SINGAPORE: Just weeks after ride-hailing giant Didi Chuxing acquired Uber’s business in China in 2016, commuters and drivers found themselves hit in the pocket.
Fares on the Didi Hitch service rose by 20 per cent in Beijing, and customers in other major cities such as Chengdu and Xi’an reported forking out more for the same distance, according to media reports.
Around the same time, Didi also reduced its subsidies for drivers in Beijing, with weekend subsidies totally cut. They had previously received a 100 yuan (S$20.90) bonus for completing 38 rides on Saturdays and Sundays.
A year after Didi’s US$35 billion (S$46.1 billion) acquisition — which made it the largest player in the Chinese domestic market, with an almost 90 per cent market share — China’s official Xinhua News Agency slammed the firm for “capricious” price rises.
It is this exact scenario which regulators and experts in Singapore fear would play out, following Grab’s takeover of Uber’s Southeast Asia operations.
On its part, Grab has pledged not to raise fares and commission fees in the “short to medium term”. Its Singapore country head Lim Kell Jay also said the public’s fears over a monopoly, while understandable, were “unwarranted especially given that the competitiveness and the contestability of the market is well and alive”.
On Mar 26, Grab announced it had bought over Uber’s business in Southeast Asia after a bruising battle for market share and months of speculation.
The news sent lawmakers scrambling to assess the deal’s impact on their markets. Anti-trust watchdogs in Singapore, Malaysia and the Philippines are racing against time to determine if the deal hinders competition, while Singapore’s regulators are also looking into its impact on the point-to-point transport sector.
As part of the deal which is under review by the Competition and Consumer Commission of Singapore (CCCS), Grab will take over Uber’s ride-sharing and food-delivery business in Southeast Asia. Uber will, in turn, take a 27.5 per cent stake in Grab and its chief executive Dara Khosrowshahi will join Grab’s board.
SCRUTINISING GRAB’S ARGUMENTS
Despite Grab’s assurances, experts expect the firm to eventually raise its charges to recoup losses. While there was little doubt that the Grab-Uber deal would reduce competition in point-to-point transport, the experts were divided on whether it will result in a monopoly.
With Grab having a commanding position in the market, Associate Professor Lawrence Loh of the National University of Singapore (NUS) Business School said consumers and drivers may not be impacted at the start if the acquisition goes through, but this could change down the road.
Assoc Prof Loh, who is director of the Centre for Governance, Institutions and Organisations at the school, cited Didi’s moves after it took over Uber’s China business. He said:
Once a deal gets through, after some time, some of the anti-competitive or undesirable practices can come out.
Urban transport expert Park Byung Joon said Grab would have to find ways to recover its investments after years of splashing money to gain market share. “Otherwise, what’s the point? Their business has one (aim) — start recovering their money,” said Dr Park, who is with the Singapore University of Social Sciences (SUSS).
In 2016, Didi, the world’s most valuable start-up, acquired Uber’s China business after an intense rivalry where Uber reportedly bled US$2 billion over two years there. Several players, including Meituan Dianping, have since signalled an intent to elbow their way in. Kicking off its first ride-hailing project in Nanjing last year, Meituan is rolling out seven more pilot initiatives this year, including in Beijing and Shanghai.
Still, NUS Business School assistant professor Yang Nan said the sizeable Chinese market had to wait over a year for a major rival such as Meituan to join the fray and it is too soon to tell if it will succeed in “balancing the market play”.
In Singapore, following the announcement of Uber’s sale to Grab, homegrown carpooling service Ryde and Indonesia’s Go-Jek have plans to enter the Singapore market.
Grab has stressed that competition exists in many forms — from taxis to public transport and possible new entrants into the market.
Grab’s Mr Lim seeks to debunk the view that Grab was dominating the market. Among other things, he noted how customers still had various affordable transport options to take them home safely, despite Grab’s major outage lasting four hours on Tuesday (Apr 3) night. It had another brief disruption on Friday (Apr 6).
