Navigant Research Blog

Toronto versus Austin: How City Regulations Can Make or Break Ridesharing

— May 31, 2016

Electric Vehicle 2Ridesharing apps such as Uber and Lyft are often less expensive and more convenient (i.e., faster responding) than taxis. This has resulted in an explosion of ridesharing businesses over the past several years; Uber alone is estimated to be worth over $60 billion. However, the rapid global expansion of ridesharing services has created a legal quandary in jurisdictions all across the world. In the United States alone, Uber is involved in over 150 lawsuits. While the conflicts between municipalities and ridesharing companies can be complex, the essential argument often boils down to this: Are ridesharing companies a distinct legal entity with their own set of rules, or should they be regulated like traditional taxi cab organizations?

A Tale of Two Cities

Two major cities with large ridesharing presences—Toronto, Ontario and Austin, Texas—were both recently met with threats of complete operational shutdown by ridesharing companies. Proposed regulations by both cities were deemed to be unfair by the industry if enacted. In Toronto, the regulations implemented ended up being reasonable enough for Uber to continue offering its services in the city. The same cannot be said for Austin, however, as both Uber and Lyft have completely ceased operations in the city, citing overly burdensome regulations.

To see how the regulations in Toronto were acceptable to the ridesharing companies and the ones in Austin were not, let’s examine some of the key measures instituted by both cities. In Toronto, numerous key regulations were introduced to level the playing field between Uber and established taxi services:

  • Taxis are now able to offer discounted rates (similar to Uber)
  • Taxis are now able to implement fare hikes during peak hours (similar to Uber)
  • UberX* fares will increase (must charge same base fare of $3.25 per ride as taxis, with a licensing fee of $0.30 per ride)
  • UberX drivers will have to pass a city-mandated background screening
  • UberX drivers need to have $2 million in insurance coverage and all-weather tires for winter
  • UberX vehicles must display some type of signage for identification (i.e., magnetic placard)

*UberX, where drivers use their private vehicles to transport passengers, is the cheapest and most common service from Uber. Some rules may differ for UberXL, UberSelect, UberBlack, and UberPool services.

While Austin had proposed rules that are similar to the regulations instituted in Toronto, the city added additional measures such as the mandatory fingerprinting of drivers, restrictions on where drivers can pick up and drop off passengers, and a time-consuming data reporting scheme. These seem to have been the deal-breaking regulations for Uber and Lyft.

Finding the Right Balance

Ridesharing companies undoubtedly enjoy benefits that are absent to traditional taxi cab companies due to the inherent advantages of the shared mobility business model. However, ridesharing deserves some recognition for innovating in an industry that has been relatively unchanged and void of outside competition for decades. Ensuring that city regulations aren’t overly burdensome on ridesharing companies is important — thousands of residents in Austin have been deprived a source of income, while many more have been deprived of a service that was improving mobility, reducing incidents of drunk driving, and expanding transportation options to underserved parts of the city.

Conversely, it is important that ridesharing companies are regulated to ensure safety for passengers and so that traditional taxi companies aren’t operating on a completely different regulatory playing field. Toronto seems to have found a reasonable balance that allows both types of businesses to operate on a similar set of rules while also recognizing the clear distinctions in service delivery and organizational structure between ridesharing and traditional taxi services.

 

Popularity Soaring, Uber Faces a Backlash

— January 8, 2014

Web-based car service company Uber is facing another backlash – not the first in the startup’s life.  For a company that offers what seems like a fairly uncontroversial service – convenient on-demand urban transport ‑ it has attracted a lot of controversy.

At the most basic level, Uber is simply a way to maximize existing transportation resources.  The company realized that current car services and taxi drivers had significant downtime when they were actually willing to work.  And city dwellers can attest that there are many times they want a taxicab but can’t find a free one.  This means resources are sitting idle at the same time there is unmet demand.  Very inefficient.  Uber solves this problem elegantly, with a smartphone app and algorithms to match up drivers with riders as quickly as possible.

Not So Fast

However, Uber’s path to growth is not proving to be so simple.  It has faced significant pushback from a number of quarters.  Initially, and not surprisingly, opposition came from conventional taxi services and the cities that heavily regulate them.  To avoid certain taxi regulations, Uber has to wriggle itself into a very oddly shaped box.  It strives to appear as a livery service, which are less regulated than taxis.  But a service that sends a car to pick up a customer in just a few minutes and then charges by the hour and mileage sounds a lot like a taxi company.  The company initially specialized in offering the black “executive sedans” associated with livery companies.  Yet, Uber doesn’t own any of these town cars – or even employ the drivers.  It contracts with local car services and drivers, supplying them with the app that matches drivers with customers.  This has allowed Uber to claim it is not a transportation service and thus avoid certain regulations and insurance requirements.

The response from many cities has not been to work with Uber, but to treat it as a scofflaw.  As Tesla found with auto dealers, a powerful interest group closely entrenched in local politics makes a challenging competitor.  Uber has plowed ahead with its expansion plans, continuing to fight on many fronts.  The company won its battle to offer its service in Washington, D.C., but is still facing multiple other challenges.  For example, it is appealing a California Public Utilities Commission ruling that it is indeed a transportation company.  In cities where Uber has won, it has rallied users to provide public support for the service.

Unfortunately, many of those customers are now irate.  The latest backlash comes from some Uber users who have complained about the premium that the company charges during periods of high demand, like weekend nights in Manhattan.  Some customers have gone public after paying several hundred dollars for a short ride.  While this probably won’t turn most customers away, it does make Uber look a lot more like a service for the wealthy.  That will make it harder for Uber to gain broad public support in its struggles with government agencies and it may embolden politicians and regulators to go after a high-end car service for a select few.

 

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