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«Regulatory Framework Proposal Key Tenants Document Introduction In determining how ride hail services should be regulated the first issue that must ...»

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Regulatory Framework Proposal

Key Tenants Document

Introduction

In determining how ride hail services should be regulated the first issue that must be addressed is why

any new laws, regulations or licencing arrangements are required when there are already rules in place

that regulate the provision of commercial passenger vehicle services.

For the purposes of this document ‘ride hailing’ will be defined as the process of arranging immediate

travel via a smartphone application (an electronic hail) which results in a nearby service provider who indicates they are available for hire via the smartphone application being summonsed to provide transport.

Ride hailing is a commercial activity. It does not satisfy the definition of car-pooling as currently defined in Sections 86 and 87 of The Transport (Compliance and Miscellaneous) Act 1983 (the Act). Firstly, because the travel is not ‘incidental’ to the driver's journey (in fact it is the sole purpose of the journey), and secondly, because both the driver and the app provider are profiting from the passenger's travel.

Victorian laws and regulations must address the emergence of the ‘electronic hail’. The emergence of this type of product has meant the distinction between hail and pre-booked work has been significantly blurred. The legislation needs to embrace and define the term electronic hail, as distinct from a pre- booking or a street hail/rank hail.

Importantly ride hail does not constitute a pre-booking. Ride hail services, like Uber X, do not permit advanced bookings like taxi and hire car industry booking systems. It is limited to ‘ready to ride’ services.

This is important for a number of reasons, none more so than providing a clear justification for drivers who engage in the provision of type of service to meet exactly the same knowledge testing requirements as a taxi driver.

For these reasons, simply imposing hire car regulations upon ride hail type services is not sufficient. Hire car regulations differ from taxis on the grounds that hire cars accept only pre-booked services for a different market to taxis and thus have the ability to pre-plan journeys. This is the not the case with an electronic hail. Uber themselves offer two distinct services for two different markets - traditional hire car services via Uber Black and a new illegal hybrid model via Uber X again highlighting the differences.

This definition of the product also provides a clear justification as to why the price these services charge should be regulated by a maximum fare. Customers are not able to make an informed choice because of the immediacy of the booking. Furthermore, paying more will not necessarily see the service delivered in a more timely fashion because during periods of high demand the wait times are constrained by supply across all services. Employing surge pricing in periods of high demand is an abuse of market power and price gouging because the product the customer receives does not alter (in either quality or timeliness) despite them being asked to pay more.

If ride hailing services are to be permitted to conduct their service without being required to abide by maximum fare regulations, the requirement must also be removed for taxis to allow them to compete. As the VTA have repeated on a number of occasions, if fare regulation were to be removed, the biggest loser would be the consumer burdened with higher prices.

Ride hailing services do not require a new kind of licence, simply a set of licence conditions that would stipulate what regulations the service must comply with. The appropriate licence would be a hire car licence with significantly amended licence conditions to require the service to adhere to more conditions than are currently attached to a hire car licence. Because the model is a hybrid of tenants of taxi and hire car regulations, a hybrid set of conditions would need to apply it to.

Upon application the entity would have to indicate if they intended to do electronic hail work or not and the appropriate licence conditions issued. Non-compliance would be met by sanctions and penalties including financial penalties and the loss of demerit points for individual drivers which cannot be shifted to a third party.

Any regulation should be based on its need to address a market failure or ensure community/passenger/driver safety. Because the model is a hybrid, tenants of taxi regulations and tenants of hire car regulation would need to apply to it, as shown in the table below.

Finally, it is important to remember that a wide ranging review of the Victorian taxi and hire car industry has only just been completed by apparently eminent experts. It was delivered in December 2012 and responded to by Government in May 2013. The accompanying legislation (Transport Legislation Amendment (Foundation Taxi and Hire Car Reforms) Bill 2013) was introduced in 2013, with further legislation (Transport Legislation Amendment (Further Taxi Reform and Other Matters) Bill 2014) passed during 2014 enacting the majority of significant reforms.

It has been suggested that the timing of the review was poor, because since its competition the Uber product(s) has arrived in Australia. The VTA do not share this view. Ride hail providers, like Uber, were well established overseas during the period the VTII was conducted and the VTII team travelled oversees to discuss issues effecting other jurisdictions as part of the VTII. This included two separate trips to the United States where these services originated and were up and running (Uber was established in San Francisco in 2009). To suggest the VTII did not consider these products and their impacts is perhaps a more convenient explanation than it is an accurate one. The VTII final report makes a number of points about the role of smartphone applications and clearly considered the final recommendations with the view to not inhibiting the entry of new market players and innovations which would enhance competition in the commercial passenger vehicle market.





TABLE 1 – COMPLIANCE REQUIREMENT FOR RIDE HAIL

–  –  –

Despite the rhetoric in the media and other sources, the justification for barriers to entry to the taxi history have traditionally been based on the view that without some barrier to entry the market would become oversupplied and this failure of the market to proceed an appropriate outcome would see consumers lose via higher costs and/or lower service standards. They were not designed to protect incumbent licence holders. This is a nonsensical argument because when the regulations were designed there was no incumbent to protect.

Another important feature of the commercial passenger vehicle market is that once it becomes oversupplied, it is likely to remain so because operating costs are relatively low and front ended (meaning the cost of doing business is absorbed initially and capital costs decline over time). The industry across the globe is a ‘sticky’ one. It is relatively easy to stay in even when the business is very marginal.

