12 October 2016

Does Uber have an ally in the CMA?

Uber is currently valued at around USD66bn. However, this meteoric rise has not been without problems, with regulatory hurdles and opposition from those who view Uber as unfair competition, undercutting prices by allowing unlicensed drivers to escape the regulation (to which its competitors are subject).

For example, Transport for London (TfL) has, under pressure from the taxi industry, sought to impose further regulations upon private hire car drivers  which includes Uber drivers and vehicles (there is a separate licensing regime for taxis). Some proposals have been dropped, for example requiring a minimum  wait of five minutes after booking a ride before pick- up (aimed at  preventing private hire cars  plying for hire); restricting drivers registering with more than one private hire firm (to prevent drivers of established firms also driving for Uber); and banning ride-sharing. However, English language requirements and a topographical knowledge test for private hire car drivers have been brought in. Further proposals include requiring private hire firms to have a customer service phone number, which Uber do not have, as all communications are through the app.

However, Uber may have found an ally in the Competition and Markets Authority ("CMA"). The CMA recently wrote to Sheffield City Council to warn them that planned changes to their Private Hire Operator and Vehicle Policy would be anti-competitive and hamper the ability of innovative app-based businesses to compete. Last year the CMA cleared a merger between two Sheffield taxi operators in part because it considered the merged firm would face stiff competition from app-based businesses such as Uber.

In objecting to Sheffield’s  proposals, the CMA considers that passengers will benefit from innovation and competition and that regulating for passenger protection is acceptable, but not in a way that inhibits competition.
This echoes Uber’s argument that passengers benefit from its service, as it is cheaper and more user-friendly, hence its popularity. Looking at the specifics of the Council's proposals, the CMA’s concerns were:

  • a requirement to have a permanently staffed helpline based in Sheffield was regarded as not necessary to ensure passengers receive a satisfactory resolution, that it may restrict innovation, and lead to higher costs which will be passed on to consumers.
  • the requirement to have the ability to take bookings up to seven days in advance can place undue burdens on some providers and exclude firms who cannot or do not want to provide them. If a consumer finds an add-on function useful, then this function is likely to be provided for in a competitive market. 
  • the rule against vehicles being operated by more than one operator i.e. that drivers cannot work for more than one operator could cause a strong "network effect” among drivers, as drivers will likely choose firms with the most customers. The consequence would be fewer operators and less competition, to the detriment of passengers. 
  • differences in regulations applying to taxis and to private hire cars, where these are not justified by genuine concerns for passenger protection, risk  harming to competition. 
  • whether knowledge tests are necessary in today’s age of satellite navigation. Knowledge tests increase barriers to entry, therefore reducing the number of vehicles on the road and leading to higher prices. Research by the CMA’s predecessor, the OFT, suggested  passengers are generally unwilling to pay extra for higher quality standards and therefore regulatory measures to increase quality will not necessary increase passenger welfare. 

The CMA’s clear message is that Uber (and other innovative platforms) should be allowed to innovate and provide competition to existing taxi and private hire car services. Their approach can be contrasted with that of TfL. 

The approach in this case is relevant beyond the passenger transport industry. App-based technology seeking to disrupt established industries is becoming more and more common, but often comes up against 20th century regulation inappropriate for dealing with the new technologies. The CMA's focus on interpretation of what is good for consumer welfare gives a clear indication of its likely approach in other sectors.

Contact us

If you think your business may be affected by any of the above, or if you have any other questions, please contact:

Michael Dean
0330 222 1713

Catriona Munro
0330 222 1902

This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.