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Will Uber ride out the storm that threatens to drive it out?

Thursday October 05 2017
Uber

Uber, whose revenues rose to $20 billion last year, operates in nearly 600 cities in 70 countries. PHOTO FILE | AFP

By The EastAfrican

Taxi-hailing tech company Uber was last week testing out a new conciliatory tone in London, where officials said they would not renew its operating licence. And watchers are waiting to see if the approach will work in the US.

A San Francisco city attorney was investigating whether Uber is a public nuisance, while in New York officials were said to have been looking for ways to tighten controls on ride-hailing, including requiring that a quarter of all trips come with wheelchair-accessible vehicles. And Seattle passed an ordinance to make it easier for Uber drivers to unionise.

“Uber is at a turning point with big-city governments,” Jon Orcutt, director of communications and advocacy for the TransitCenter, said of Uber and other ride-sharing companies. “London’s action to threaten to withdraw their licence really could turn the corner in a more normal regulatory situation for Uber.”

London officials said on September 22 that the city would not renew Uber’s operating licence, expiring on September 30, because it was not “fit and proper to hold a private hire operator licence.”

The city cited failure to do sufficient background checks on drivers, report crimes and a program called “Greyball” used to avoid regulators.

In response, newly minted chief executive Dara Khosrowshahi released an open letter on Monday last week apologising “for the mistakes we’ve made” and acknowledging that the company “got things wrong along the way” during its rapid growth.

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Regulatory concessions

London is a critical global market for Uber, which could encourage the company to make regulatory concessions to remain on the streets, Mr Orcutt said. That stands in contrast with the company’s sharp-elbowed approach under former CEO Travis Kalanick.

Uber ruffled feathers in city halls in several major US cities that struggled to corral the company during its growth.

It raised the anger of local officials and incumbent taxi drivers by compiling a track record of skirting traditional taxi-industry regulations and refusing to share trip data and other records sought by city officials.

San Francisco City Attorney Dennis Herrera in July requested court orders for Uber and competitor Lyft to hand over years worth of records after the companies refused to comply with an earlier subpoena for the records.

Herrera’s office is investigating whether the companies and their estimated 45,000 drivers in the city are creating a public nuisance, a finding that could subject the companies to civil monetary penalties and expose them to court injunctions restricting their operations in the city.

“The status quo is not working,” Mr Herrera said in a July 21 statement. “There’s no question that Uber and Lyft offer convenience. But convenience for some cannot trump the rights of every San Francisco resident and visitor.”

New rule

Uber has also come under pressure from New York City to produce driver activity records. The New York City Taxi and Limousine Commission, meanwhile, proposed a new rule that wheelchair-accessible vehicles eventually account for 25 per cent of all trips dispatched by for-hire vehicles, including Uber and Lyft.

That would add a new regulatory burden on those companies, putting their costs more in line with traditional taxi companies.

That followed New York City Mayor Bill de Blasio’s failed bid in 2015 to cap the number of new drivers that could join ride-hailing companies each year out of concern that the companies were exacerbating road congestion. He ultimately backed down after an intense public backlash whipped up by the company.

But now the city council on Monday was considering a six-month study of Uber’s impact on the traditional yellow cab business, where the value of medallions — licences to operate taxis — has dropped by 90 per cent in the past four years.

Conflict has flared elsewhere. Just last month, a federal judge dismissed a challenge to Seattle’s collective bargaining ordinance, which is now on hold amid an appeal. A Pennsylvania state judge ordered Uber to stop offering its Uber-X ride service in Philadelphia last October, though the decision was overturned on appeal.

To be sure, not everything about Uber’s response is different. Like it did in response to New York’s driver cap, Uber enlisted riders to join its opposition to losing its licence in London.

Appeal the decision

An online petition posted by the company had garnered nearly 775,000 signatures as of Monday afternoon. In his statement, Mr Khosrowshahi said while the company will appeal the decision, it is doing so “with the knowledge that we must also change” and closed by committing to “work with London to make things right.”

Mr Orcutt said, “Uber exploded onto the scene and very deliberately tried to ignore or flout regulations. I think it means you can get in a room and have a conversation as opposed to a battle.”

The London ban, which seeks to remove Uber from one of its biggest markets, where it has signed up about 40,000 drivers who ferry at least 3.5 million passengers around the city every three months, was criticised by nearly all passengers, and Uber drivers, but not David (not his real name), who told The Gurdian that he “could not be happier” with the decision.

“I have been an Uber driver for five years so you’d expect me to be furious that TfL wants to stop the company from operating in the capital. Not a bit of it,” he told the British newspaper.

David, who has previously worked for other mini-cab companies, said he enjoyed working with Uber during its early years, because he could work the hours he wanted, but does not regret the decision that he may be forced to find another job, since Uber drivers were “not making money.”

“At first, you could make a good living, but then Uber slashed prices to attract customers and began recruiting on a massive scale to keep up demand,” David said, adding, “Not only did we end up with more drivers working longer hours, for worse pay, but some of those drivers should never have been behind the wheel.”

In Nairobi, Uber driver Eric echoes David’s sentiments. Business was good at first, Eric told The EastAfrican, “because it was very efficient and profitable, but not anymore.”

“The entry of other tech firms has sparked a fierce price war as players tussle to control the market at the expense of drivers,” he said.

This has prompted many drivers to take up all the ride-hailing apps in a bid to diversify their income, but some have quit the business. Others have had to go on strike to voice their concerns.

