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CCCS' remedies will open doors for major rival to Grab: Analysts

SINGAPORE — Analysts said that the latest measures imposed by Singapore's competition watchdog on Grab will pave the way for a second major player to emerge, while Go-Jek signalled its move to enter the market here, lauding the efforts to remove the "very high barrier to entry".

Grab's R&D Centre at Marina One.

Grab's R&D Centre at Marina One.

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SINGAPORE — Analysts said that the latest measures imposed by Singapore's competition watchdog on Grab will pave the way for a second major player to emerge, while Go-Jek signalled its move to enter the market here, lauding the efforts to remove the "very high barrier to entry".

On Monday (Sept 24), the Competition and Consumer Commission of Singapore (CCCS) said that the Grab-Uber merger was "anti-competitive" and it is putting down conditions to level the playing field for new entrants, among other actions.

In response, Go-Jek said that the measures will have a "significant effect" on its "strategy and timeline".

"We are now confident that Singapore will have a robust, efficient and competitive market, and that our arrival will have a significantly positive impact on the lives of people in Singapore," it added.

The CCCS found Grab's high-profile takeover of Uber's regional business in March and Uber's sudden exit from the Singapore market to have infringed Section 54 of the Competition Act. On Monday, it listed several measures to cushion the impact on drivers and riders, and to open up the market as well.

These include removing Grab's exclusivity arrangements with any taxi fleet, maintaining Grab's pricing algorithms and drivers' commission rates before the merger, and requiring Uber to sell vehicles from its car-rental arm Lion City Rentals to any potential competitor that makes a "reasonable offer based on fair market value".

It also prevented Uber from selling vehicles from Lion City Rentals to Grab without its approval.

Transport economist Walter Theseira, from the Singapore University of Social Sciences (SUSS), said that in ordering Grab to dismantle its exclusive arrangements, and barring the sale of Uber's rental cars to Grab without its approval, the CCCS was ensuring that a credible competitor can enter the market without facing "insurmountable obstacles".

He expects any new entrant to appear in the next few months, and this will have to be a "well-financed competitor with substantial ride-hailing experience".

This could be Go-Jek or possibly other players from China or India. "Given the fact that the industry is very capital-intensive, it requires a lot of financial firepower," he added.

GETTING AROUND HEAVY CAPITAL INVESTMENTS

Associate Professor Park Byung Joon, an urban transport analyst with the SUSS, said that smaller players may benefit, too. New entrants may tap a ready supply of drivers and cars, as drivers will be able to use any platform they wish and new entrants can bank on the pool of cars at Lion City Rentals.

This removes the need for heavy capital investments to build a fleet and a network of drivers. "The financial burden… on the smaller companies is a lot lower," Assoc Prof Park said, noting that the barriers to entry have been reduced significantly.

CCCS' chief executive officer Toh Han Li said that the commission did not rule out firms joining hands as a single entity in order to "scale up" and compete effectively with Grab.

Homegrown ride-sharing firm Ryde said on Monday that it "welcomes any development that will level the playing field", as competition is good for innovation.

Associate Professor Lawrence Loh, from the National University of Singapore Business School, said that firms wishing to succeed in the industry must have the "critical mass and minimum capacity", and he expects players such as Ryde to team up with other existing platforms or new start-ups.

The director of the school's Centre for Governance, Institutions and Organisations said: "If Grab continues to be entrenched there, there's no way people will want to come in in a very significant way."

He believes that Go-Jek, an established player with knowledge of South-east Asia, can fill that gap. "Essentially, you close a door for Grab, but you open a bigger door for other players," he added.

As of June, Grab's market share stood at about 80 per cent, compared with between 10 and 20 per cent for ComfortDelGro, Singapore's largest taxi operator. All the other players had market shares of 5 per cent or below.

PENALTY IS A 'DROP IN THE OCEAN'

Penalising Grab and Uber for the merger, the CCCS is imposing financial penalties of about S$13 million on them. Grab will have to pay about S$6.4 million, and Uber, about S$6.6 million.

The penalty is among the highest for a single entity so far, it said, and both parties may appeal against it within a month.

Uber said that it will consider its options, including an appeal, while Grab said that the firm will review the CCCS' ruling in detail before making a decision.

Grab user Calvin Xu, 28, told TODAY that he is afraid the penalty could be "passed down to consumers".

However, technology blogger and TechGoondu.com editor Alfred Siew said that the sum is just a "drop in the ocean" for Grab, which last month raised US$2 billion (S$2.73 billion) in its latest round of funding.

COMMUTERS WANT LOWER PRICES

Most commuters interviewed by TODAY were hopeful that a second major competitor would enter the market to rival Grab, offer more competitive rates than Grab's, and keep the ride-hailing giant on its toes.

Executive Terence Ong, 26, is certain that a second major firm will offer promotional codes to boost its customer base and increase ridership. "Grab will then start to re-introduce promotional codes and also improve its GrabRewards scheme which is now, at best, mediocre," he said.

However, communication studies undergraduate Emmanuel Phua, 24, does not think that Grab will give discounts even with a credible rival, because it seems to be focusing its business on its GrabPay electronic-payment service and GrabFood delivery platform.

Riders continued to bemoan the higher fares in using Grab.

Economics and politics undergraduate Robin Choo, 27, said: "I hope the new competitor's prices will be competitive, or lower."

Assoc Prof Theseira said that he does not expect much to change for commuters in the near term, but in the medium to longer term, there will be the "prospect of greater competition and more innovation in offerings" with a new entrant.

Driver William Tang, 49, who is with Grab, said that even with the exclusivity arrangements lifted, he will still stick to Grab as it is "too messy" to straddle more than one platform, and other firms such as Ryde lack a strong customer base.

Given that he has not much choice at the moment, Mr Tang added that Grab had it coming as it has "no heart for the people". "Even though (the drivers) don't benefit, it's like someone slapping the company for us," he said.

Fellow driver Muhammad Syahmi, 25, similarly felt that Grab deserved to be fined for monopolising the ride-hailing industry, forgoing the promotional codes that customers used to enjoy, and cutting the incentives for drivers.

"They have been milking our commissions for (a long time)," he said.

OTHER HIGHLIGHTS OF CCCS' LATEST ANNOUNCEMENT

· The CCCS noted that it may vary, substitute or release Grab from the measures imposed if it finds that they are no longer necessary in preventing the substantial reduction of competition.

· For example, it would suspend the measures if an "open-platform competitor attains 30 per cent or more of total rides matched in the ride-hailing platform services for one calendar month". The measures will be lifted if such a market share is maintained for six months in a row, it added.

· It set the bar at 30 per cent because that was Uber's market share before the deal, and the commission hopes that conditions before the merger can be restored to the market in a year.

· While the CCCS noted that following the merger, Grab had increased its fares by 10 to 15 per cent (after deducting rider promotions), Grab maintained that it has not raised fares, and its average fare per ride has dipped 3.4 per cent since the acquisition.

 

 

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