Between Public and Private Mobility: Examining the Rise of Technology-Enabled Transportation Services (2016)

3 Taxis, Regulation, and the Rise of Transportation Network Companies

Most of the regulatory and policy challenges facing the officials who oversee innovative mobility services center on transportation network companies (TNCs) and their place in the transportation system relative to for-hire sedans, limousines, and taxicabs. TNCs have certainly been the greatest source of controversy, both for their aggressive models of market entry and as the established, regulated for-hire transport industry has attempted to push back against them. Accordingly, this chapter provides an overview of taxi regulations, the development and expansion of TNCs, and the often varied regulations applied to the two industries—issues analyzed in greater detail in subsequent chapters.

Taxi Regulation¹

Taxicab owners, fleets, and drivers are sometimes governed by extensive regulations that cover nearly every aspect of taxi service, particularly in large American cities. Smaller and midsized cities tend to apply a lighter regulatory approach, more akin to restaurant or building industry health-and-safety regulation and with little coverage of service quality issues. Where regulations are far-reaching, their breadth and specificity have increased over decades as regulators have sought to address documented problems and abuses in the industry. The regulations have thus been born of practical

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¹ This section relies heavily on a paper prepared by committee member Bruce Schaller, which is provided in full in Appendix B.

experience and problem solving as opposed to economic or regulatory theory, and often vary among jurisdictions, reflecting particular local circumstances and experiences. In large metropolitan areas, where taxis commonly are regulated by local governments and sometimes airport authorities as well, there are often multiple taxi-regulating bodies, each of which promulgates its own set of rules and regulations.

Taxis are regulated at the county level in some states, including Florida, Maryland, and Virginia. In Colorado and Nevada, the latter a state that relies heavily on tourism, they are regulated by one or more state agencies. Sedan services also are regulated predominantly by municipal or county agencies, with notable exceptions in California, Pennsylvania, and Colorado, where state agencies regulate sedans as passenger carriers.

With all these different jurisdictions regulating the taxi industry from their own vantage points, it should come as no surprise that the nature and extent of regulation vary considerably nationwide. Some regulatory issues—particularly safety but also fare metering—are approached similarly, whereas control over market entry, pricing, geographic coverage, and access for disadvantaged riders show distinct differences. The phenomenon of multiple regulatory bodies enforcing widely varying rules and regulations is neither unique nor necessarily problematic (building and safety codes, after all, are normally enforced by local governments), but what is perhaps unique about the taxi industry is that a single cab ride from an airport to the downtown of a large metropolitan area may pass through a half a dozen taxi-regulating jurisdictions, each with its own rules governing (or prohibiting) the ability of that cab to pick up other passengers after discharging the airport passenger.

Public Safety

Some aspects of regulation are quite straightforward and applied in similar fashion across the country. Most obvious in this category are provisions for background checks of drivers and fleet or vehicle owners and vehicle insurance requirements and safety inspections. Even at the height of their influence in the 1970s and early

1980s, advocates of taxi deregulation focused on entry and economic regulation and never proposed privatizing responsibility for public safety (Frankena and Pautler 1984; PriceWaterhouse 1993). In a post-9/11 world, the breadth and influence of public safety concerns have deepened as taxi regulators have worked with antiterrorism personnel mindful of the potential use of taxis as part of terrorist plots. These concerns are particularly acute at airports. To address public safety concerns, regulations generally focus on background checks of drivers, vehicle inspections, and minimum standards for vehicle liability insurance—topics treated in greater depth in subsequent chapters of this report.

Fares

In nearly all cities, taxi fares are set by regulation. Fare regulation is designed to ensure predictability in the amount customers will be charged, to eliminate price gouging,² and to ensure a reasonable return for owners and drivers. The regulations most commonly set a fixed fare rate that applies uniformly across all companies.

Following federal standards for taximeter devices, fares are calculated on the basis of an initial charge (the “drop”), along with mileage and time charges. When a cab is stuck in traffic, the time charge applies; otherwise, the mileage charge applies. A variety of surcharges may also be applied, most commonly for additional passengers and luggage and based on time of day. Cities increasingly have adopted flat-rate fares for trips between regional airports and the central city to make the fares predictable and guard against overcharging. Aside from a few peak-time surcharges, taxi fare rates are rarely set to vary in response to changing levels of demand for service.