Earning less

Earlier in September, the Digital Taxi Association called a strike of drivers of Uber, Taxify, Little Cab and Mondo. They complained that in efforts to meet the companies’ targets, they have had to work more while earning less.

“Because of competition, the tech companies keep reducing prices. In the long run, it is we — the partners and drivers — who are losing. We are being oppressed!” said Daniel Omondi, the drivers’ representative.

“We are being exploited by these companies and we are tired. There are no sensible profits for us, so the terms have to change for everyone to be happy.”

The September 11 protests were not the first by taxi operators in Kenya. In August 2016, Uber slashed fares by up to 35 per cent to boost demand for the service amid competition from Little Cab launched a month earlier by telecommunications giant Safaricom.

Similar protests in February 2017 forced the firm to increase its fares by 20 per cent in March.

Uber entered the Kenyan market in January 2015, disrupting the taxi business and sparking protests as it had done elsewhere in the world. Uber drivers were harassed by the traditional taxi operators and a few cars were burnt.

The United Kenya Taxi Organisation accused Uber of using its business model, which has a lower operational costs than regular taxis, to unfairly attract more customers, threatening to drive the union’s 15,000 drivers out of business.

Under the model, Uber is registered as a technology company, exempting it from government regulations, including taxation, charged on a public service vehicle in Kenya.

Additionally, Uber taxis are considered to be always “on the move” — dropping and picking up customers — and are thus not charged parking fees by the city authorities.

“We are a liberalised environment and those who offer competitive services must be protected,” said Transport Cabinet Secretary James Macharia in defence of Uber.

The government’s backing and the lower operational costs was all Uber needed to flourish in Kenya, as more drivers signed up to the service.

Uber gained more popularity in Kenya, both as a preferred taxi service by passengers — as it offered significantly lower rates than regular taxis — and as a business venture for car owners.

“The returns looked so good I opted to use public service vehicles and enrolled my car with the Uber fleet partner, a service provided for car owners who want to enlist more than one car in the service,” said John, who works in the city centre.

Uber growth

To further expand its fleet, Uber partnered with local banks like Sidian and Stanbic to give loans to driver-partners to buy vehicles for the taxi business. Such initiatives saw Uber grow the number of drivers in its fleet from just 30 in January 2015 to more than 6,000 now.

“Back then, it was profitable,” said Samuel, a driver who operates both Uber and Taxify apps. “But trouble started when more firms entered the market.”

Passengers using Uber Kenya currently pay a minimum fare of $2, from a base rate charge of $.08 per kilometre, $0.02 per minute; and an additional charge of $0.35 per kilometre, down from a minimum fare of $5; $1 base rate, $0.04 per minute and additional $0.6 per kilometre when it debuted in January 2015.

Uber drivers are charged a 25 per cent commission on every ride, a charge that has remained constant despite the price cuts by the company over time. Uber says the charge is “a global standard” that is used to “cater for marketing costs.”

“Uber needs to market to riders so that drivers can continue getting trips. This cost comes out of Uber’s service fee from each fare,” said Uber East Africa spokesperson Janet Kemboi.

The other players, including Little Cab who entered the market with relatively lower rates, have been forced to cut them further.

In January this year, Taxify slashed fares by 15 per cent to a minimum fare of $2.2, with a $.075 base rate; a $0.04 per-minute charge; and an additional $0.3 per kilometre.

Work all day

Now, to make some money, the drivers, a majority of whom have rented the cars or are servicing bank loans, work all day and night.

“You can make $45 a day; pay the car owner $20; and fuel the car at about $12-$15, leaving you with $5 or $6 after a day’s work,” said Daniel, a Taxify driver.

Edwin, an Uber fleet manager, said he has struggled to meet the targets he agreed with his leases in recent months as his business bears the brunt of the price competition.

“Things are tough. I know of colleagues who have had their cars seized by banks because they could not repay their loans,” he said.

An Uber driver is required to remit $20 to repay the car loan and use $16 on fuel. Then there are other costs like the insurance cover and vehicle servicing.

In Uganda, contracted drivers started facing challenges barely five months after Uber launched in Kampala last year.

Uber was offering drivers incentives that saw them earn between $57.1 and $100 a week, but stiff competition from the traditional taxi operators and boda bodas (motorcycles) drove some drivers away.

In the first four months, Uber drivers were making about $4 per hour, but this has gone down to $1. Uber charges $0.37 as the base fare, plus $0.26 for every kilometre, and $0.06 for every minute spent on the road. Then there us the 25 per cent commission.

The operators have also to pay for parking, averaging $5.7, and $12-$15 in tax to the Kampala Capital City Authority every month.

“Uber wars”

In South Africa, the “Uber wars” of 2017 have evoked memories of the “taxi wars” that began in the late apartheid era, where turf wars were fought between taxi associations and minibus taxi drivers.

During that period, hundreds of people were killed as rival cartels went to war to defend their market share.

When Uber arrived in South Africa in 2013, things changed dramatically. Today, metered taxi drivers are arguing that Uber drivers are stealing their business.

But many of Uber’s new clientele claim they have long avoided metered taxis on the grounds that they are expensive and unsafe.

As the demand for Uber grew, more and more drivers registered. Along with South African drivers are many Zimbabweans fleeing the collapse of their country’s economy.

They are often not eligible for other forms of employment, but many meet Uber’s background checks, car and driving checks, and so can earn a living as drivers in South Africa’s urban centres. This has only turned Uber into a flashpoint for tensions over employment and wages.

By Victor Kiprop, Bloomberg and Internet sources

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