In a drastic yet unsurprising move, Uber has finally ceded its Southeast Asia operations to Grab.
This means that Uber will have a 27.5% stake in Grab, Uber’s CEO will join Grab’s board, Uber staff and drivers will be absorbed by Grab, and Uber’s app will no longer work in our phones.
Above all, this merger makes Grab the ride-hailing monopoly in most of Southeast Asia, including the Philippines.
Why did Uber have to leave the region? What does this mean for Filipino commuters? And what can government do?
The emails blasted by Uber CEO Dara Khosrowshahi to his global staff explain a lot about Uber’s exit.
He said, “One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors.”
Uber is known to pick its battles. In 2016, it yielded its China operations to local player Didi Chuxing for a 17.7% stake in that firm. Early this year, Uber also gave way to Russia’s Yandex for a 37% stake. In all instances, Uber’s strategy is the same: cede market share in exchange for stakes in the local competitor.
But Uber’s exit from Southeast Asia may yet be its biggest move. What brought this on?
First, Grab has catered to the transport needs of Southeast Asians in ways Uber did not.
Grab, for example, introduced such customized services as GrabBike (an alternative to motorcycle-taxis like those in Viet Nam), GrabHitch (now a favorite way to cross the Malaysia-Singapore border), and even Grab Yee Sang (where Grab delivers a specific dish called yee sang during the Chinese New Year rush).
Second, aside from a better understanding of Asian sensibilities, Grab has also carefully avoided needless regulatory entanglements throughout the region. Whereas Uber often found itself clashing with regulators – including our own LTFRB [Land Transportation Franchising and Regulatory Board] – Grab has adopted a softer, more “cooperative” approach.
Finally, Uber’s exit can also be seen as a way to improve its finances – that is, reduce losses in unprofitable markets – ahead of its planned IPO (initial public offering) in 2019.
In this, tremendous pressure to consolidate likely came from Uber and Grab’s common investor, Japan-based SoftBank Group Corp, which now owns large stakes in both ride-hailing companies.
All in all, Uber’s Southeast Asia exit was part and parcel of a global corporate strategy.
But with Uber out of the way, Grab now enjoys monopoly status in many Southeast Asian countries such as the Philippines. This loss of competition will almost surely mean fewer choices, higher fares, and lousier service for Pinoy commuters.
First, Grab’s monopoly status leaves commuters with no other viable choice.
New ride-hailing services – like Lag Go, Hype, Owto, Hirna, and MiCab – are reportedly seeking accreditation from the LTFRB.
But can these start-ups fill the void left by Uber and provide similar services? MiCab, for example, which first operated in Cebu and Iloilo, turns out to be just a taxi-hailing app with none of Uber’s innovations like dynamic pricing.
More importantly, can these new services grow sufficiently large to chip away at the gargantuan market share now enjoyed by Grab? Although the market is “contestable”, Grab faces no real competition right now.
Second, Uber’s exit spells higher ride fares, fewer promos, or both.
Most commuters observe that, on average, Grab rides tend to be pricier than Uber rides.
But this actually stems from Uber’s “cross-subsidization” strategy: because of its global reach, Uber can use revenues from profitable markets to partially shoulder fares in unprofitable markets.
Grab – having no such deep war chest to draw from – competes instead with the aggressive use of promos, discounts, and vouchers.
But now, with substantial market power, Grab can easily dispense with such promos. They might even be tempted to raise fares.
China provides a valuable case study: a year after Uber yielded its market share to Didi Chuxing, getting rides there has reportedly become “harder and more expensive than ever before.”
Third, some riders will miss beloved features of the Uber app, including a more seamless design and drivers’ inability to see passengers’ destinations by default. The latter is especially useful in preventing drivers from routinely refusing passengers.
Unless Grab adopts some of Uber’s finer features like these, the consumer experience will likely be no better.
Excessive market power is a sign of a “market failure” that can justify government intervention. But how exactly can the Duterte government respond to the Uber-Grab merger?
First, the PCC [Philippine Competition Commission] – tasked by law look into any and all anti-competitive acts – can, in fact, block or nullify the Uber-Grab deal.
The PCC might also prevent higher fares resulting from the merger. The Malaysian government, for instance, has already warned Grab that it will take legal action against any such price hikes.
Second, the National Privacy Commission (NPC) will have to ensure that the migration of users and drivers’ data from Uber to Grab won’t compromise their privacy.
Third, the LTFRB must help to promote competition in ride-hailing. But, at the same time, can it resist the temptation to overregulate?
To wit, the LTFRB gave both Uber and Grab such a rough time last year. Not only did the LTFRB suspend new franchise applications, it also made a show of “losing” Uber and Grab’s accreditation papers in their offices. The LTFRB also suspended Uber for a month and demanded from it a hefty (and rather arbitrary) fine of P190 million.
Worse, some lawmakers are also thinking to require congressional franchises before any and all ride-hailing firms could operate in the country.
No one questions the need to regulate ride-hailing. Quotas, for example, might reduce their contribution to road congestion. But there’s a fine line between regulation and overregulation that the LTFRB hasn’t quite mastered just yet.
The LTFRB also needs to avoid the use of double standards: last year, when it suspended Uber for a month, the LTFRB supported policies to increase the ridership of regular taxis.
If congestion were really the problem, why introduce more taxis at the time Uber was gone? Without sufficient study and justification, such policies only reek of opportunism and regulatory capture.
Commuting just got worse
Uber and Grab, left to themselves, have failed the riding public. The government needs to step in to increase commuters’ choices, prevent higher fares, and improve the quality of their services. But is government up to the challenge?
Three agencies are worth watching here: the PCC, the National Privacy Commission, and the LTFRB. Can the first take binding legal action against Uber and Grab if the deal proves anti-competitive? Can the second protect commuters and drivers’ data from being compromised? Can the third promote the entry of new players while avoiding the urge to overregulate?
At a time of choking traffic jams, frequent MRT breakdowns, massive transport strikes, and high gas prices, the last thing we need now is a monopoly in ride-hailing. (READ: MRT woes: How often do they happen?)
Who knew commuting around Metro Manila – punishing as it is – could get even worse? – Rappler.com
The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter: @jcpunongbayan.