Rate-making processes are varied. Existing rates may be reviewed periodically or at the request of the industry. Whether to even conduct a review can become a politically charged issue. The need for

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² There is not one economic or regulatory definition of “price gouging.” The committee uses the term to refer to unreasonable charges for the circumstance. In the case of taxi fares, which are strictly regulated, charging anything more than specified in regulations could reasonably be considered “price gouging.” For TNCs, whose prices are not regulated, there may be an economic rationale for surge pricing, as discussed in Chapter 4.

rate increases can be evaluated against standardized measures such as the consumer price index or price indexes specially calculated to reflect taxi industry costs. Fares may be increased for the purpose of increasing driver earnings, and sometimes in conjunction with caps on the lease fees that fleets can charge the drivers. Regulators often conduct surveys of peer cities to assess where their city falls relative to others, with a particular view to how business and leisure travelers will perceive its taxi fares.

Market Entry

Two of the most controversial aspects of taxi regulation are entry and economic regulations, both of which extend beyond the realm of public safety and price setting. These types of regulations first became commonplace in the 1920s and were particularly common during the Great Depression, when market entry restrictions were adopted in New York City, Chicago, Boston, Baltimore, Toronto, Montreal, Quebec City, Winnipeg, and Vancouver. With jobs in short supply and wages falling, unemployed workers flocked to the taxi industry. The result was an oversupply of drivers, particularly at cab stands, and problems ranging from lack of insurance to overcharging to curbside fistfights among drivers competing for fares (Davis 1998; Gilbert and Samuels 1982). In response, cities placed moratoriums on the issuance of new licenses, seeking to let attrition bring supply back in line with demand for service. These codes often included provisions for issuance of additional licenses should a regulatory finding of public convenience and necessity reveal the need to do so.

After World War II, entry controls remained in place, and the first controversies arose over whether cities should issue additional licenses. Taxi fleets and drivers in large cities generally resisted, fearing a loss of income. New York, Boston, Chicago, and some smaller cities as well went decades without issuing additional taxi licenses. Licenses could be transferred between owners and grew in value, thus establishing “medallion” systems that enriched fleet owners and owner-drivers who held a vehicle license (see Box 3-1 for descriptions of different regulatory systems).

While big cities became renowned for medallion systems, the situation developed much differently in smaller cities with predominantly dispatch (as opposed to street-hail) trips. These cities tended to have one or more fleets and few if any independent owner-drivers. Regulators built regulatory structures that relied on fleet owners to provide training and oversight of drivers and respond to public complaints. Regulators sometimes focused simply on administering public safety requirements and little else.

Entry controls in fleet-oriented systems vary widely. Some cities let the owners of fleet-based companies adjust the size of their fleets either without government oversight or with relatively pro forma reviews, and let new companies enter the industry provided they meet minimum qualifications (e.g., background checks, licensing, and vehicle standards). Other regulatory systems limit the number of taxis each company can operate and control the entry of new companies. Las Vegas, for example, regularly reviews trip volumes and fleet sizes before adding any medallions, which are spread across authorized companies. In other places, the process may involve a company application; public hearings; petitions from user groups; and various calculations, such as the ratio of cabs to population.

The most vexing regulatory issue in fleet-oriented systems concerns the entry of new companies. Cities with taxi regulatory structures based on companies being awarded franchises to provide service (see Box 3-1) address the entry of new companies through the competitive franchising process, which is open to both incumbent fleets and newcomers. Where franchises are not awarded, regulatory systems that focus on fleet-level regulation take the form of certificate systems (see Box 3-1).

In certificate and other restricted-entry systems, incumbent fleets may resist the entry of new companies so as to protect their business interests. This resistance can lead to shortfalls in service in two ways. First, controversy over how much to expand the size of the industry and how to distribute additional operating authority can cause a stalemate in expansion efforts. Without sufficient numbers of cabs in service, dispatch response times can suffer. Second, fleets that are protected from competition through franchises sometimes lose the incentive to offer quality service. Both the regulatory system

and the industry can thus became calcified and reactive. This can occur whether the taxicab market is growing or shrinking.

Service

Taxi regulators often are drawn into addressing problems with service quality as well as public safety. The result is in a broad range of regulatory initiatives, including

• Driver training programs focused on safe driving and customer courtesy;
• Lease fee caps designed to limit the amounts that medallion or license owners can charge drivers so as to raise driver wages, attract and retain quality drivers, and limit “rent seeking” by owners;
• Requirements for partitions and cameras in vehicles to protect drivers;
• Requirements that independent drivers affiliate with a fleet or radio service (known as a “base”) to relieve the regulatory burden of overseeing thousands of individual drivers; and
• Street enforcement squads to ensure regulatory compliance and to offer specialized or streamlined procedures for adjudicating citations written by inspectors and citizen complaints.

By no means have all cities become deeply involved with service regulations. Cities with fleet operators who maintain service standards and resolve service complaints often have little active regulatory oversight other than licensing checks and vehicle inspections. Cities with chronic service quality problems, on the other hand, tend to see growth in the regulatory regime since market forces have been unable to rectify the problems. Two particularly important service components are requirements for taxis to (1) serve all geographic areas of the regulating jurisdiction and (2) provide for access for travelers with disabilities, which are described in turn below.