In Victoria, unlike other states and territories, anyone with the appropriate background checks can access a hire car or taxi licence at the regulated price. Importantly, there is no restriction on entry to the market.

It is not a closed market as has been suggested. The price attached to the licence, whether a perpetual or Government leased licence (which is paid to the government not necessarily industry participants), acts to ensure considered decisions are made by applicants and some semblance of balance is retained in the market to avoid oversupply and the externalities that follow.

The recent Victorian Taxi Industry Inquiry (VTI) led by Professor Allan Fels reduced the price of hire car licences in Metropolitan Melbourne from $60k to $40K and introduced a new taxi licence that could be accessed as of right for approximately $22K pa. These price points were introduced at a time when ride hailing services were well advanced overseas. During the Inquiry, Fels travelled to the United States on two occasions to look at their market. At this time Uber and Lyft were both active. As a result, we can only conclude that professor Fels considered such when setting the new prices. The final report is fairly unequivocal that these changes were made to increase competition between hire cars and taxis and facilitate innovation.

There is little reason beyond commercial interest to suggest the prices for either product should change.

Anyone wishing to enter the hire car or taxi markets, including those wishing to offer new services, may do so at the price currently prescribed in legislation (which was amended in 2014 in this respect, not 20 years ago as often alluded to).

In summary, licence cost should remain a one off payment of $40K for a hire car or ride hailing licence, or alternatively $22K per year if the individual or company wishes to service the taxi rank market.

Ride hailing hire car licence conditions should:

 stipulate such operators could not access work from a designated taxi rank  stipulate such operators could not tout for services  establish the distinction between electronic hail and rank work.

2. Driver Accreditation There is a need to ensure that all drivers of commercial passenger services are appropriate to do so.

Accreditation of these individuals is vital to ensure both community safety and confidence in the service more generally.

In terms of how tests and procedures are administered they should be done in the most efficient way. If it is the case that it would be more efficient for private companies to administer processes like criminal background checks this would be reasonable so long as these records are subject to thorough independent auditing processes to ensure compliance.

All providers of a commercial passenger vehicle service must have to meet the following standards:

 Medical check – performed by company and audited  Criminal background check – performed by company and audited  If working regularly with children, working with children check – performed by company and audited  Addition to the TSC database to enable monthly screening against police database by TSC  Requirement for zero blood alcohol and drug exposure Ongoing dynamic criminal checks (as is the case with taxi drivers currently) must continue.

3. Knowledge Testing As outlined above, ride hailing as it currently operates does not constitute a pre-booking. Advanced bookings are not permitted. As such, there is no greater opportunity for ride hail drivers to prepare for a journey than a taxi driver has and there is no justification for them not to be subject to the same knowledge testing requirements as a taxi driver.

All commercial passenger vehicle drivers must pass the relevant knowledge test modules. The VTA are of the view good service outcomes can be achieved without a testing process as onerous and bureaucratic as the current modular test. A more streamlined, efficient and outcome focused process should replace the existing scheme.

At the very least, any requirement imposed upon a taxi driver should also be required of someone wishing to offer a ride hail service.

4. Commercial vehicle standards

All providers of a commercial passenger vehicle service must meet the applicable standards. Including:

 Commercial third party property insurance (also covered by driver agreement)  Commercial vehicle registration  Work cover policies where applicable  Compliance with implied conditions as set out in the Act for driver agreements including driver indemnity (where applicable, particularly in cases of sub-leasing of vehicles).

What must be considered by the relevant regulations and laws is the emergence of sub-leased ride hail vehicles. This is already occurring and effectively creates an operator class of the ride hail provider. In these circumstances laws regarding indemnity and insurance in the implied conditions need to be enforced.

Safety cameras would not be required in a ride hail vehicle because there is a record of the journey with the passenger’s identity, the same justification as in the case of hire cars.

At this time, most ride hail drivers are effectively owner drivers and the decision to purchase a protective screen for their vehicle should be their choice. The laws should be amended in regards to taxis removing the requirement that operators purchase a screen regardless of whether or not a driver requests one.

5. Vehicle standards and livery Ride hail vehicles, like taxis, should be required to carry clear identifying features or livery. It is worth noting these requirements were reduced and simplified as a result of the VTII.

The justification for this requirement is twofold. Firstly, if a service is to be regulated, the regulator must be able to identify it. Secondly, passengers must be sure the vehicle they are entering is the fact the vehicle they have hailed or booked and the service is provided by the entity they hailed it, or booked it though. If this is not enforced, the safeguards provided by accredited ride hail, taxi or hire car services are effectively voided.

Further, the identifying feature must not be easily removed or replicated, a sticker on a window would not be sufficient. In terms of the form and aesthetic nature of the identifying feature, this should be determined by company or individual service provider.

The suitability of any particular vehicle to operate under a given brand should be determined by the service provider. In accordance with this and to ensure equity, all restrictions on the vehicles that are permitted to operate as a taxi should be removed.

6. Compliance with broader legal frameworks For a company to be registered or accredited (or continue as such) in Victoria it must demonstrate, on an ongoing basis, compliance with all applicable Australian laws and regulations. Such compliance

should include, but not be limited to:

 Laws and regulations relating to taxation  Laws and regulations relating to the Commonwealth Competition and Consumer Act  Laws and regulations relating to immigration, including compliance with Visa conditions



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