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Ridesharing economy held back by old rules and vested interests

Ridesharing apps like Uber have the potential to make massive dents in carbon emissions, while providing end-users with a cheaper service. These services, however, are being blocked by state government regulation that can impose fines of up to $110,000 for breaches, which even the federal government’s Harper competition review says works to benefit powerful incumbents and stifle innovation.

A recent study by MIT found that ridesharing apps could cut cab road time by up to 40 per cent (with concomitant reductions in carbon emissions) if users were willing to share rides. Operational costs would also be cut by 30 per cent, allowing for cheaper fares, and congestion would be eased.

Looking at 150 million cab rides over New York City, the researchers found that “a very significant number” of cab rides could be shared, as there were many passengers going from near the same pick-up point to near the same endpoint.

Uber, the most visible rideshare service, has publicly stated it wants to offer its Uber Pool service in Sydney, which would allow passengers to share their cab or even their own car. Uber general manager David Rohrsheim said the service would reduce congestion and make trips more affordable for users.

“If we can find someone else who’s going at about the same time to about the same destination, we’ll match you up,” he told The Australian Financial Review. “Now that trip’s going to be half the price.”

The problem for services like Uber, however, is when unlicensed drivers begin operating commercial services from their private vehicles. Many state laws prohibit unaccredited drivers that aren’t using licensed taxis or hire cars from operating a commercial service – laws Mr Rohrsheim says are 20-30 years old, written when smartphones didn’t exist.

In NSW, the fine is up to $110,000.

“If a NSW driver is taking paying members of the public as passengers, the driver and the vehicle must operate in accordance with the Passenger Transport Act,”a Transport for NSW spokesperson said.

Victoria has also started dishing out $1700 fines for drivers, following Victoria’s Taxi Services Commission taking rides to identify those not complying with the law and informing the police. And in South Australia the fines are up to $8000.

Competition policy

The federal government’s Competition Policy Review Draft Report (the Harper Review) released in September gave support to changing regulation around car-sharing apps in its recommendations.

“Mobile technologies are emerging that compete with traditional taxi booking services and support the emergence of innovative passenger transport services,” it said. “Any regulation of such services should be consumer-focused and not inhibit innovation or protect existing business models.”

The review noted that existing legislation was working to protect incumbent players.

“The emergence of Uber has been particularly controversial as regulatory agencies have been questioning its legality and fining drivers, notwithstanding considerable public demand for its services. This indicates existing regulation is more concerned with protecting a particular business model than being flexible enough to allow innovative transport services to emerge.”

It noted reducing barriers could see more taxis come in to deal with peak demand. These taxis also wouldn’t have to drive around at off-peak times “just to earn a return on the licence”.

The NSW government recently passed legislation to regulate app-based taxi booking but did not broach the controversial ridesharing movement.

NSW Opposition spokeswoman on transport Penny Sharpe said the government was “parking the issue of rideshare” but noted it had made a commitment to look at the issue in the future.

“It can be looked at in two ways,” Ms Sharpe said. “Some of our more conservative friends look at it as a way of deregulating the industry. Others look at it as a way of putting it in the collaborative consumption space so that we can better utilise our existing assets and cars on the road to increase carpooling, which will eventually mean fewer cars on the road.”

Jurisdictions across the world were working through the issue of the changing market, she said, and the government needed to “come to terms with changing technology and the way in which people want to use these services”.

Safety and insurance

Opponents are quick to point out issues with safety. South Australian treasurer Tom Koutsantonis recently took to ABC radio to state Uber was dangerous.

“It’s a very dangerous option to take an Uber service – you don’t know who’s driving the car,” Mr Koutsantonis said. “You don’t know if the car has been checked and, most importantly, we can’t know when you got into that car and where you got out of that car or where you were meant to go.”

Uber hit back, saying it had standards for drivers, including having to be 25 or over, have a licence, a 2005 model car or newer with four doors, no criminal record and comprehensive insurance. Users also give a review of their driver following the trip so a clear track record is available – more than can be said of the traditional cabbie.

What is of more concern is the issue of insurance. In June the Insurance Council of Australia put out a warning stating drivers and passengers were exposing themselves to substantial financial loss in the case of a collision or if property damage is caused while using car ride-sharing services.

“Any passengers that use a ride-share service, or any motorist offering a ride-sharing service, should be aware of the high level of uncertainty about how their insurance policies may respond as a result of an incident,” ICA chief executive Rob Whelan said.

A separate ICA spokesman told The Fifth Estate that when purchasing motor vehicle insurance, insurers needed to know whether the car would be used as a commercial service, as this involved higher risks and therefore higher premiums.

A report released by conservative American free market think tank the R Street Institute this week said that the rise of ridesharing apps had “created an opportunity for new insurance products that encompass both personal and commercial lines”.

“The fact that insurers do not offer coverage for ride-sharing has prompted regulators to issue consumer bulletins and warnings; in some cases this gap has prompted lawmakers to pass onerous restrictions on ride-sharing in their jurisdictions,” the report states.

Commercial insurance products would be too high for part-time drivers operating a ridesharing service, the report says, and a hybrid product that combined aspects of personal and commercial insurance was needed.

The ICA responded that long before the insurance industry gets involved, issues around the regulatory environment needed to be dealt with.

“If Uber overcomes all these obstacles then the market may respond,” the spokesman said. “The market will decide whether there needs to be a product, if there’s a demand for it.”

The spokesman said there were ridesharing businesses that didn’t cause a problem in terms of regulation and insurance, and that Uber seemed to be “thumbing its nose” at Australian laws.

One Sydney-based company, Car Next Door, he said, allowed private cars to become share-cars, with users able to hire nearby cars through an app system, rather than use it as a taxi service. This proved no regulatory or insurance issue, operating as a private car share service, much like GoGet.

Reducing resource use

Uber has said it wants to grow the market, rather than reduce it, meaning it wants there to be more taxis, more sharing and less car ownership. It’s part of a move away from a product-based society to a service-based society, as a previous article featuring TuShare’s James Bradfield Moody predicted.

There’s huge sustainability benefits from the optimisation of car use, through sharing more trips and through a reduction of car ownership and congestion on the roads.

But with the big sustainability gains comes big losses for incumbents – both traditional taxi services and car manufacturers, who are already seeing peak car use in major cities across the world, including China, as Curtin University’s Professor Peter Newman recently reported.

When state governments choose to respond to the Harper Review recommendations is anyone’s guess. What’s for sure, though, is this emergence of an internet-assisted sharing economy isn’t going anywhere.

Comments

One Response to “Ridesharing economy held back by old rules and vested interests”

  • The debate isn’t if these rules should change, it’s how. Regulators need to admit that the system they created failed the consumer and now consumers consider new ridesharing services as better and safer.

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