GEOGRAPHIC REQUIREMENTS

There is perhaps no more significant tension between the private for-profit and public social service aspects of for-hire transportation than

geographic coverage of service. As private, for-profit enterprises, taxicab services tend to go where customers congregate: airports, train stations, major hotels, and central business districts. But when viewed as part of the urban transportation system and as filling important social service roles, the ability to call for a cab, be picked up, and be taken to any area destination can be seen as a right to be enjoyed by all, regardless of race or ethnicity, income, or location. The latter is most often an issue in outlying areas where demand is low and in low-income areas where fear of crime is common.

On-call taxi service is not universal in rural areas, but in jurisdictions where they are regulated, taxi companies often are required to serve all parts of the regulated jurisdiction, regardless of demand. Locally granted operating authority almost always carries with it the obligation to provide service to anyone requesting a cab ride within the local service area. The economic rationale is to have “dense markets cross-subsidize low-density and impoverished areas; [and] peak traffic cross-subsidizes off-peak service” (Dempsey 1996, p. 96). Without regulation, service to low-density areas and during off-peak hours would likely decline, and in many cases would not be available at all.

Failure to abide by geographic service requirements can be explicit, as when a driver refuses to pick up a prospective customer at a taxi stand for economic reasons (such as to avoid a short trip or “deadheading” back from an outlying area), to avoid perceived high-crime areas, or out of outright racism. This issue is typically addressed through enforcement and ultimately license revocation. Service refusal problems also can occur when a customer calls for a cab from an outlying or low-density part of a service area, and dispatchers cannot respond because all of the cabs are clustered far away in high-demand areas or no driver is willing to accept the call.

Studies of taxi service utilizing computerized company dispatch data have shown that cab companies tend to provide more service and have faster response times in certain areas of a city and, conversely, pick up fewer passengers and have longer response times elsewhere. This pattern has been documented in Boston (Nelson\Nygaard Consulting Associates 2004); San Diego (Schaller Consulting 2000); Miami-Dade County (Tennessee Transportation and

Logistics Foundation 2006); and Fort Worth, Texas (Schaller Consulting 2006). The longer response times reflect, at least in part, spatial variations in demand.

Taxi regulators have developed a number of strategies intended to ensure minimum levels of cab service in all parts of their jurisdictions. These strategies include issuing various geographically specific licenses that require some portion of the taxicab fleet to be dedicated to lower-demand areas (as in Las Vegas) or particular geographic zones to be covered by different companies (as in Los Angeles); place restrictions on airport pickups by time of day, day of the week, or portion of the fleet; or impose other types of service requirements. As examples of the latter, Chicago adopted regulations that require every cab to provide a specified number of trips each day in certain zones, while taxi franchises in Los Angeles must conform to response time standards and reporting requirements for monitoring and compliance.

Geographic service requirements, while common, are neither ubiquitous nor always necessary. In New York City, which has substantial demand for dispatch taxi service throughout its five boroughs, more than 500 car service companies operate, each specializing in particular geographic and customer markets, in an open-entry system. While no one company provides prompt service throughout the city, service is apparently adequate enough that geographic service requirements have not been applied by local regulators.

ACCESSIBILITY FOR THOSE WITH DISABILITIES

The accessibility of taxi service for those with disabilities has been a growing issue in recent years. Despite strong support from advocacy groups and elected officials, it has proven difficult in many cities to expand the ranks of accessible taxicabs. The primary obstacles are the cost of acquiring and operating accessible vehicles, including higher fuel and maintenance expenses and higher insurance premiums, and lower productivity due to the additional time that may be required to serve customers in wheelchairs.

Cities and other taxi regulatory authorities have instituted a variety of measures to encourage, subsidize, and mandate the availability of accessible taxicabs. These measures include requirements

that a certain percentage of fleet cabs be accessible, grants and tax incentives for vehicle purchase, relaxed vehicle age limits, reduced licensing fees, passes to allow drivers to skip to the front of queues at airport taxi stands, and sales of medallion licenses that may be used only with accessible vehicles.

Despite these efforts, the number of accessible cabs has remained low, nearly always less than 10 percent of the entire fleet according to taxi regulators from many jurisdictions who were surveyed for the paper presented in Appendix B. Trip volumes for these cabs also remain modest, reflecting some combination of limited supply and limited demand. The percentages of trips in accessible cabs available in published sources range from a low of 1 percent in New York City to 8 percent in the District of Columbia (District of Columbia Taxicab Commission 2014; NYC TLC 2014).