Addressing Grab’s arguments, Assoc Prof Loh said the various transport modes may not be perfect substitutes. The MRT and bus networks differ in convenience, availability and accessibility, while traditional taxi operators are not entrenched enough in the digital space to compete with big players such as Grab.
SUSS transport economist Walter Theseira said the question was whether the alternatives remained viable with Grab as the dominant ride-hailing service. “The general ambition of ride-hailing platforms is to completely subsume all traditional taxi services and indeed, other point-to-point services, under their umbrella,” he said.
He questioned whether there were “efficiency benefits” from having a dominant ride-hailing operator and how to ensure these were shared with parties such as commuters and drivers.
The attention that the Government is affording the issue is not surprising, given that the service is used daily by hundreds of thousands of Singaporeans and is also the livelihood of tens of thousands of drivers.
“It is a service that, if it were withdrawn tomorrow, would have a huge impact on the economy and people’s lives — at least until other transport providers such as taxis adjusted to fill the gap,” said Dr Theseira.
Experts said that while the technological barriers to entry were low, other hurdles stood in the way of potential competitors, including access to drivers.
Assoc Prof Loh said Grab has an army of drivers and new entrants may not be able to “readily plug into this pool of drivers due to inertia, resistance or even uncertainty”.
Agreeing, Dr Park said Singapore already has an established pool of registered private-hire cars — about 47,000 at the end of last year — and it would not be easy for Go-Jek or other players to “add 20,000 cars”. The key is to entice drivers to move, but this could be complicated by the contracts which drivers may have with their ride-hailing company’s rental arm, which could tie their hands for a prolonged period. “That will effectively hinder other players to grow,” said Dr Park.
Enthusing commuters to use another app may also be tough, Assoc Prof Loh said, although Dr Park noted that customer loyalty is very low in the ride-hailing space.
Also, Grab has an edge given its familiarity with local habits and customs and new players may not be able to hit the ground running immediately, Assoc Prof Loh added.
Ultimately, for commuters and drivers, the chief concern is the Grab takeover could lead to a dominant player jacking up prices and commission fees, experts reiterated.
While Dr Park said prices will not be “infinitely high” even with a monopoly — as exorbitant fares will push commuters to other modes of transport — there was still cause for concern since prices will invariably be higher than when there is “intense competition”.
HOW MARKET POWER CAN BE USED FOR GOOD AND BAD
Apart from outright price hikes, transport specialist Terence Fan from the Singapore Management University said such increases could be subtle such as cutting the availability of cheaper alternatives, which indirectly pushes up the amount consumers have to pay.
Away from fares, Dr Theseira said the main issue is Grab’s increased ability, with market power, to capture more value from ride-hailing. Presently, it takes a 20 per cent cut from private-hire car drivers.
Rather than raising fares, it could bump up the commission rate to extract more value, which could also be done via its payments platform GrabPay.
These uses of market power would be far less visible to the public, but in reality, they could be more impactful on the market as a whole.
Assistant Professor Fan said that if the deal went through, drivers would have only one company with which to negotiate car leases and they effectively have “nowhere to turn to if the merged entity suppresses the amount of pay that would accrue to them”.
Still, Dr Surachet Pravinvongvuth, an assistant professor in transportation engineering at Thailand’s Asian Institute of Technology, said there were also benefits from reduced competition.
For instance, waiting time will be cut, since Grab and Uber’s combined fleets mean a larger supply of vehicles. Commuters will also not have to straddle several apps.
“We should consider all aspects, and to me, at this state — at least in the Thai market which I know well — I have no problem with this merger. I do not mean that I support the monopoly, but … (in) the current state, there is no problem,” he said.
Asst Prof Fan added that consumers can expect more integrated offerings from a single app, while drivers will benefit from a larger entity which may have a greater ability to provide complementary services, such as fleet maintenance and petrol deals.
Writing on Grab’s blog last month, Mr Lim said “it’s never just about competition”. Highlighting its slew of services, he said the firm has a “bigger vision for how we can build a more efficient transport system” to serve commuters better.
