Australian regulator gives the iHail app a green light: no longer can you ignore the force and speed of technological change

30 March 2016

Kathryn Edghill, Cicely Sylow

After ten long months of deliberation the Australian Competition and Consumer Commission (ACCC) has decided to conditionally allow iHail to launch its iHail app, a smartphone taxi booking app, that will aim to claw back market share it has lost to the disruptive force Uber and other booking apps have had on the taxi industry.

This decision is a significant one as it shows that the ACCC is prepared to acknowledge the significant impact technology can have on competition and the ability of technology to shake up markets and challenge incumbents in ways that weren't previously thought possible. 

We are seeing incumbents with entrenched positions in the market being more easily and rapidly contested, where no one is immune. Who could have predicted the speed at which large companies, who built themselves up over decades and enjoyed exponential growth, could be so quickly disrupted by nimble and innovative companies that test boundaries and spur us all into rethinking the status quo? Think Australia Post, Fairfax Media, AGL and others, including the big banks, which are seeing visions of their profits and growth declining as disrupters lurking on the immediate horizon move in.

The shake-up of the taxi industry provides a lesson for all. This article focuses on how the incumbent taxi networks have demonstrated to the ACCC that their collaboration, although it gives rise to a perception of market control, should be understood as a necessary step to fend off what might otherwise have been a swift demise.

What was iHail all about?

In 2015, taxi owners suffered a $31 million decline in revenue as passengers switched from taxi services to ordering rides through uber and other ride hailing apps.  iHail is the brain child of a number of Australian and international taxi companies, a payment systems company Cabcharge and a GPS fleet management solutions company. These companies have formed a joint venture to launch and operate a smartphone taxi booking app, which for all intents and purposes, will compete with uber, gocatch, ingogo and backseat for booking rides. The iHail app will allow passengers to e-hail a taxi using their smartphone from a range of taxi networks allowing them to choose between hailing the closest taxi or a taxi from their preferred taxi network.

The competition issues and ultimate conditions imposed

The companies behind the iHail app sought authorisation from the ACCC as it involves collaboration between a number of competing taxi companies and effectively proposes a significant consolidation in the market by virtue of iHail's ownership structure. 

The joint venture raises clear competition concerns as the taxi companies involved represent a significant portion of the market as well as the payment processor Cabcharge which has already had a number of run-ins with the ACCC. 

One of the main concerns was that the ownership structure of iHail provides an inherent advantage to shore up the app's success as it will give the iHail access to a large national fleet of taxis which other taxi hailing apps do not. However, what it does not do is guarantee passengers will use the app over other ride booking apps.  iHail will still have to work hard to ensure the iHail taxi drivers provide consumers with the experience they are after, whether it be a cheaper service, a friendly and informed driver, live tracking, a clean car or seamless and innovative ways to pay. Importantly, passengers can easily choose from several competing apps as they are free to download and use.

Another concern was that Cabcharge's involvement in processing payments through the iHail app would limit emerging competition between Cabcharge and other taxi payment processing services. To address this, the ACCC made it a condition that the iHail app requires the passenger to expressly opt-in to the in-app payment service and that the relevant credit card service fee is prominently disclosed. Passengers will also have the option of paying in cab using payment methods other than Cabcharge's services.

Lastly, many were concerned that taxi drivers belonging to the taxi networks behind the iHail joint venture would not be able to use other booking services that competed with iHail. Although not expressly dealt with in iHail's first submission, it later argued that no such restrictions would be imposed on taxi drivers.  To ensure this does not eventuate, the ACCC has imposed a condition that iHail must explicitly inform drivers that they are free to use any other booking service and iHail must not prevent or disadvantage drivers who use competing apps in preference or in addition to the iHail app.

Lessons we can learn from the iHail journey

It was always going to be an uphill battle for iHail to obtain regulatory approval for its joint venture. It pushed the boundaries and represents a degree of collaboration between competitors that many would have previously thought went too far. 

For iHail to succeed in getting the joint venture over the line it had to re-think and re-frame its arguments as to why the iHail app would deliver net benefits to consumers. This required taking a fresh look at competition principles and involved a deeper understanding as to what was really happening in the market and what the future was likely to behold, even if that future was unpredictable. 

Keeping up with the rapid speed of change in your market may also require you to taking bold steps that would have previously been thought of as impossible.  Regulation will be contested and technology is likely to question and re-question the status quo until it is ignored or watered down. The ACCC's decision to authorise the joint venture to launch the iHail app makes it clear that it understands the force of innovation and is prepared to acknowledge its ability to shake up markets and challenge incumbents in ways that weren't previously thought possible.

Authors

Kathryn Edghill

Partner
Australia

Call me on: +61 2 9226 9888
Cicely Sylow

Cicely Sylow

Associate
Australia

Call me on: +61 2 9226 9888