Uber vs Local Governments – Who Wins?

UberLogoI have said before that I like Uber. No, they are not perfect but the app-based system is far better than trying to hail a taxi in many cities and paying by credit card is much more convenient. And yes, another Uber benefit is that they are typically less expensive than city taxis, sometimes much so.

Not surprising, ride-sharing companies have caught the attention of local governments that oversee the taxi industry. The quandary is simple: Virtually all taxi companies are regulated and there are numerous fees. Translation: The government makes money off them. On the other hand, some local politicians see ride-sharing services as “rogue” operations that avoid all these fees. Not fair, they say.

Uber always responds with the same mantra: they claim they are nothing more than a technology conduit between drivers and passengers. None of the drivers are employed by Uber and their business model “does not fit into antiquated regulatory structures that were established before smartphones existed.” While technically this is an issue also involving Lyft and Sidecar, just for ease I will refer only to Uber.

Taxi companies – or their drivers, depending on the city – typically incur many expenses. They are required to go through background checks, obtain city and airport use licenses, must maintain their vehicles, and can’t refuse to pick up passengers. On top of that, there are the usual maintenance and repair costs, license fees, tag fees, etc. In Orlando, for example, there are other requirements. They must insure that at least 10% of their fleet is handicap accessible, they must maintain a central operations center, and drivers pay hefty licensing fees to the mother taxi firm, Mears.

Even though Uber has been in the lucrative tourist market of Orlando only four months, this city decided to rise to the national scene by designing new regulations for ride-sharing companies. Of course this is strongly supported by Mears Transportation, the taxi/shuttle/limo service that enjoys a near monopoly in metropolitan Orlando. None of these rules have been adopted yet but the case is very similar to the New York lawsuit against Airbnb.

So is this really about money? You bet. My guess is it will play out like this:

Uber has already dropped out of some noteworthy cities like Vancouver and Las Vegas but I believe they will go on the offensive in Orlando. The city will begin hearings on these new regulations next month. Uber, with a value of nearly $20 billion, will begin making campaign contributions to city council members, just as Mears has done in the past. Uber will agree to some of the proposed regs but not the one that requires them to charge 25% more than the taxi services. If Orlando is insistent about the higher rate, Uber will file a lawsuit. That may add a couple years before this is finally sorted out.

Of course, another possibility is that Uber simply pulls out of Orlando but the downside is this sends a message, too. If Uber is scared off by local politicians, other cities may do the same, especially those locations that receive additional support from their taxi monopolies. More likely, the ride-sharing service will continue to pursue favorable statewide rules, something that has failed them in the past.

Also note that as Uber driver costs increase, it will be necessary for corporate Uber to take a smaller piece of the overall fee. But this is not necessarily a bad thing as Uber will be taking a smaller piece of a potentially much larger pie. In the meantime, Uber drivers will continue to receive tickets from the city for operating without licenses until this is resolved.

For the record, I have used Mears services many times in the past and found them to be very good. They are expensive – and you can’t track their drivers to know when they will arrive – but they are always courteous and professional. In addition, they have an excellent community reputation. But yes, this is about money and Mears does not want these upstarts to interfere with their monopoly.

This is far bigger than just the city of Orlando vs Uber. Every city where ride-sharing companies operate – or want to begin service – will watch the outcome very closely. To the extent that Uber caves and agrees to city regulations, all the other cities will consider it an invitation to do exactly the same thing.

In the end, Uber and the others will survive unless competition among them drives one or more away. Cities will enjoy additional revenues, politicians will appreciate increased campaign contributions, and consumers will love the ease of operations. The taxi monopolies will suffer a little setback but will not go away. That means choice for consumers, exactly what Uber said they were after in the first place.

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