We offer more transport options, at different price points, to suit different needs.
"For passengers, our low-cost options such as GrabCycle and GrabShuttle Plus can better serve short commutes. For drivers, this means you can receive longer-distance jobs with higher fares … By replacing short taxi and car rides with greener, cheaper options like shuttle and cycle, we are also helping to reduce congestion and pollution," he added.
HOW FAR REGULATORS SHOULD GO?
With so much concern over the potential impact on fares, should the authorities look into regulating them? The answer from most experts is a loud no.
Rather, they said it would be more meaningful to set the rules that determine prices and put in place conditions for ensuring open competition.
Dr Theseira pointed to Singapore’s taxi industry, where regulations on fare structure are in place. For instance, fares are to be metered and posted publicly.
The Government does not stipulate taxi fares, which were deregulated in 1998 to allow operators to set their own prices.
Assoc Prof Loh reiterated that it is much more efficient and appropriate for the authorities to examine the conditions allowing for open and contestable markets. Pulling the lever of price control is “always sub-optimal”, he said, as the regulator is “not the market and they are not able to know the efficient price that can bring about the maximum level of social efficiency”.
While some experts said it was possible to impose a cap on surge pricing — a practice adopted by Grab where fares climb when demand goes up — this could have knock-on effects.
Dr Theseira said a cap meant that, during peak periods, commuters willing to fork out surge fares to snag a ride immediately would have to wait. “It may also discourage provision of extra supply from drivers, which will just make the problem of insufficient supply worse,” he said.
Assoc Prof Loh reiterated that a cap could result in unfulfilled demand and many customers do not mind paying more. Instead, more plausible solutions could entail measures to ensure vehicles are out and about during peak periods, he said.
He also called on Grab to be more transparent on how its surge fares are set to allow users to make better decisions.
Asst Prof Yang said the authorities could regulate the commission ride-hailing firms earn from drivers. He acknowledged, however, that drivers’ income comes from a complex package — including fares and incentives — which is difficult to regulate.
Dr Theseira said another area that could be regulated was how the terms and conditions of service for commuters and drivers are determined. Some conditions — including the criteria for drivers to operate on a particular platform — should be set or at least overseen by the authorities, so that a company with market power “does not make arbitrary decisions affecting drivers’ livelihoods”.
He said it was also the role of regulators and not companies to decide on matters such as minimum driver service standards and fare evasion. This follows the practice in taxi industries worldwide, including in Singapore.
In Singapore, the Land Transport Authority sets and reviews service standards to maintain the quality of taxi services and protect commuters’ interests. Taxi companies are, for instance, required to meet service standards in the areas of taxi booking, safety and driver conduct.
Dr Park suggested the authorities could look into the contracts between drivers and the rental arms of ride-hailing operators, especially where these stipulate cars rented can be used only to fulfil bookings from that company.
The regulators could examine the contracts’ duration and what it takes to terminate an agreement. “If (terminating) the remaining period of a contract is so expensive and a driver is stuck with a deal for a year or two, then that will help Grab to enjoy its dominant position,” said Dr Park.
Expressing disappointment at Uber’s handling of the deal, Mr Ang Hin Kee, who is the executive adviser to the National Private Hire Vehicles Association, said the American giant’s sudden exit from the region left many drivers and commuters dismayed and concerned.
“Uber as a product had its strengths but its weakness must be the management team for such unprofessional handling, especially of drivers who were left clueless … Moving forward, regulators will need to establish rules that ensure drivers’ and commuters’ interests are safeguarded,” said Mr Ang, who is also a Member of Parliament for Ang Mo Kio Group Representation Constituency.
COULD THE GOVERNMENT HAVE REACTED SOONER?
About three weeks before the deal was made public — amid strong market rumours that Grab was looking to buy out Uber’s Southeast Asia business — the Singapore Government announced it would be reviewing the regulations governing point-to-point transport so that no single player will dominate.
