Rivals give Uber a less than easy ride

A €7.3m fine in its hometown of San Francisco marks another in a long series of difficulties for Uber, whose unorthodox business model has sparked protests from London to New Delhi, writes Olivia Kelleher

Striking taxi drivers in Paris, France, complain about Uber last month. The company's biggest challenge is the global protests it faces. Picture: AP /Michel Euler

It’s been a rough few weeks for Uber.

In its home town of San Francisco, the car-sharing service was hit with a $7.3m fine for refusing to give state regulators information about its business practices, including when its drivers turn down ride requests and how accessible vehicles are to disabled riders.

On the same day last week, Mexico City became the first city in Latin America to regulate the company — slapping it with a 1.5% ride levy, a yearly permit fee and a minimum vehicle value — making it more expensive to operate its services.

Since its inception, Uber has been a textbook example of what happens when an aggressive newcomer enters a business that has gone unchallenged for decades.

Founded six years ago, Uber connects drivers with passengers via mobile applications on smartphones in more than 300 cities in 58 countries. Since Uber’s launch, several other companies have emulated its business model, a trend that has come to be referred to as “Uberification.”

The firm, which doesn’t own the vehicles or employ the drivers, has taken business from existing taxi companies and was the subject of violent protests in Paris in late June.

Uber has triggered protests by taxi drivers from London to New Delhi as it upends traditional business models that require professional drivers to pay often steep fees for licences to operate cabs.

Taxi drivers take part in a recent protest in London. The cabbies claim Transport for London is not doing enough to enforce rules that ensure public safety in London taxis. Picture: Lauren Hurley/PA Wire

It has caused as many riots as revolutions within traditionally closed markets. But so for long a poster boys of the free market, the multi-billion dollar company has hit a few significant potholes of late as it winds its path across the globe.

It’s refusal to lift the lid on its business practices has angered authorities. In California, the Public Utilities Commission, the regulatory agency that allowed Uber and its competitors such as Lyft to operate in the state slapped it with a multi-million dollar fine for not filing all required reports, specifically about how often it provided disabled-accessible vehicles, places where drivers tend to turn down ride requests, and the causes of accidents.

Uber’s app allows passengers to request a ride directly from drivers in the area — and allows drivers to decline the request. The utilities commission wants to see whether drivers are accepting fares evenly.

The judge acknowledged the company provided some of the contested information but said it was not enough.

In a written statement, Uber spokeswoman Eva Behrend called the ruling and fine “deeply disappointing” and said the company would appeal.

Uber has previously tussled with public officials. In Portland, Oregon, for example it had an extended disagreement with the city that led it to suspend operations.

But it’s not just in America where Uber has been making enemies. US singer/actress Courtney Love made international headlines last month after she tweeted about her taxi ride in Paris being “ambushed” and her driver “held hostage” by taxi drivers who are incensed by the Uber smart phone app. The former Hole frontwoman called on the US to ban all travel to France after she was besieged at the airport in Paris late last month by a “mob of taxi drivers” before making her escape on the back of a motorcycle.

The 50-year-old, who is the widow of Nirvana singer Kurt Cobain, later said she was under siege for about an hour but managed to escape the chaos

“Paid some guys on motorcycles to sneak us out, got chased by a mob of taxi drivers who threw rocks, passed two police and they did nothing,” she wrote.

All in all police made 10 arrests after 70 vehicles were damaged. French television showed pictures of burning tyres, overturned vehicles and scuffles with police in riot gear firing tear gas at one point.

Driving a taxi requires buying a licence that can cost in excess of €100,000 in Paris but there is no such obligation for Uber drivers.

Striking taxi drivers tied up traffic and blocked train stations and airports in protest of what they say is unfair competition.

Abdelkader Morghad, a representative of the FTI taxi union, said taxis in France have seen revenues fall between 30% and 40% in the last two years because of services such as Uber.

“Many taxi drivers are infuriated. We’re demanding that the Thevenoud Law, which clearly forbids unlicensed drivers, be implemented.”

Kader Djielouli, a 44-year-old protester who’s been driving taxis in Paris for 15 years, said he’s lost 40% of his revenue since 2009 because of services like Uber.

Uber says it has signed up a million users in France in just over three years.

However two executives from Uber will face trial in France on September 30 as part of a crackdown on what the government calls an illegal taxi service.

Uber executives Pierre-Dimitri Gore-Coty and Thibaud Simphal will appear before magistrates, reportedly facing charges of “misleading business practices, complicity in operating an illegal taxi service, and illegal treatment of personal data”.

A French law from October 2014 already placed a ban on putting clients in touch with unregistered drivers with apps such as Uber. But Uber has contested the rule, saying it is counter to the right to freedom to do business.

Uber said in a statement that it wanted to “continue constructive talks with the government” on transport regulations and that it hoped France’s Constitutional Council would give its view on the 2014 law by the end of September.

Last week, interior minister Bernard Cazeneuve issued a decree forbidding activity by drivers of Uber vehicles. Police can now seize Uber vehicles.

