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Why Uber should triumph over taxi regulators

Another week, another regulatory battle for Uber, the Silicon Valley private-car-hire network with a German name. This time it is in Germany, where a Frankfurt court has banned its Uber Pop ride-sharing service, which introduces passengers to unlicensed drivers through a smartphone app. In a narrow sense, the court is right.

Another week, another regulatory battle for Uber, the Silicon Valley private-car-hire network with a German name. This time it is in Germany, where a Frankfurt court has banned its Uber Pop ride-sharing service, which introduces passengers to unlicensed drivers through a smartphone app. In a narrow sense, the court is right.

Not only is Uber breaking German law, but the country is correct to demand that a company that operates what is blatantly a private-hire business is appropriately licensed and regulated. Pretending that Uber Pop is part of the sharing economy and should be allowed to skirt the rules is neither fair to taxi drivers nor sound policy.

In the broad sense, however, Uber is right. If what the state of California now calls a transportation network company — a technology platform such as Uber and Lyft that expands the market for minicabs and private hire — is prevented from operating on a commercial basis, it is bad for consumers. The potential benefits of innovation are lost.

IGNORING THE RULES

Germany is a good test of the skirmishes in which Uber is engaged around the United States and Europe. Its regulations — although they involve some very long words, such as Personenbeforderungsschein, the licence for taxi drivers — have served consumers fairly well. Most German cities have plenty of Mercedes taxis, which are both comfier and cheaper than London cabs.

It is also a world leader in actual, as opposed to rhetorical, ride-sharing. There are lots of carpooling agencies, including http://www.carpooling.com, that coordinate travel as a mutual service. Drivers share the fuel costs with passengers on long-distance rides, without profiting.

As in many other countries, however, the city regulations are tilted in favour of the cooperatives that operate the bulk of taxi services.

German private-hire operators have little freedom of manoeuvre —they face restrictions including having to operate from registered offices to which all the cars must return between rides — and most people use taxis. Uber obeys the private-hire rules for its Uber Black limousine service — both drivers and cars are licensed and commercially insured —while defying them for Uber Pop, its basic service.

Uber Pop drivers use their own vehicles and are not officially licensed, although the company carries out criminal record checks and said they were fully insured. The company has adopted its usual approach in awkward markets — if it comes up against a regulatory barrier, it ignores it and hopes to gain popular backing for a change in the rules.

In London, transport authorities have allowed Uber to operate despite protests from taxi drivers that its app is an illegal taximeter. The company, which raised US$1.2 billion (S$1.5 billion) in funding from backers including Google Ventures and Kleiner Perkins at a US$17 billion valuation in June, is in a hurry to establish its network before Lyft and other rivals. Treating legal challenges as a cost of doing business is characteristic of its aggression — it is also poaching drivers from Lyft in the US.

Taxi Deutschland, the consortium of taxi operators that brought the Frankfurt case, accuses Uber of wrapping itself in a start-up look and selling itself as a new economy saviour, while hurting the public good. It is not alone in being sceptical — Berlin’s DIW research institute argued recently that the taxi market should not be subjected to full deregulation.

TAXI INDUSTRY OVERPROTECTED

Regulation of taxis clearly has benefits — people climb into taxis and private-hire cars without knowing who the driver is or how safe the vehicle is, and they need some safeguards. They also benefit from official taxis being required to take a passenger to any destination, based on a clear fare structure.

It makes sense to give taxis privileges, such as the right to be hailed in the street, to compensate for being tightly regulated (and not, for example, applying surge pricing at times of scarcity, as Uber does). It would be short-sighted to permit a free-for-all private hire or unfettered amateur ride-sharing, and put taxis out of business.

The problem, however, is not that taxis are endangered, but the opposite — they are overprotected.

“The private for-hire market is extremely locked down in many cities,” said Mr Pierre-Dimitri Gore-Coty, the head of Uber in western Europe. Two legislative efforts to liberalise private hire in Germany have failed amid taxi opposition.

As a result, the bulk of the market in many cities is taken by taxis, with a slice of private-hire operators at the top and bottom. These provide executive limousines for companies and radio taxis for people who do not want to pay the taxi fare. Cabbies face very weak competition in the middle — well-trained and courteous drivers in smart, clean cars.

Where Uber and others have been allowed to enter in a regulated way — Uber drivers in London must hold a commercial licence and insurance — they have helped to expand it. There are more cars for hire in London and the quality has risen. Minicabs used to be battered and smelly, old cars; many are now BMWs.

There is starting to be a similar effect in France, where the number of limousine companies has grown rapidly as a result of new entrants being allowed. It is better for cities to reap the advantages of new technology than try to ignore it and provoke an outbreak of illegal ride-sharing by outsiders.

As Germany has found, not only is Uber willing to become a ride-sharing outlaw, but the resulting publicity also serves it well.

Infuriating, aggressive and American as it may be, it is still worth learning from. THE FINANCIAL TIMES

ABOUT THE AUTHOR:

John Gapper is Associate Editor and Chief Business Commentator of the Financial Times.

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