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S$13m fines for Grab, Uber, and a market share debate

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The Competition and Consumer Commission of Singapore (CCCS) on Monday slapped fines of S$13 million on Grab and Uber for their merger, and immediately sparked a debate on whether it set a fair condition for lifting all curbs on Grab.

Singapore

THE Competition and Consumer Commission of Singapore (CCCS) on Monday slapped fines of S$13 million on Grab and Uber for their merger, and immediately sparked a debate on whether it set a fair condition for lifting all curbs on Grab.

The competition panel said it will suspend all restrictions on Grab if a new player can capture at least 30 per cent of the Singapore ride-hailing market.

The 30 per cent threshold is based on Uber's share before it sold its South-east Asian operations to Grab in March.

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CCCS will suspend all directions on an interim basis if an open-platform competitor (taxi operators excluded) attains at least 30 per cent of total rides by ride-hailing platforms for one calendar month. It will unconditionally lift all directions if a competitor attains at least 30 per cent of total rides monthly for six consecutive calendar months.

Toh Han Li, chief executive of CCCS, said: "It is a logical benchmark - 30 per cent was the market share of Uber before the Grab-Uber merger."

Some industry watchers feel the bar is set too high. Yang Nan, assistant professor at the National University of Singapore, said: "Having another ride-hailing service attain 30 per cent of market share is difficult in the next few years, due to the substantial entry costs and Grab's leading position."

Li Jianggan, chief of business consultancy firm Momentum Works and former Asian head of Easy Taxi, said it is only possible if the new entrant is willing to invest enough in driver and customer acquisition, and withstand potential subsidies from Grab.

"It is pretty hard to convince investors to put money into a new player, knowing that the competitor is well-financed Grab."

However, the move was welcomed by Go-Jek - the well-funded Indonesia-based ride-hailing platform tipped to be the most credible competitor to Grab - and which could be entering Singapore very soon. Go-Jek said on Monday that CCCS' directions will have a significant effect on its strategy and timeline.

"We are now confident that Singapore will have a robust, efficient and competitive market, and that our arrival will have a significantly positive impact on the lives of people in Singapore."

Grab now has an overwhelming market share of 80 to 90 per cent, while ComfortDelGro has 10 to 20 per cent, and all other players 0 to 5 per cent, according to June data by CCCS.

The other players include homegrown app Ryde and blockchain platform Tada. India-based Jugnoo had in August exited the Singapore market by selling its business to local player Kardi.

Grab declined to comment directly on the market share condition but said in a statement that it is "glad" the competition watchdog has finalised its investigations and does not require the Grab-Uber merger to be unwound. On CCCS' direction that it has to cease all exclusivity deals with drivers or taxi fleets while other ride-hailing platforms and taxi operators can form exclusivity deals, Grab Singapore head Lim Kell-Jay said: "For drivers to have full maximum choice, all transport players, including taxi operators, should also be subject to non-exclusivity conditions."

CCCS chief Mr Toh, however, noted that under competition law, dominant players "can have certain things imposed on them".

He cited the merger between JobStreet Singapore and SEEK Asia Investments in 2014 as an example. While the deal was found to lessen competition in the online recruitment market, it was approved by CCCS as SEEK had offered to remove its exclusivity agreements with employer and recruiter customers, and cap its prices at current prices.

On Monday, CCCS said it had formally issued its Infringement Decision against Grab and Uber. Both parties must pay more than S$13 million in fines for their merger as the deal "removed Grab's closest rival to the detriment of Singapore drivers and riders". Uber's share of the fine is S$6.58 million and Grab's is S$6.42 million.

Uber had on March 26 sold its South-east Asian business to Grab for a 27.5 per cent stake in Grab, in a move believed to help it staunch losses from costly competition against Grab and Go-Jek in the region.

CCCS had on March 27 commenced an investigation on the basis that the transaction "may have" infringed the Competition Act. It proposed Interim Measures Directions on March 30 and finalised them on April 13 to lessen the impact of the transaction on drivers and riders, while continuing with the investigation.

The commission completed its investigation on July 5, and issued a Proposed Infringement Decision against the parties and invited public feedback on the possible remedies to address the harm to competition resulting from the transaction.

CCCS said its "final decision and directions open up the market and level the playing field. Companies can continue to innovate in this market, through means other than anti-competitive mergers".


CCCS's verdict explained

WHY WAS UBER FINED MORE THAN GRAB?

  • In short, Uber's turnover is higher. In levying the financial penalties, CCCS took into account the relevant turnovers of the parties; the nature, duration and seriousness of the infringement; as well as aggravating and mitigating factors, such as whether the parties were cooperative.
  • Uber - not Grab - will pay Uber's share of the fine. Grab does not foresee the fine and CCCS's directions to impact its business.

WHY IS THE GRAB-UBER MERGER RULED AS ANTI-COMPETITIVE?

  • Before the merger, Grab had a market share of about 50 per cent, while Uber had 30 per cent and the other players 20 per cent. After the merger, Grab's market share rose to over 80 per cent, while that of the other players stood at 20 per cent. CCCS said competition concerns will arise when any merged entity has a market share of 40 per cent or more.
  • CCCS calculates market share by taking rides matched by a ridehailing platform as a proportion of total rides matched by all platforms. The figures exclude street-hailed taxi rides as there was ''no obvious increase'' in the number of street-hailed taxi rides after the merger, a sign that street- hailed rides don't compete with rides booked through ridehailing apps, said CCCS.
  • Grab, however, said that ''it is a fact that private-hire car drivers' incomes are directly impacted by intense competition with street-hail taxis''.

WHY DID GRAB FARES RISE EVEN AFTER CCCS'S INTERIM DIRECTIONS?

  • In short, Grab has removed its discounts (or ''promo codes'') since the Grab-Uber merger.
  • The interim (and final) direction by CCCS states that Grab must maintain its pre-merger algorithm pricing. That is, Grab shall not adjust its surge factor and base fares beyond the surge factor cap (undisclosed) and bases fares at the levels as at March 25, the day before the merger was announced. This direction does not require Grab to maintain its pre-merger discounts.
  • Asked then if CCCS's direction really benefits customers if they are in fact paying higher fares, CCCS said: ''It could be worse. Our imposition of the cap is to prevent further damages.''

 

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