Taxi regulators continue to explore how to increase the supply of accessible vehicles and make them available to disabled persons. Several cities—including Washington, D.C., and New York—have established dispatch services to improve the response times of accessible vehicles. Several cities also have established funds paid for through industry or passenger fees to subsidize out-of-pocket capital and operating costs, as well as provide financial incentives to drivers. The fees include a 30-cent per trip fee to be added to every regular taxi fare in New York and a $100 annual fee imposed on Chicago medallion owners who fail to operate an accessible vehicle. The fees, collected from taxi passengers and medallion owners, respectively, are used to help offset the added expenses incurred by owners and drivers of accessible vehicles.

Recently, some taxi regulators have also moved toward outright mandates that vehicles newly put in service be accessible. Chicago and Washington, D.C., have adopted requirements that fleets of a certain size have a minimum percentage of accessible vehicles (5 percent in Chicago and 6 percent in D.C.). New York City has mandated that one-half of new vehicles put into service as medallion cabs be accessible, starting no later than January 2016. Through that measure and the issuance of additional accessible medallions, New York has established an ambitious goal of having 50 percent or more of its taxicab fleet wheelchair-accessible by 2020.

Service to Airports

Airports are major trip generators and attractors in nearly all cities. They often represent the largest single for-hire transportation market in a metropolitan area and are thus a prized component of the taxi business. Airports have several unique characteristics that affect both how airport taxi service operates and how airports regulate it. Perhaps most important for regulation, access to airport property is controlled by the airport operating authority. Airport officials directly control who can pick up passengers, as well as the fees and system for doing so. Because taxi and limousine pickups occur in a spatially concentrated area, they present a more focused target for enforcement efforts relative to these services elsewhere.

Operationally, airports provide a steady flow of customers to cab drivers that is relatively easy to service—customers who are for the most part going to downtown hotels or office areas familiar to drivers or residential destinations that the passenger knows how to get to. Airports thus are magnets for taxi and limousine drivers. In the absence of access controls, airports often are vastly oversupplied with vehicles and drivers; this creates long waits in so-called “taxi holds” where cabs queue while waiting to pick up passengers. Waits can extend to 3–4 hours, with hundreds of drivers congregating in the holding lots. Airports also attract drivers who are unlicensed, who lack commercial insurance, and who may be intending to overcharge or otherwise abuse passengers.

To address these issues, airport authorities tend to strictly regulate taxi and limousine service to their facilities³ through various means. For taxi service, competitively bid concession systems are commonly used at midsized airports, such as Orange County (California), Tampa-St. Petersburg, Raleigh-Durham, and Sacramento, and at a few large airports, such as Dulles in Washington, D.C., Airports in larger cities that have strong regulatory systems often are

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³ The Transportation Research Board recently completed an Airport Cooperative Research Program (ACRP) study titled “Commercial Ground Transportation at Airports: Best Practices.” The study report reviews best practices for all ground transportation options, including both taxis and TNCs, and provides further information about airport practices (LeighFischer 2015).

open to any driver licensed for service in the city. The airport may require that drivers obtain a permit and may take steps to prevent oversupply, long driver waiting times, and attendant ills. Los Angeles International and Portland (Oregon) have alternate-day systems that allow cabs to serve every fifth day and every other day, respectively (although the Los Angeles system is currently being revised to prevent drivers from working more than 12 hours a day). San Jose limits how many cabs from each fleet can be at the airport.

Deregulation, Reregulation, and the Differences Between Dispatch and Walk-Up Markets

During the 1970s, as the trucking, airline, and telecommunications industries were being deregulated, the idea that taxi deregulation would deliver similar benefits took hold. At the time, some economists predicted that unregulated entry and fares for taxi service providers would produce lower fares, a higher level of service to customers, and service innovations such as shared-ride services as new firms entered the market (Frankena and Pautler 1984). A leading academic predicted that open entry would afford smaller taxi companies the “entrepreneurial freedom” to service “marginal markets abandoned by large fleets” and would “open the way for a rich mix of new services to penetrate urban transportation markets” (Cervero 1985, pp. 222, 226–227).

The goals of encouraging competition and service innovation were primary motivations for changes to entry restrictions that were adopted in 19 cities from 1965 to 1983 (Shaw et al. 1983). The largest of these included San Diego, Seattle, Atlanta, Phoenix, Cincinnati, Indianapolis, Kansas City, and Sacramento.

In general, most of the cities that experimented with deregulation realized few of the hoped-for benefits and many unanticipated costs. For example, deregulated cities experienced a sharp influx of individual owner-operators who primarily, if not exclusively, worked taxi stands at airports and large hotels (Frankena and Pautler 1984; ITRE 1998; La Croix et al. 1992; Teal and Berglund 1987). The arrival of additional drivers did not improve taxi availability since there was no shortage of taxi service at these stands prior to deregulation.

