OPINION: In Uber’s Defense

10.11.2016
Society Economy

On paper, Uber seems to be a promising solution to the long-standing problem that is urban commuting, but how and to what extent should the LTFRB regulate it?

By Gino Bermudez

This opinion piece draws from the report and findings of the August 2015 AIM Policy Center working paper, “Is LTFRB Uber-reacting?” by Ronald U. Mendoza, Aladdin Ko, and Jessica J. Manipon.

Does the Land Transportation Franchising & Regulatory Board (LTFRB) really fulfill its mission to ensure that the commuting public has “adequate, safe, convenient, environment-friendly and dependable public land transportation services”1 by denying the public the use of Uber and other ridesharing platforms? Looking at the point-to-point transportation industry from an economic framework, instead of a political one, suggests a way forward for the LTFRB to improve our transportation industry—eliminating the boundary system for taxis.

For years now, most who ride taxis suffer similar pains: standing in the heat along noisy streets, praying to hail a taxi whose driver not only chooses if he wants to drive you to your destination or not, but may, at times, make you pay a hefty negotiated premium instead of the metered fare. The boundary system, being the daily fee that taxi drivers have to pay taxi owners—often pegged at Php 1000-20002—could be the root of the substandard quality of taxi services because of the negative ways drivers have to behave (like reckless driving, for example) in order make enough money to pay their boundary and make a living. This familiar feeling of being extorted and burdened in every day commute is exactly the pain point that was addressed when Uber entered the point-to-point transport industry.

Uber is a ridesharing company founded in March 2009 in San Francisco, California whose operations in Manila began in January 2014.3 Uber allows passengers to connect electronically to Uber partners (as its drivers are called), and be picked up wherever they are and brought to wherever their destination may be. Both passengers and partners of Uber mutually rate each other from one to five stars for their quality and behavior, for the reference of future passengers and partners. As compared to its traditional taxi counterparts, Uber holds higher quality standards for its partners and their vehicles, including background checks and hard limits on vehicle age.4 Uber also costs relatively less than the traditional taxi when traffic is moderate. But as demand for transportation increases and traffic worsens, partners are compensated with Uber’s “surge pricing” in which fares increase by a variable multiple based on the degree of demand and of traffic at that time. As seen below in the data gathered by AIM, even with surge pricing, Uber rates are close to and even at times cheaper than the traditional taxi.

Table 1: Comparison of Fares5

Table 1. Comparison of Fares: Regular Taxis with Uber

  Taxi UberX Uber Black
Flag Down  P 40  P 40  P 90
+ Per Minute  P 1.75 (P 3.50/2 minutes)  P 2.00  P 2.10
+ Per Kilometer

 P 11.67 after first 500 meters

 (P 3.50/300 meters)

 P 5.70   P 12.92
Cancellation Fee  -   P 100  P 100
Minimum Fare  P 40  P 40  P 120

Surge Pricing?

[Price adjustments due to increase in demand in peak periods]

 NO

(however, some drivers charge an additional P 50-100, up to P 200 in some cases)

 YES

(usually 1.5 up to 2x, up to 8x in some cases)                            

 YES

(usually 1.5 up to 2x, up to 8x in some cases)                                

SAMPLE RIDE 1:

2 km, 30 minutes

(eg. Ayala Avenue from Ayala Station [EDSA] to RCBC Plaza [Buendia])

P 110

[P 40+3.5*15+3.5*(2000-500)/300]

P 111.40*

[P 40+2*30+5.7*2]

P 178.84*

[P 90+2.10*30+12.92*2]

SAMPLE RIDE 2:

10 km, 60 minutes

(eg. Bonifacio Global City to NAIA)

P 255.83

[P 40+3.50*30+3.5*(10000-500)/300]   

P 175.70*

[P 40+2*60+5.7*10]

P 345.20*

[P 90+2.10*60+12.92*10]       

