SINGAPORE: The recent merger between Grab and Uber has fallen foul of Singapore's competition watchdog, which said the deal led to a "substantial lessening of competition" in ride-hailing platforms, made it harder for new competitors to enter the market, and resulted in higher prices.
The Competition and Consumer Commission of Singapore (CCCS) announced on Thursday (Jul 5) its investigations suggest the merger has infringed the Competition Act. It will also be seeking public feedback on proposed remedies to address competition concerns, and has recommended imposing financial penalties on the parties.
It has also floated the possibility that the merger could be undone unless the proposed measures do enough to address competition concerns.
CCCS started an investigation into the merger on Mar 27, a day after it was announced. On Apr 13, it issued interim measures, including preventing Grab from taking over Uber’s operational data, such as historical trip data, to enhance its market position.
In a news release on Thursday, CCCS said it had concluded its investigation after obtaining evidence from the parties and third parties.
"CCCS has provisionally found that the transaction has removed competition between Grab and Uber, which were each other’s closest competitor. The merged entity is likely to be able to increase prices and has in fact done so since the completion of the transaction," it said.
In response later on Thursday, Grab said that it disagreed with CCCS' findings, and that it would appeal its decision.
"The CCCS appears to have taken a very narrow approach in defining competition. While we are one of the most visible players in transport, we are not the only player in the market," Grab said in response to queries from Channel NewsAsia.
"This provisional decision and proposed remedies are over-reaching and go against Singapore’s pro-innovation and pro-business regulations in a free market economy ... We will take all appropriate steps to appeal against this decision," it added.
UBER WOULD NOT HAVE LEFT MARKET IF NOT FOR MERGER: CCCS
The competition watchdog's investigation found evidence that Uber would not have left the Singapore market in the near to medium term if not for the merger, it said.
"It would either have continued its operations or merged its Southeast Asian business with other potential buyers who were not its current competitors in Singapore," it said in the statement.
CCCS noted that Uber had entered into an agreement to collaborate with ComfortDelGro with the introduction of UberFlash to compete with Grab, and the collaboration was only withdrawn after the merger.
"The transaction has therefore removed competition between the two closest prevailing competitors in the chauffeured point-to-point transport platform services market in Singapore," it said.
BARRIERS TO ENTRY FOR NEW COMPETITORS
CCCS found that taxi booking services, which have less than 15 per cent market share, pose an "insufficient competitive constraint" to the parties.
At the same time, the barriers to entry and expansion for ride-hailing platforms are high due to strong network effects, particularly given that Grab had imposed exclusivity obligations on taxi companies, car rental partners, and some of its drivers, it said.
"Without any intervention from CCCS, it could continue to hamper the ability of potential competitors to access drivers and vehicles," it added.
However, with the exclusivity-reinforced network effects, any new entrant would "likely have to incur significant amount of upfront capital in order to attract drivers and riders", CCCS found.
The expenditure new entrants would have to incur includes driver incentive schemes and rider promotions, in addition to acquiring a sufficient fleet of vehicles and pool of drivers, as well as partnerships with taxi operators, according to CCCS.
In this regard, potential new entrants have provided feedback to CCCS that without any intervention from CCCS, it would be difficult to attain a sufficient network of drivers and riders to provide a satisfactory product and experience to both drivers and riders so as to compete effectively against Grab, it said.
Furthermore, the market for the rental of chauffeured private hire cars has considerable barriers to expansion such as significant amount of time and upfront capital expenditure to build a car rental network of sufficient scale, and a higher cost of maintaining such vehicles as compared to normal rental vehicles, CCCS said.
These rental companies may not be able to expand and compete effectively without a tie-up with a ride-hailing platform, and after the merger Grab would be in a strong position to put in place exclusive arrangements with the rental companies and the drivers who rent from these companies in order to reinforce its position in the ride-hailing platform services market, it added.
The competition watchdog said that without sufficient competition, Grab would be able to raise fares for riders and commission rates for drivers, lower the quality of its services and reduce innovating its product offerings.
It noted that customers and competitors have raised concerns over potential increased fares and commission rates, and reduced service quality and innovation, and that the commission has received "numerous complaints" from both riders and drivers about a decrease in promotions and incentives, reflecting Grab’s ability to increase effective prices after the merger.
Grab and Uber have not been able to show that the merger gives rise to efficiencies that would outweigh the harm to competition, CCCS said.
The remedies CCCS has proposed to address competition concerns include:
- The removal of exclusivity obligations, lock-in periods and/or termination fees on all drivers who drive on Grab’s ride-hailing platform and/or who rent from Grab Rentals, Lion City Rentals or rental partners of Grab so as to increase choices for drivers and riders and improve market contestability;
- The removal of Grab’s exclusivity arrangements with any taxi/chauffeured private hire car fleet in Singapore so as to increase choices for drivers and riders and improve market contestability;
- The maintenance of Grab’s pre-merger pricing algorithm and driver commission rates until competition is revived in the market so as to alleviate the adverse pricing effects on riders and drivers arising from the merger; and
- Requiring Uber to sell Lion City Rentals (or all or any part of Lion City Rentals’ assets) to any potential competitor who makes a reasonable offer and preventing Uber from selling Lion City Rentals (or all or any part of Lion City Rentals’ assets) to Grab without CCCS’s prior approval. This prevents Grab and Uber from aligning Lion City Rentals with Grab to the disadvantage of Grab’s potential competitors, and will facilitate a new entrant’s access to a vehicle fleet.
CCCS is seeking public feedback on whether these measures are "sufficient and workable" to address the harm to competition resulting from the merger. If the public consultation does not confirm that the proposed remedies, or any further remedies, are implementable and sufficient to address the competition concerns identified, CCCS may require Grab and Uber to undo the merger, it said.
Members of the public view information on the public consultation on CCCS' website and submit their feedback by Jul 19.
PROPOSED FINANCIAL PENALTIES
The competition watchdog also proposed to impose financial penalties on Grab and Uber, as it found that the companies carried out the merger despite having anticipated potential competition concerns, and caused a substantial lessening of competition in the ride-hailing service platform market in Singapore.
CCCS had sent a letter to each company on Mar 9 to explain Singapore’s merger notification regime and CCCS’s corresponding powers to investigate, give directions, impose financial penalties and/or impose interim measures, it said.
Under Singapore’s merger notification regime, Grab and Uber had the option of notifying CCCS of the planned merger for its clearance or seeking CCCS’s confidential advice prior to completing the transaction.
Nevertheless, the companies proceeded to complete the merger on Mar 26 and began the transfer of the acquired assets immediately, despite their own view that the outcome would be irreversible, thus rendering it practically impossible to restore the status quo pre-merger, CCCS said, adding that its investigations revealed that the companies had even provided for a mechanism to apportion eventual antitrust financial penalties.
In a statement on Thursday, the Land Transport Authority (LTA) said it supports CCCS' Proposed Infringement Decision.
"We note that CCCS has proposed remedies to restore market contestability in the point-to-point transport (P2P) sector. This is in line with LTA’s review of the broader regulatory framework for the P2P sector, which aims to ensure that the sector remains open and contestable and that no single operator dominates the market to the detriment of commuters and drivers," it said.
Grab and Uber have 15 working days from the receipt of CCCS' Proposed Infringement Decision to make representations to CCCS.
The competition watchdog will then make a final infringement decision after consideration of the representations, comments and feedback on the proposed remedies, as well as all available information and evidence, it said.