The proliferation of cabs did result in drivers waiting longer times between trips, which led to a reduction in drivers’ productivity and real earnings (Teal and Berglund 1987). Those financial pressures resulted in turn in drivers seeking inflated fares and in “aggressive solicitation of passengers and confrontations among drivers,” who sought to obtain the most lucrative trips and avoid unprofitable short trips (PriceWaterhouse 1993, p. 15). Open airport systems were found to be “unworkable,” with “price gouging, dirty drivers, unsafe cabs, and unfair competition” (La Croix et al. 1992, p. 148).

The dispatch market also was affected, as were hotel and airport taxi stands. In Atlanta, service to minority neighborhoods decreased despite a doubling of the number of cabs as most new entrants focused on the airport (Frankena and Pautler 1984). Before the city closed entry in 2003, the main dispatch company in Sacramento reported an average response time of 30 minutes (Nelson\Nygaard Consulting Associates 2004).

Contrary to expectations, deregulation weakened fleets that focused on dispatch service because the proliferation of cabs at taxi stands and airports reduced dispatch fleets’ revenues from these markets, upon which they partially depended. In addition, several factors resulted in few new entrants to the dispatch business. Entry for dispatch companies requires the accumulation of considerable capital that may be difficult to attract to an industry with “marginal financial status” (Teal and Berglund 1987, p. 53). New dispatch companies must advertise heavily to attract customers. They must quickly build the size of their fleets in order to achieve the economies of scale necessary to provide competitive response times for telephone requests for service. Another factor was that demand in the telephone dispatch market was either stable or declining in the cities that deregulated (Teal and Berglund 1987), so new entrants would have had to supplant existing companies with large fleets and well-established name recognition—something that proved difficult to do.

These results led most of the cities that had deregulated entry in the 1970s and early 1980s to reregulate entry within a few years. PriceWaterhouse (1993) found that 14 of 18 cities that removed entry limits from the mid-1960s to the mid-1980s later restricted entry

at airports or throughout the entire jurisdiction. Other cities, such as Dallas and Sacramento, closed entry more recently. Notably, the PriceWaterhouse study also found that four smaller cities (Berkeley, California; Springfield, Illinois; and Spokane and Tacoma, Washington) retained fully deregulated systems.

The few larger cities that retained or have long had open-entry systems have seen negative results. Arizona officials report the presence of many unlicensed and uninsured cabs in the Phoenix and Tucson areas. In Orange County, Florida, cabs frequently fail to meet acceptable service and vehicle standards. In Washington, D.C., cabs are plentiful downtown, but complaints about service quality and response times in outlying areas are chronic (Schaller 2007).

The apps on which TNCs rely to connect drivers and passengers challenge both the business and regulatory models that apply to taxis. Because TNC drivers are using apps to connect with passengers and typically are prohibited from picking up street hails, the problems of driver oversupply at taxi stands encouraged by past taxi deregulation efforts are unlikely to recur with the rise of TNCs. On the other hand, these same apps overcome barriers to entry into the taxi dispatch market that have shielded dispatch fleets from competition. These dynamics are creating new complexities for taxi regulators and local officials as they begin to regulate TNCs, as described in the section that follows.

TNC Growth and Regulation

From companies little known just 5 years ago, TNCs have become nearly household names as a result of extensive coverage in the business media. The Wall Street Journal reported in February 2014 that Uber’s net revenue (the amount it retains after paying drivers) was more than $400 million in 2014, with projections that this number would increase fivefold to more than $2 billion in 2015. Lyft has disclosed no financial data but has stated that its revenue increased fivefold during 2014, when it grew from 15 to 65 markets (Nagy 2014). While valuations are subject to rapid and significant change, as of July 2015, Uber was valued at about $51 billion (MacMillan and Demos 2015), while Lyft was valued at approximately $2 billion (Dugan 2015).

Between May 2013 and May 2014, research based on credit and debit card transactions indicated that Uber’s revenue nationwide was about 12 times that of Lyft (Metz 2014). Little or no public information is available about the growth and scale of other TNCs.

The entry of TNCs, especially Uber, into a new market often is met with protests from the existing taxi industry, both at the time of the TNCs’ arrival and afterward (e.g., Aratani 2014b; Hanks 2015). TNCs frequently enter a new market without seeking prior approval of regulators and with significant promotional discounts. When Uber entered 22 college towns in late summer 2014, for example, it provided riders with the first five rides for free through September 1 (Uber.com 2014). This type of marketing quickly creates a sizable user base, which the company can then encourage to speak out if local regulators take steps to limit its ability to operate in the city.