*Estimates for Uber do not include possible surge pricing during rush hour
Source: Uber website <https://www.uber.com/cities/manila>, LTFRB Metro Manila Fare Rates<http://ltfrb.gov.ph/media/downloadable/fare_rates_MM.pdf>

 

On paper, Uber seems to be a promising solution to the long-standing problem that is urban commuting. But as almost always with groundbreaking disruptive innovations, there are critics of the change for one reason or another. In this case, traditional taxi drivers fear the stiffer competition that Uber brings to the point-to-point transportation market. Because Uber provides the same point-to-point service that traditional taxis provide but with evidently more convenience and better-kept vehicles, traditional taxi drivers can lose market share. This makes it increasingly difficult for taxi drivers to meet their boundaries and make a living. Moreover, taxi owners must spend more than Php 100,000 to purchase a franchise, while anybody with a car can become an Uber driver at no additional cost. The opportunity Uber offers to private individuals to “unlock” the potential of their personal cars for commercial use makes this business model enticing.

In the Philippines, multiple public transport coalitions use these safety concerns in using Uber as their main argument for placing greater regulation onto them.

This is not to say that Uber has no flaws. Multiple instances of Uber drivers raping their passengers have been reported in places like Los Angeles, Hawaii, London, and New Delhi.6 Moreover, Uber drivers assaulting their passengers have also been reported in multiples states in the USA, England, and Australia.7 Cases of drivers driving under the influence, kidnapping, and other felonies give evidence to how a seemingly perfect business model can fall apart because of poor execution. As the international backlash against Uber has increased, taxi service companies and government agencies have expressed concerns about the safety issues that Uber presents, along with the difficulties in regulating and mitigating these issues. Some countries, like Spain and certain places in India and the US have even decided to ban Uber and other ridesharing companies for “safety concerns.”8 In the Philippines, multiple public transport coalitions use these safety concerns in using Uber as their main argument for placing greater regulation onto them.9

But traditional taxi drivers are not the only opponents of Uber. As in most of the 75 countries that Uber operates in10, the greatest opposition comes from transportation regulators. This is not to say that regulation of the transportation industry is not needed. Indeed, regulation by the LTFRB is essential as it helps protect not only public transportation drivers by providing them fair and equitable fares and wages, but also the passengers by ensuring the safety and security of their commute. This might be what the LTFRB sought out to do in a sting operation on October 22, 2014 where an Uber partner was fined Php 200,000 for operating as a public vehicle without a franchise11, though the operation was seemingly done in bad faith, as there was reportedly no prior warning given to Uber partners. As the AIM paper’s authors pointed out, “this was not the first instance of Uber-reaction.”12 

Multiple transport groups such as 1-United Transport Koalisyon (1-Utak)13 and Samahan ng Tsuper at Operator ng Pilipinas Genuine Organization (STOP and GO)14 and other less established groups that are against the entry of ridesharing transportation have filed multiple complaints against Uber. Some of these initiatives have already borne fruit. For example, in December 4, 2015 the Quezon City Regional Trial Court issued a 20-day temporary restraining order (TRO) to stop accepting, processing, and approving applications of those who want to become partners of ridesharing companies.15 The TRO was approved after a petition was filed by Pascual “Jun” Magno,  president of STOP and GO. The transport group established that public utility vehicles (PUVs) with franchises had to be protected as their “vested rights” were not respected as the “sudden and uncontrolled” increase of ridesharing vehicles resulted in the decrease of income of PUVs with franchises.16 This TRO, however, only stopped the applications to become partners and not the operations of Uber and other ridesharing companies. 

In February 2016, two years after Uber started operations and amid the onslaught of criticism and complaints against the company, the LTFRB decided to junk all cases made against Uber and ridesharing companies.17 “We gave both parties ample time to air their pleas and contentions, and the Board decided to make a disposition that would promote better mobility and to the benefit the riding public,” LTFRB Chair Winston Ginez said.18 Ginez also argued that PUV operators should be welcoming to the challenge of new competition, and that they will be incentivized to provide better public transportation service that would be of interest to public safety and convenience.19 One might think this would have been the turning point of the rocky relationship of Uber and the LTFRB, but recent events prove otherwise.

