to make a profit from an investment has to accept that there is a risk that they won’t.
The industry claims there are risks for drivers and passengers stepping outside its stranglehold, but there are risks staying in it.
So what’s the call, Mike Baird? Make a stand on free market principles and what’s best for the state and consumers, resisting the power of the taxi industry as your father did – or serve the vested interests of a powerful minority?
The comments piling up beneath Ben Grubb’s story appear a reasonable reflection of what the electorate thinks.
Michael Pascoe is a BusinessDay contributing editor