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Rise of the app biz models: the new taxi industry

Friday, 11 April 2014 | By Hamish Petrie

This week’s big announcement on NSW’s taxi reforms is quite possibly the best news for the taxi industry in a long time. NSW Premier Barry O’Farrell and Transport Minister Gladys Berejiklian deciding to cut the surcharge costs and regulate taxi apps has really shaken up one of Australia’s most monopolized markets. We’re going to see some big changes to the taxi industry. But, what do these regulations actually look like and what do they mean for the app start-ups?


So far, the announcement demonstrates a win-win situation. Passengers receive lower surcharges, which also means taxi networks and payment players with inflated overheads (such as the dominant Cabcharge, GM Cabs and Live Taxi Epay), will struggle to compete with newer and more innovative business models (ingogo can still run a viable business at a 5% surcharge). And the taxi drivers are free to accept jobs through taxi apps without fear of retribution, as the government is now on board with innovative apps. (This is something we have wanted to see for a long time!)


Most importantly, new regulations mean innovative apps and taxi start-ups can develop, grow and increase competition in the industry.


However, we won’t be able to achieve this result, if we don’t structure the new reforms correctly.


What Australia really needs is a specific App Platform Licence that ensures tighter safety standards; real-time access to Transport NSW’s driver database and the big one: removal of the legislated right that traditional networks (most owned by Cabcharge) have to earn high fixed network fees every month by law from taxi operators.


The big change we need to see is taxi operators being able to have security and booking services as decoupled services. So, an operator could just contract an approved taxi security provider for security cameras and not be forced by law to use a traditional network booking system. Currently, taxi operators pay a fixed fee of $800 a month no matter how many jobs they are sent, whilst app platforms are either free or charge a driver a fee per job. This $800 fee then gets pushed on to the driver as they have to pay higher taxi rental fees every month, so the car owner can reap/cover the cost. This legal right to $800 a month has created a legislated monopoly and a barrier to new entrants, and it must be removed.


Having a security system in place is really important but cab drivers and owners shouldn’t be forced to do it through a booking network. It's the only reason Cabcharge-owned networks rest upon to convince the government to maintain their legislated monopoly, every other issue such as lost property, customer service and driver validation can be handled by the app network (ingogo is performing these functions already).


So, why can’t it go through a Transport Department-authorised security company instead? If this was possible, then cab owners could reduce their costs to a fraction of the current monthly fees, and effectively run their business solely through app-based networks.


Not only would this improve income for the operator and driver but it would also make every network fully accountable and open the market to competition. Network operators would need to improve their services and not rely on a legislated monopoly income stream every month, like Cabcharge-owned networks do.


If the reforms are structured correctly, we will see changes that will allow greater competition, better service and a level playing field. The car owner will get a better deal, it will cost drivers less and passengers will see the benefits of service innovation.


We have been lobbying over two years for this and now is the time to see it prioritised.


More information for what should be included in the new regulations can be found in our report in response to the NSW Legislative Council’s Passenger Transport Review in 2012.


Hamish Petrie is founder of taxi services app and mobile payment provider ingogo.