Like the taxi industry, TNCs have to date been regulated mainly at the local, municipal level, although the approval processes in many major jurisdictions, ranging from San Francisco to New York City, have been contentious. New York City, for example, initially shut down Uber until it was licensed and has placed more restrictions on its operations relative to other cities. The number of Uber drivers more than doubled between mid-2014 and mid-2015, from about 11,000 to more than 23,000, and Uber indicated it wanted to add 10,000 more (Badger 2015b). City leaders initially resisted allowing the additional 10,000 drivers, but backed down in response to questions from the governor and fierce resistance from Uber, which had engaged in aggressive advertising and outreach to its customers.

Other cities also have faced contentious regulatory approval processes. Seattle, for example, initially set a cap of 150 drivers per TNC allowed to be operating at any one time. That ordinance was repealed a few months later in combination with an increase in the number of available taxi licenses (Vaughn 2014). In 2013, California was the first state to establish TNC-specific regulations. Many states and local jurisdictions that have begun regulating TNCs have followed the basic structure of California’s approach (California Public Utilities Commission 2015), which entails far fewer fees and requirements for these services than are imposed on the established taxi, sedan, and limousine industries in many cities. This approach likely reflects

the newness of the industry, its popularity and political clout, its willingness to start operations without first becoming licensed, and its (undocumented) claims that the unprecedented amount of information passengers and drivers have about one another (including permanent trip records and reciprocal ratings of both drivers and passengers) obviates the need for some of the regulations traditionally imposed on taxis.

Complete documentation of state and local jurisdictions’ TNC regulations is not available, and the state of those regulations is still very much in flux. Based on information gathered from news accounts and websites, regulations in such jurisdictions as New York City, Houston, and Portland (Oregon) require TNC drivers to be licensed, to have a relatively new vehicle (although standards vary), to submit the vehicle to regular inspections (generally by state-licensed bodies), and to display trade dress (the TNC logo) whenever the vehicle is being used as a for-hire vehicle—regulations that are comparatively less stringent than those imposed on taxis. Regulating jurisdictions typically require TNCs to carry a minimum of $1 million in per incident liability insurance whenever a passenger is in the vehicle, and often while the driver is en route to pick up a passenger after having been matched. (TNC insurance issues are discussed in Chapter 7.) Most jurisdictions forbid a TNC driver from picking up a street hail, requiring that all rides be handled in advance through the app. (Issues regarding passenger security and safety are discussed in detail in Chapter 6.)

Some jurisdictions have mandated information sharing with TNCs. California, for example, requires TNCs to provide six reports each quarter on (1) the provision of accessible vehicles, (2) service provision by zip code, (3) problems reported about drivers, (4) hours logged by drivers, (5) miles logged by drivers, and (6) drivers completing a driver training course. Lyft has complied with these requirements, but Uber has not. In July 2015, a judge ruled that the California Public Utilities Commission can charge Uber $7.3 million for refusing to provide all required data, including the number of customers requesting accessible vehicles, the number of rides in each zip code, and the cause of each incident involving an Uber driver (Carson 2015). Uber also has declined to provide data to New York City’s Taxi and

Limousine Commission, citing confidentiality and privacy concerns; in January 2015, the company was required to shut down five of its six dispatch bases because of its failure to comply with the commission’s request for information about the date and time and pickup location of each trip (Colt 2015). (Because of the nature of Uber’s digital dispatching, the closure of five dispatch bases had little effect on the company’s operations, as it simply shifted all dispatching to the remaining base.) The following month, Uber complied with the request and provided the information; the commission then lifted the suspension of the five bases (Fischer 2015). In January 2015, Uber also announced a data-sharing agreement with the City of Boston in which the company agreed to provide quarterly reports with anonymized data on the duration, general location (by zip code), and time of rides that begin or end within the city (Dungca 2015).

TNCs generally do not pay for business licenses, but where TNCs are regulated, the companies have paid fees to operate, the cost of which can vary dramatically. For example, California charged $1,000 per 3 years for a TNC permit (California Public Utilities Commission 2015), while Colorado charged $111,250 per year (State of Colorado 2015).