Meanwhile, New York, where Uber generates the most revenue, was the first market where Uber complied from day one with the law, hiring drivers with commercial licences.

Elsewhere in the US and abroad Uber’s strategy has been to launch services regardless of the rules and then leverage its popularity to force regulators to adapt.

Uber was founded as Uber Cab by American duo Travis Kalanick and Garrett Camp in 2009 with the company going international in 2012.

It is estimated that the company will generate $10bn in revenue by the end of this year.

The idea for Uber came to Kalanick when he was trying to find a cab to attend a 2008 LeWeb conference in Paris, France but he could not find one. Kalanick cites Paris as “the inspiration for Uber.”

It hasn’t been a smooth ride for Uber Technologies. The car-booking company has a knack for riling up the taxi and limousine industry.

Taxi drivers gathered next to the Olympia Stadium in Berlin last summer to protest against services like Uber which they claimed were damaging their livelihood. Picture: Sean Gallup/Getty Images

Getting Uber’s car-booking application up and running in cities around the globe isn’t cheap. Its major costs include an international expansion, subsidising rides in new markets, recruiting drivers, hiring engineers, leasing offices and building a lobbying operation.

Uber’s model is “Business 101,” said Nairi Hourdajian, an Uber spokeswoman. “You raise money, you invest money, you grow (hopefully), you make a profit and that generates a return for investors.”

The car-booking startup has been on a spree to raise cash. Uber is negotiating a $2bn credit line from a group of Wall Street banks.

Earlier this year, it raised $1.6bn in convertible debt from Goldman Sachs Group Inc.’s wealth-management clients.

The company’s biggest challenge is the continuous protests they are facing from taxi drivers worldwide who are incensed about the service.

In March, Uber drivers were threatened in Bogota, Colombia as the taxi war heats up.

Uber has clashed with established taxi groups in several other cities where it operates including London, Berlin and Mexico City. Those clashes turned violent in Bogota.

Meanwhile, in China thousands of taxi drivers in at last seven cities went on strike in January angry about growing competition from ride-hailing apps such as Uber.

The New China News Agency quoted officials from the Ministry of Transportation as promising to unveil a reform plan aimed at establishing a “modern transportation system.”

The strikes began in the city of Shenyang on January 4, and were echoed in a number of other cities. Cab drivers in Changchun blocked traffic with their cars for two days, and hundreds of drivers in Sichuan and Jiangxi provinces joined in.

China’s licensed taxi drivers have rarely had much choice but to eke out a living under trying circumstances. Most drivers are required to work long shifts that can exceed 12 hours, and have typically had to pay more than half of their (often meagre) incomes to state-sanctioned or state-owned taxi companies in the form of various mandatory fees. The competition from taxi hailing apps — and the diversion of fares to private drivers —has made their tough situation even more difficult.

Uber has also incurred difficulties in South Korea. Nearly 30 people, including the chief of the local unit of Uber Technologies Inc., have been booked on suspicion of operating illegal taxi services in the country.

Uber CEO Travis Kalanick, who has already been indicted on charges of establishing and running Uber Korea, was booked again on suspicion of conducting an illegal business, they added.

Police also said the Uber app poses a risk for passenger safety as drivers are not screened, cars are uninsured and mobile phone numbers and credit card numbers could be leaked.

The CEO has remained in the United States and refuses to stand trial in South Korea.

In India, last December the Delhi transport authorities ordered the app-based taxi aggregators to cease operations until they obtained operating licences under revised guidelines.

The ban followed an early-December incident where an Uber driver allegedly raped his female passenger.

The move in India was followed by separate government and court actions against Uber in Thailand, Spain and the United States on a variety of issues.

In Thailand, transport authorities ordered the company to cease operations, saying drivers picking up fare-paying passengers via Uber were neither registered nor insured to drive commercial vehicles.

In Spain, a judge ordered Uber to cease operations as a local taxi association prepared a case accusing it of unfair competition.

In Brazil the city council of Sao Paulo, South America’s largest metropolis, recently voted to ban the US-based Uber ride-sharing service.

In London, last month hundreds of black cab drivers brought traffic in the streets around the House of Commons to a halt in a protest against unlicensed taxis.

Drivers staged a demonstration outside the headquarters of Transport for London (TfL) in Westminster over the activities of companies such as Uber. The protesters from United Cabbies Group claim TfL is not doing enough to enforce rules that ensure public safety in London taxis.

“We have to have a licence to own a cab, we have to have a driver’s licence, a cab driver’s licence,” said Mark Haslam, a 58-year-old black-cab driver, who took part in the protest. “For some reason they seem to be outside the law.”

Uber said it holds the necessary licence for private hire cars in London and adheres to all of Transport for London’s regulations.

Meanwhile, in Madrid last month, thousands of drivers marched to block the Paseo de la Castellana, one of the city’s main avenues, as police escorted the demonstration by cars, a helicopter and officers on foot. Protesters chanted insults targeted at Uber and chased taxis that weren’t taking part in the rally.

At the same time in Berlin more than 500 taxis lined up in protest in the city centre.

Cars in Brussels that use the app will be subject to a €10,000 fine after a local court ruled against Uber cars last month.