A day after the deal was announced, the CCCS started an investigation into the transaction. Three days later, the competition watchdog proposed interim directives to preserve and restore competition and market conditions.
The CCCS is mulling written representations from Grab and Uber, which include undisclosed alternative interim measures. Under the CCCS’ proposed measures, Grab and Uber will have to maintain their pre-transaction pricing, pricing policies and product options for chauffeured personal point-to-point transport passenger and booking services.
The scenario of a single dominant player has been expected for some time, given that ride-hailing services have only one goal on their minds: Gain as much market share as possible.
On whether the Government could have moved sooner, Dr Theseira said it was generally not practical or advisable for the authorities to intervene directly to alter market structure, such as by choosing a third party to take over Uber’s business in Singapore. “This would be seen as over-reach by government except in cases where national security is at stake,” he said.
The Government’s minimal regulatory approach towards the point-to-point transport sector was “sensible” when Grab and Uber entered the Singapore market in 2013. At that time, ride-hailing was not only a disruptive industry — the type of innovation Singapore wanted to succeed here — but it also solved many complaints about taxi services. Dr Theseira said:
It was seen as potentially harmful to over-regulate the sector immediately, but of course, the rapid rise of ride-hailing has now created problems that require regulation.
Other experts said technological and market dynamics are moving much faster than regulators and lawyers can keep pace with, and the authorities should be given time to consider if regulatory action is needed.
“You don’t start to regulate at the first mosquito bite or even when the mosquito has not bitten … Regulation should not be seen as a first resort,” said Assoc Prof Loh. “In this case, even if (the Government’s moves are) seen to be reactive, I think it’s better (to do it) at this time than never.”
Assoc Prof Loh added that over-regulating the ride-hailing sector would also quash innovation and kill off start-ups, and it was a “very delicate balancing act that we have to consider”.
THE WORLD IS WATCHING
Indeed, the business community, including start-ups, is monitoring the developments with interest.
ShopBack Singapore country head Vincent Wong said the watchdog’s decision could “serve as a precedent on the feasibility of the type of exits for businesses in Singapore”. He added:
We hope, however, that this does not discount the attractiveness of Singapore as a place to do business.
Mr Biju Krishnan, co-founder and chief operating officer of big data and analytics start-up Latize, said investors valued transparency. How the authorities deal with the matter would, in fact, boost investor confidence and show that the start-up space here is “mature and evolving” and the country is taking steps to protect consumers’ interests, he said.
Association of Small and Medium Enterprises president Kurt Wee agreed and said
I don’t think considerations of the Competition Act would depress business confidence. I think it upholds business confidence that these things are being looked at.
Former Member of Parliament Inderjit Singh, who was a vocal champion for the private sector during his 18-year stint in the House, said the immediate worries sparked by Grab’s acquisition were the lack of competition and the effects on prices, for instance. “If the CCCS did not react, I’d worry more, because then there will be situations where, really, there’s a monopoly being created and we’ve no one to help us … and pure market forces sometimes can win,” said Mr Singh, who is the CEO of consumer electronics firm Solstar International.
Apart from Singapore, the Philippines and Malaysia had said they would also look into whether the deal hinders competition, just days after the CCCS began its probe.
With the CCCS’ decision setting a precedent, the region — if not the world — is watching.
Associate Professor Kasem Choocharukul, who is an associate dean in the faculty of engineering at Thailand’s Chulalongkorn University, said the CCCS’ decision would partly influence how other countries move on the matter.
Reactions to the deal, however, may vary from country to country owing to “different regulations, combined with unique travel characteristics, diverse urban-mode choice options and land-use settings”, he said.
For Singapore, how it handles the headline-grabbing deal may have broader ramifications, especially if the regulators “come in too tough”, said Assoc Prof Loh.
He added: “If the climate is too stringent and stifling, we might create certain international opinion that our market is not conducive to international investments and operations … We also have to be careful not to be seen as impeding the free trade of services and products, which is something Singapore holds dear.”