A mere month later, the LTFRB heeded the calls of traditional taxi drivers to review the fare pricing of Uber and other ridesharing companies and to regulate them in order to control the competition.20 This happened a week after there was a fare cut on traditional taxi operators. LTFRB Chair Winston Ginez reminded ridesharing companies that under the May 2015 order of the Department of Transportation and Communications, fares set by these companies would be “subject to oversight from the LTFRB in cases of abnormal disruptions of the market.”21 The limitations on the operations of the ridesharing companies continue as of this writing. 

What the LTFRB needs is a firmer grasp of the innovations that these ridesharing companies bring in order to know exactly how and to what extent they should regulate them.

If one looks at the entry of these ridesharing companies solely from an economist’s view instead of the political view focused on the merits (or lack thereof) of the protests of public transport groups, one may disapprove the limitations placed upon Uber and similar ridesharing companies. The entry of such companies upends the pseudo-monopolistic point-to-point transportation market, creating a more diversified array of transportation choices.22 A competitive market benefits both the consumers and producers more efficiently and equitably, over the long-term. Producers are incentivized to up their game to compete in the market. Stiffer competition between traditional taxi companies, other PUVs and ridesharing companies might also lead to lessened vehicle congestion, as all participants in the market might be pushed to consolidate their fleet. Moreover, prices in a more competitive market naturally fall to a point that is fair for the consumer while still being profitable for the supplier. Ultimately, what this market model does is provide society with more transportation choices, flexible job opportunities, and fair prices for both the commuter and the operator. 

Clearly, the LTFRB need not worry about the resulting competition brought about by the entry of Uber because of the benefits that a competitive market provides for society as a whole. In AIM’s study on Uber and traditional taxi prices, it shows that taxi operators earn almost Php 500,000 a year just from one taxi while the taxi driver only earns Php 162,000 annually.23 This means that each month, a taxi driver earns roughly Php 13,500, net of gas and expenses of operating a taxi.24 As traffic worsens, and more gas is consumed while taxi meters tick less frequently, the driver’s income will reduce further, even as boundary fees set by taxi owners remain in place. This setup is ultimately untenable, not to mention unfair to taxi drivers, which is why pressure needs to be put to taxi companies to find a fairer arrangement with their drivers. Competition from Uber, Grab and other ridesharing platforms might do just that.

This is not to say that regulation should be exclusive to traditional public transport; there are certainly merits to regulating Uber and its ilk. The LTFRB regulates mainly two things for all modes of public transportation—fair prices and passenger safety. But it’s clear that the LTFRB has fallen behind in understanding the new innovations in the market, therefore making it difficult to redefine the regulatory environment for these ridesharing companies. This is not a new phenomenon—regulators often lag behind in developing new rules (or amending existing ones) to accommodate rapidly changing technology, and the changes to the market they prompt. What the LTFRB needs is a firmer grasp of the innovations that these ridesharing companies bring in order to know exactly how and to what extent they should regulate them.

If the LTFRB wants to fulfill its mission of providing “adequate, safe, convenient, environment-friendly and dependable public land transportation services,” then excessively limiting Uber and other ridesharing companies is not the way to go. The LTFRB has been “Uber-reacting” for so long already, and may want to refocus on its mission and look at the industry from a new and more economically focused perspective. 

The Japan International Cooperation Agency (JICA) estimates that traffic jams in Manila cost the Philippine economy a whopping Php 2.4 billion in potential income a day.25 “[This] includes lost work hours, lost business opportunities due to delays and missed deadlines and wasted fuel.”26 If not mitigated immediately, the daily economic cost of Philippine commuting could balloon to Php 6 billion.27 The abolition of the boundary system in the public transport system is the first of many steps the LTFRB and the Philippine government should take to bring back convenience and productivity to the Filipino commuter. Not only will drivers be ensured of income no matter how many passengers they accommodate a day, but this will also hopefully improve the services of taxi drivers to their passengers. The result: a holistically improved commuting experience for everybody.