Effects on Incumbent Firms

The information available for this study on the effects of TNCs on taxis is anecdotal. The Washington, D.C., taxi commission reported that total taxi trips in the city were down 10 percent in the first year of TNC operation (Di Caro 2014), although both taxi company managers and individual drivers described their business as down by at least 20 percent (Ham 2014). The San Francisco Municipal Transportation Agency provided data indicating that the number of licensed taxi drivers declined by 11 percent between fiscal years 2013 and 2014, and data from the Los Angeles Department of Transportation show a 9 percent drop between 2014 and 2015. Similarly, New York’s Taxi and Limousine Commission reported that traditional taxi trips declined by 5 percent across New York City compared with the previous year (YellowCabNYC.com 2015), and Seattle reported a 28 percent decline between 2012–2013 and 2013–2014 (Soper 2015). Part or all of these

declines in taxi use may be due to former taxi users shifting to TNCs in search of more convenient service and lower fares (see Box 3-2). In addition, anecdotal information provided by dispatch companies in such cities as Denver, Houston, and Seattle indicates that the volume of trips has not declined, but their revenue potential has as longer trips (such as to airports) have been replaced by shorter trips.

At the moment, perhaps the best evidence that TNCs are affecting the taxi industry is the falling price of taxi medallions in jurisdictions that regulate entry through the sale or issuance of medallions. In the few, large cities that use them, medallions are essentially the stock of the taxi industry, with their value suggesting the industry’s overall profit margin. Until very recently in many cities, medallion values appreciated reliably. Between 2009 and 2013, for example, taxi medallions outpaced the Standard and Poor’s 500, and medallion values in Chicago doubled to $350,000 over that same period. Medallions in Boston have sold for more than $700,000, and in New York they have sold for more than $1.1 million (Badger 2014).

Medallion values fluctuate for a number of reasons, including speculative behavior, interest rates, and changing income from leases due to changes in supply or demand. The rise of TNCs, however, has coincided with falling medallion values. At the beginning of 2015, for example, medallion prices in New York had fallen by 23 to 28 percent (Barro 2015),⁴ and sales in Chicago have fallen in both quantity and price (Badger 2014; Barro 2015). Medallion holders have protested the entrance of TNCs, and in some instances they have sued cities for allowing TNCs to operate. The basis for these lawsuits varies. In London, a lawsuit argued that a smartphone app should be considered a taxi meter, and that any vehicle using the app should therefore be regulated as a taxi. A court ultimately ruled against the plaintiffs, although the case remains open in another court (Weber 2014a). Chicago’s lawsuit alleges that the city has breached an implicit contract with medallion holders; it sold medallions to investors but then permitted the entry of firms that devalued those medallions. As of this writing, this lawsuit was in its early stages.

Declining medallion value has clear implications for medallion owners—they lose wealth—but less clear implications for taxi drivers. Recall that the direct source of medallion value is not passenger fares but driver leases. Medallion value in New York City was bolstered by the high ratio of drivers to medallions: usually 4 to 1, with many other people hoping to drive (Badger 2014). This high demand inflated the

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⁴ The city has two classes of medallions—one for owner-operators and one for owners who lease to drivers.

medallion value and allowed medallion holders to charge high lease rates. These circumstances suggest that TNCs can erode medallion value not only by taking customers but also by taking drivers.

Ultimately, because the interests of medallion owners and taxi drivers are not aligned (an owner doing well means a driver paying a higher lease rate), declining medallion values could also lead to falling lease rates, in turn raising the possibility that net taxi driver income could rise. This outcome would, of course, depend on how much lease rates actually fell and whether the savings from lower lease payments were countered by business lost to TNCs.

The taxi industry also has responded to the innovations of the TNCs by beginning to mimic them, including by using a number of apps to eliminate the TNCs’ current convenience advantage for smartphone-owning customers. Companies that produce these apps also offer cashless payment and app-based dispatching with no surge pricing; they work with existing taxi and limousine companies, ensuring that all of the vehicles ordered by an app user are locally licensed and regulated taxis. One of the first taxi apps was Hailo, which originated in London and was offered in several U.S. cities before being withdrawn because of “intense competition” from other apps and TNCs (Weber 2014b). Other taxi apps currently on the market include myTaxi, Flywheel, and Curb (rebranded from Taxi Magic in 2014). The app companies contract with individual cab companies or fleets in each city. The contracting process and the need to integrate business processes and computer systems with many small fleet operators (in contrast to a national business model like that offered by TNCs such as Uber and Lyft) have slowed the comparative expansion rate of these companies.

In addition to these apps that have been developed by companies and work (or are intended to work) in multiple cities, some cities have announced the development of their own apps. Washington, D.C., is testing a Universal D.C. TaxiApp, which all taxicab drivers would be required to use. Drivers would still be welcome to use any other apps, including Curb, Flywheel, or myTaxi, and drivers would still be able to accept street hails (Aratani 2014a). In January 2015, the Los Angeles Taxicab Commission passed a measure requiring all taxis to use a city-certified e-hail app by August 20, 2015, or face a daily fine

(Mai-Duc 2015). And in May 2015, Chicago sought bids for the development of a universal phone app for all city taxis (Hinz 2015).

