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Competition watchdog says Grab-Uber merger lessened competition, proposes penalties

SINGAPORE — The merger between Grab and Uber infringed antitrust law by "substantially lessening" competition, said Singapore's competition watchdog in its provisional findings following a three-month review.

Competition watchdog says Grab-Uber merger lessened competition, proposes penalties
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SINGAPORE — The merger between Grab and Uber infringed antitrust law by "substantially lessening" competition, said Singapore's competition watchdog in its provisional findings following a three-month review.

Ride-hailing firms Grab and Uber could face financial penalties for entering into the deal "despite having anticipated potential competition concerns".

The Competition and Consumer Commission of Singapore (CCCS) said it may unwind the deal if it finds — following a two-week public consultation — that its proposed remedies are insufficient or not "implementable in practice". No prior merger in Singapore had been ordered to unwind, the commission said in response to TODAY's queries.

Soon after the CCCS' announcement on Thursday (July 5), Grab slammed what it called a "very narrow approach in defining competition", and described the commission's proposed remedies as "overreaching and (going) against Singapore's pro-innovation and pro-business regulations in a free market economy".

The proposed remedies include removing exclusivity obligations and lock-in periods for drivers, as well as maintaining Grab's pricing algorithm and commission rates prior to the merger.

In its seven-page media release, the CCCS also revealed that on March 9 — more than two weeks before Grab's announcement of the acquisition of Uber's South-east Asia operations on March 26 — it had notified both parties in writing of Singapore's merger notification regime and the commission's powers to investigate, give directions, and impose penalties on each party.

Both companies could have sought the CCCS' clearance and advice but, instead, "proceeded to complete the transaction and began the transfer of the acquired assets immediately" on March 26, it said. They did so "despite their own view that the outcome would be irreversible, thus rendering it practically impossible to restore the status quo pre-merger".

Investigations revealed that the deal included a mechanism for both sides to "apportion eventual antitrust financial penalties", the CCCS added.

The merger, which CCCS had previously referred to as an "un-notified transaction", had sent lawmakers in Singapore, Malaysia, and the Philippines scrambling to assess the deal's impact on their markets.

As part of the deal, Grab — which is based in Singapore — will take over Uber's ride-sharing and food-delivery business in South-east Asia. Uber will, in turn, take a 27.5 per cent stake in Grab, and its chief executive Dara Khosrowshahi will join Grab's board.

"CCCS has provisionally found that the transaction has removed competition between Grab and Uber, which were each other's closest competitor. The merged entity is likely to be able to increase prices and has in fact done so since the completion of the transaction," the CCCS said.

Among other things, the commission found that there were high barriers to entry and expansion in the ride-hailing space because Grab had "imposed exclusivity obligations on taxi companies, car rental partners, and some of its drivers".

"Without any intervention from CCCS, it could continue to hamper the ability of potential competitors to access driver and vehicles," it said.

Without sufficient competition after the merger, Grab would also be able to raise fares for riders and commission rates for drivers, while reducing the quality of its services, said the commission. Customers and competitors have "raised concerns" in these respects, it said.

 

PROPOSED REMEDIES TO REVIVE COMPETITION

 

To restore market contestability and to mitigate negative effects from the deal, the CCCS' proposed remedies included removing exclusivity obligations, lock-in periods and termination fees on all Grab drivers and those who rent from Grab Rentals, Uber's car rental arm Lion City Rentals and Grab's other rental partners.

Uber should also sell Lion City Rentals, or any part of the entity's assets, to any potential competitor who makes a reasonable offer, the commission said. Lion City Rentals must not be sold to Grab without its approval, to prevent competitive disadvantages to Grab's potential competitors, and to facilitate a new entrant's access to a vehicle fleet, it said.

The watchdog also suggested removing Grab's exclusivity arrangements with any taxi or private-hire car fleet in Singapore to increase choices for drivers and riders.

Under an exclusive partnership inked with SMRT last year, Grab has access to the latter's current and future taxi and private car fleet — which stood at just over 2,900 vehicles in October 2017. This means that SMRT cab drivers can only accept ride bookings from Grab and not other rival booking apps.

Grab should also maintain its pricing algorithm and driver commission rates prior to the merger, until competition is revived in the market so as to "alleviate the adverse pricing effects on riders and drivers arising from the (merger)", said the CCCS.

Grab and Uber have 15 working days from Thursday to make their representations to the commission.

The commission also launched a public consultation on whether its proposed remedies are "sufficient and workable to address the harm to competition" resulting from the merger. Members of public can share their feedback on the CCCS website from now until July 19.

The commission will make its final decision after considering Grab's and Uber's representations, as well as feedback from the public.

Separately, the Land Transport Authority said it supports the competition watchdog's proposed infringement decision and remedies. It said they will ensure the ride-hailing sector "remains open and contestable", and that "no single operator "dominates the market to the detriment of commuters and drivers".

 

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