Photo: White taxicab in Manila,Philippines by PhotoPhilia | CC BY 3.0

FOOTNOTES

1

"Mission And Vision." Land Transportation Franchising & Regulatory Board. Web. 29 Sept. 2016.

2

"Mendoza, Ronald. U., Aladdin Ko, and Jessica J. Manipon. “Is LTFRB Uber-Reacting?” (2015). Web. 29 September 2016. Working Paper forthcoming (AIM-RSN Policy Center for Competitiveness).

3

“About Us.” Uber.com. Uber, n.d. Web. 29 Sept. 2016.

4

"Driving Jobs vs Driving with Uber." Uber.com. Uber, n.d. Web. 29 Sept. 2016.

5

Mendoza, Ronald. U., Aladdin Ko, and Jessica J. Manipon. “Is LTFRB Uber-Reacting?” (2015). Web. 29 September 2016. Working Paper forthcoming (AIM-RSN Policy Center for Competitiveness).

6

“Rideshare Incidents.” WhosDrivingYou.org. Who’s Driving You?, n.d. Web. 29 Sept. 2016.

7

Ibid.

8

Ibid.

9

“20-day TRO: QC RTC suspends Uber, GrabCar applications.” CNNPhilippines.com. CNN Philippines, 4 Dec 2015. Web. 29 Sept. 2016.

10

“About Us.” Uber.com. Uber, n.d.Web. 29 Sept. 2016.

11

Sauler, Erika. "Driver of Private Car Using Uber App Nabbed in LTFRB Sting."Inquirer.net. Philippine Daily Inquirer, 23 Oct. 2014. Web. 29 Sept. 2016.

12

Mendoza, Ronald U., Aladdin Ko, and Jessica J. Manipon. “Is LTFRB Uber-Reacting?” (2015). Web. 29 Sept. 2016. Working Paper forthcoming (AIM-RSN Policy Center for Competitiveness).

13

Sauler, Erika. "LTFRB Junks All Cases Vs Uber, Grab Transport Apps". Inquirer.net. Philippine Daily Inquirer, 23 Feb. 2016. Web. 29 Sept. 2016.

14

Sauler, Erika. "QC court junks plea to halt app-based vehicle service." Inquirer.net. Philippine Daily Inquirer, 21 Apr. 2016. Web. 29 Sept. 2016.

15

“20-day TRO: QC RTC suspends Uber, GrabCar applications.” CNNPhilippines.com. CNN Philippines, 4 Dec 2015. Web. 29 Sept. 2016.

16

Ibid.

17

Sauler, Erika. "LTFRB Junks All Cases Vs Uber, Grab Transport Apps". Inquirer.net. Philippine Daily Inquirer, 23 Feb. 2016. Web. 29 Sept. 2016.

18

Ibid.

19

Ibid.

20

“LTFRB to review Uber, Grab, U-Hop fare adjustment.” CNNPhilippines.com. CNN Philippines, 18 March 2016. Web. 29 Sept. 2016.

21

Ibid.

22

Mendoza, Ronald U., Aladdin Ko, and Jessica J. Manipon. “Is LTFRB Uber-Reacting?” (2015). Web. 29 Sept. 2016. Working Paper forthcoming (AIM-RSN Policy Center for Competitiveness).

23

Ibid.

24

Ibid.

25

Francisco, Katerina. “Fix traffic or PH can lose P6B daily by 2030 – JICA.” Rappler.com. Rappler, 28 Feb 2014. Web. 29 Sept. 2016.

26

“The Cost of Traffic In Metro Manila.” Rappler.com. Rappler, 5 March 2014. Web. 29 Sept. 2016.

27

Ibid.

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