Disrupting a regulated market may provide benefits to consumers but can harm people who work in or own firms in that market. The full extent of that harm, however, is difficult to determine a priori, and sometimes even while it is occurring. It is not yet clear how losses in the taxi industry may actually play out. Taxi drivers could lose income as a result of TNC services, but they could also begin driving for TNCs instead of (or in addition to) their taxi work. To the extent that taxi drivers could earn back some lost revenue through TNC work, the TNCs might not be a pure loss for them. However, TNC employment might not be an option for all taxi drivers. Many taxi drivers have low incomes, and thus might not have access to a personal vehicle that would allow them to work for TNCs. Others might have felony records⁵ or motor vehicle violations that, while allowing them to drive taxis, might prohibit them from driving for TNCs (this issue is addressed in more detail in Chapter 6). Additionally, in the long run, if the rise of TNCs dramatically expanded the customer base of rides for hire, taxis and TNCs could profitably coexist as complements.

Conclusion

The rise of TNCs has expanded mobility for many while having what may well prove to be significant effects on the taxi and livery industry. The pre-TNC for-hire industry grew as a result of its own innovations in the early decades of the 1900s, particularly by using telephones and radios to provide dispatch services that efficiently linked riders with drivers. Over the last several decades, the industry has been heavily regulated, partially deregulated, and then mostly reregulated.

Although regulatory approaches vary considerably across jurisdictions, the level of taxi regulation in most large cities with substantial street-hail markets is extensive, covering virtually every

______________

⁵ For instance, licensing authorities consider criminal records, but depending on the nature and age of the conviction, may end up issuing licenses to applicants with a criminal history.

aspect of operations—fares; service; entry; geographic coverage; safety; and, increasingly, service requirements for people with disabilities. In most other jurisdictions, taxi regulations are far less extensive, except in areas that have had chronic service problems. The for-hire industry that emerged in response to this diverse regulatory structure typically comprises local firms of varying sizes. The services these firms provide also are limited by the many and varied jurisdictions that regulate them; this results in differences within the same metropolitan areas and limits on the ability of drivers from one jurisdiction to serve passengers in adjacent ones. As discussed in subsequent chapters, how the regulations governing these industries relate to one another, particularly when multiple jurisdictions regulate different industry segments within the same geographic area, needs to be assessed.

Whereas taxi markets have lent themselves historically to local, and sometimes state, oversight, TNC entry has raised questions about whether such local oversight remains tenable in large metropolitan areas made up of many jurisdictions. TNC drivers can operate throughout a metropolitan area as a unified market, picking up and dropping off passengers with uniformity and transparency to consumers that are lacking in the taxi industry. Competing considerations are entailed in achieving, on the one hand, uniformity and simplicity in the regulatory structure (which tends to argue for regional or even statewide regulatory authorities) and, on the other hand, responsiveness to local needs and concerns (which tends to argue for local regulation). A critical issue, moreover, is the level of on-the-ground regulatory enforcement, regardless of the level of regulatory authority.

The vast differences in the scale of TNCs compared with taxis raise new considerations for regulators. Compared with the multinational, distributed contractor labor and capital of the TNC business model, the long-established taxi industry is complex. The rise of global corporations providing taxilike services in cities around the world is in sharp contrast to the structure of the taxi and limousine industries. While a few taxi fleets are large, regional enterprises, most consist of local firms, fleets of widely varying sizes, and highly varied employment and contractual relationships between

firms and drivers. In comparison, the TNCs are a few increasingly large entities that operate globally. Taxi and limousine companies are adopting TNC-like technologies to enable them to better compete with TNCs. However, the innovations that TNCs provide challenge both the economic and regulatory models of the taxi industry. In heavily regulated taxi markets, state and local policy makers may need to consider reducing some constraints on taxis and limousines to allow them to compete more effectively with TNCs. This issue is examined further in Chapter 4, which presents an economic framework for addressing the competitive disparities between TNCs and taxi, sedan, and limousine providers.

Because TNCs have resisted regulation, local officials typically have been unable to determine the levels and types of services being provided in their jurisdictions. Negotiating for basic information from TNCs and other providers of innovative mobility services in exchange for allowing them to operate is giving some jurisdictions a better understanding of the types and locations of the services these companies provide. As innovative mobility service companies become an increasingly important component of urban transportation networks, such information becomes essential for both regulation and transportation planning purposes.

In general, little accurate and aggregated information is available about how jurisdictions across the country are balancing the interests of and regulating both traditional and innovative mobility service providers. Complete and up-to-date information about how jurisdictions are adjusting to disruptive mobility technologies to better serve their citizens would be of benefit to all.

References

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