24 October 2016
Proper regulation is needed to balance public interest while facilitating the establishment of new taxi service brands. Photo: Uber, HKEJ
Proper regulation is needed to balance public interest while facilitating the establishment of new taxi service brands. Photo: Uber, HKEJ

How govt should respond to the Uber challenge

In a previous article last month, I concluded that Uber’s business model does benefit consumers but said the operations still need appropriate regulation. Now, I will put forward two suggestions as to how the government can take advantage of the opportunities provided by new technologies.

Suggestion 1: Revolutionizing the taxi brand

New apps developed for smartphones have revolutionized the entire taxi service industry, which has grown notoriously rigid and uninnovative over the years. The new operating model through online apps can allow customers to choose the kind of service and price that suit their needs most, while also offering a chance for the government to apply appropriate regulation. Moreover, it enables taxi service operators to build their own brand and generate extra revenues by offering customized services.

Having said that, I suggest that the government introduce new laws to regulate this new type of business model, and facilitate the founding of new taxi service brands (just like telecommunication companies), along the following lines:

1. The new taxi service brands must be owned and operated by “brick and mortar” service providers in Hong Kong, who take direct business responsibility for the services they provide, rather than just acting as intermediaries. And their revenues must be made taxable in Hong Kong.

2. The new operators should be given more flexibility in setting their fares based on customer needs. For example, the government can allow operators to impose an extra charge on every short-distance and cross-harbor ride, and lift restrictions on fares for long distance rides.

3. The government should regulate the type of fuel used by the new operators in their vehicle fleets to guarantee low emissions on the road.

I believe there is still a lot of room for innovation and new ideas regarding the operating model of new service providers, and hence it is important for the government to adopt a more receptive mindset.

It should also get prepared for the opposition it may meet in the highly politicized Legco during the legislation process, and backlash from the existing operators in the industry.

However, I must stress that the new business model must not be left unregulated in any way, or else it might turn into another “innovation disaster”.

Suggestion 2: Reforming the licensing mechanism

Another key issue regarding the taxi service industry is the high license prices. Many people believe the reason why taxi license prices are so high is because the industry is manipulated and monopolized by a handful of business tycoons.

The truth, however, is that the license prices are firmly controlled by the government. Since 1994 the Transport Department has ceased issuing new licenses, causing their prices to surge in face of an increasing population and rising demand for taxi services. Therefore, the high taxi license prices in our city have their roots in government control rather than manipulation by market leaders.

If the government allows new competitors to enter the market, it can choose to issue a new type of license for the new operators.

Meanwhile, if the government imposes heavy tax on holders of multiple taxi licenses, their prices are likely to come down.

By lowering the entry threshold in the taxi service market, license prices could be brought down, allowing more taxi drivers to have their own vehicles and enhancing competition in the market.

In conclusion, the government should achieve three goals in opening up the taxi service industry:

1. While issuing a new type of license to new service operators, it must also control the numbers of existing vehicles, in order to avoid an oversupply of taxis.

2. The government should burst the taxi license prices bubble so that more taxi drivers can have their own vehicles

3. Authorities should replace the existing permanent licenses on the market with licenses that have an expiry date.

The Uber challenge will put to the test the principle of “appropriate pro-activeness” outlined by Chief Executive Leung Chun-ying. The feasibility of this principle can be measured by how well the government responds to the challenge.

This article appeared in the Hong Kong Economic Journal on September 9.

Translation by Alan Lee

[Chinese version 中文版]

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