South Africa’s most populous city is considering regulations for Uber.

The City of Johannesburg is consulting with the government of Gauteng province on how to introduce new rules.

Uber drivers have taken passengers on more than two million journeys in South Africa this year, compared with about one million in 2014.

Uber has also been shut down in the Netherlands.

The company is also running into criticism at home. Such apps are “encouraging non-professional drivers to use their personal vehicles to drive passengers for a profit, a risk which personal automobile insurance simply does not cover,” Commissioner Dave Jones of the California Department of Insurance said in a statement last month.

Uber said it already provides a $1m commercial policy during trips and $1m of coverage for uninsured and underinsured motorists.

In Chicago, US police said they were investigating an allegation that an Uber driver raped a female customer. Uber said it was co-operating with police and called the incident “appalling.”

The roll-out of Uber in Ireland has been fuss-free largely because of the way the industry is regulated here. Uber uses licensed taxi drivers and qualified private hire vehicle drivers such as limousine drivers in its Irish operation.

Uber is fighting back to the widespread opposition for its service by hiring lobbyists.

CEO of Uber Travis Kalanick also says the low prices and ease of use that their drivers can offer will lead to a base of support from consumers that regulators won’t be able to ignore.

A typical journey from Finsbury Square, near London’s financial district, and Paddington Station takes between 20 and 30 minutes by car to travel approximately four miles.

Uber estimates that that journey would cost between £14 and £16. London’s transportation authority estimates that the trip could cost between £15 and £22.

Uber said in its blog it is responsible for 20,000 new jobs per month. The median income for drivers using the UberX platform, Uber’s low-cost service, is $90,000 per year in New York and more than $74,000 in San Francisco, the company said.

“Citizens of these cities are getting around the cities much more cheaply,” Kalanick told Bloomberg TV in a recent interview.

“How does a regulator or city official take that away from the population? Say that inexpensive transportation that’s high quality, you shouldn’t have?”

U

ber markets itself as a way for drivers to start their own businesses, showing profiles of top drivers on its website who include a student who used the app to make money on weekends, a single mother who started her own business and a man who quit his job to drive passengers around San Francisco.

That means it can draw drivers from outside of the professional chauffeuring industry who may hold different licences or qualifications. That’s a key difference from similar apps like Hailo, which recruit taxi drivers.

The company is currently also coming under pressure from companies such as Transdev its single biggest competitor. Transdev is one of the world’s largest private transportation companies.

It has 10,000 vehicles in more than 100 cities worldwide, including Denver, London, and Paris, as well as shuttle services to 50 airports in North America.

Transdev is co-owned by two French companies — Veolia Environnement, a public utility company, and Caisse des Dépôts et Consignations, a state-owned bank. And it is lobbying hard to contain the disruption to the $10bn global taxi market.

“We survived two world wars and the Great Depression; we will survive Uber,” says Mark Joseph, the chief executive of Transdev North America, who has been president of the TLPA eight times.

Joseph says Transdev subsidiaries have prompted investigations into Uber by sending letters to regulators in core markets like Colorado, Maryland, and Pennsylvania.

Transdev was also among the companies that took the battle to a commercial court in Paris, which last year resulted in a €100,000 fine for Uber’s UberPop ride-sharing service, Europe’s equivalent of UberX.

“They have been lobbying to be self-regulated on the grounds that they are a technology company, but then they market themselves as cheaper than taxis,” Joseph says of Uber.

Uber also faces massive competition in China in the form of a company called Didi Kuaidi. It was established earlier this year with competing apps Kuaidi Dache and Didi Dache merged to cut the costs of competing with each other — and more importantly, Uber.

Didi Kuaidi CEO Cheng Wei said that his company is processing three million trips in China every day.

That’s three times the number of rides Uber is giving throughout the country.

Didi Kuaidi expects the annualised amount of money spent on its platforms to be $12bn by the end of the year, and aims to serve 30m passengers and 10m drivers a day within three years, the letter said.

Uber plans to invest more than $1bn in China this year as the controversial ride-hailing app looks to rev up growth in the world’s second largest economy.

Kalanick is on record as saying China was “not for the faint of heart” and that the firm was seeing fierce competition from local rivals.

“Since our launch in February 2014, we have found a public that is embracing Uber far beyond our most bullish expectations,” Kalanick said in the letter.

Uber has been actively trying to forge closer ties with local governments in China in a bid to fend off protests by local taxi firms, raids on its offices and well-connected local rivals.

Internationally Kalanick aims to push Uber rates so low that Uber rides could be a viable alternative to owning a car and possibly to using public transport.

Kalanick’s ultimate goal is to build “a network of transportation as reliable as running water, everywhere for everyone”, as he has put it.

The 39-year-old CEO conceded in a recent interview with Vanity Fair magazine that diplomacy was needed in order to further grow the business internationally.

“What we should’ve realised sooner was that we are running a political campaign and the candidate is Uber. And this political race is happening in every city in the world. And because this isn’t about a democracy, this is about a product, you can’t win 51 to 49. You have to win 98 to 2.”

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