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What the Uber and the net neutrality debates have in common

with 9 comments

Net neutrality and Uber

It was sad and shocking to see some French taxi drivers resorting to violence in their demonstrations against Uber. These events, and the response of the French government, are the expected consequence of bad regulatory design. Regulation in the sector, as originally conceived and still enforced in many European cities, is simply not justified anymore. Applications like Uber address very effectively the market failures that used to provide a rationale for it. As an enthusiastic and regular user of the service in both London and Brussels, my impression is that Uber is in fact more effective, more responsive and more protective of the consumer than any local rules I have seen (and I have lived and used taxis in a few European cities).

The problem at the heart of the current troubles relates not so much to whether legacy regimes are justified (which they are not), but to the way in which they could be reformed to accommodate disruptive technologies. Some taxi drivers use violence because the legislator had created the expectation that existing regulation would apply forever. This expectation is reflected in the hefty prices paid for taxi licences in many cities. A government (local or national) has to be very courageous to change such a system. It is infinitely easier to prohibit a new service – no matter how good for the public at large – than to confront technological reality.

Why do I discuss all of this, which is well known by all readers of the blog? Well, if there is a lesson that the Uber debate provides is that regulation should be carefully crafted so that it can adapt seamlessly and effectively to technological change. Unless flexibility and adaptability are enshrined in the regime itself, change is unlikely to occur (or unlikely to occur at the pace required by the underlying economic and technological reality).

The European Commission had this lesson in mind when the Regulatory Framework for electronic communications was proposed in 1999. The telecommunications sector was rapidly changing, and it was already clear that technology alone would progressively address many of the concerns that were deemed to justify intervention at the time.

Thus, the Regulatory Framework was not conceived as a collection of rules imposing precise requirements on operators but as a set of broad principles that national authorities would follow when considering the need for intervention in a particular market. Because administrative action is subject to regular review, remedies are only imposed insofar as, and for as long as, they are necessary to advance the objectives of the regime.

The Regulatory Framework was an impressive legislative achievement that, alas, has been progressively undermined. Maybe it is true that good things never last. The most recent nail in the coffin has come from the recent political agreement to introduce net neutrality rules at the EU level (and which apply at least to what the press release calls the ‘open Internet’). As far as I can gather, the new rules will provide for an unconditional ban on some practices. Such prohibitions would be directly enshrined in the Framework. This is the very regulatory technique that the Commission considered to be inappropriate back in 1999.

I have never seen anything close to a theory providing a convincing case for net neutrality. But this is not really the issue here. What I find worrying is that, because of the regulatory device chosen by the European legislator, net neutrality is here to stay, and is likely to stay even if it becomes clear that it does more harm than good. The Regulatory Framework was conceived as a ‘future-proof’ instrument. It is ironic that, over time, it has evolved to become more rigid and less evidence-based.

Written by Pablo Ibanez Colomo

2 July 2015 at 7:15 am

Posted in Uncategorized

9 Responses

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  1. Okay, copying and pasting my Twitter replies (https://t.co/jvdUdSNqBA) together to create a comment! 😉

    It is right to say that “the regulation of the taxi market is a case of complete political failure.” – @haucap The magnitude of the political failure is shown by the fact that newcomers simply choose to ignore existing regulations. But we need to realize that the cab market isn’t a market with one monopolistic, inefficient incumbent. In contrast, there are many small players. Therefore, the market needs to be catiously deregulated step by step.

    But it needs to be done now.

    Rainer Großmann

    2 July 2015 at 10:39 am

  2. Hi Rainer,

    Thanks for your comment(s). You are right to say that the deregulation of these activities pose an enormous challenge. The task is far from easy but, as you say, a new regulatory framework is needed. Ignoring technological realities has never been a sensible approach to regulation. What I find worrying is that many Member States seem to be strengthening existing regulation instead of moving in the opposite direction.

    Pablo Ibanez Colomo

    2 July 2015 at 12:30 pm

  3. Pablo, you should create a Twitter account and reply to people commenting there; otherwise they think it’s me writing the post (and I’d rather avoid being arrested in France…) 🙂

    Alfonso Lamadrid

    2 July 2015 at 1:48 pm

    • Lucky you if some people think you’re the author! 😉

      Pablo Ibanez Colomo

      2 July 2015 at 2:07 pm

  4. As an aside, I think the overreaction by the cab drivers and the total hit-and-miss “solution” implemented by the French government is sad, but hardly shocking, not with precedents like this one: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:61995CJ0265

    As a second aside, is it really the expectation of neverending protectionism heralded in regulation that has led the price of taxi licences to be so high? In NY, not your typical anti-Über territory, a yellow cab medallion peaked at a price of USD 1 million in 2011 (they now go for as “little” as USD 800k). In Chicago (which has even lower anti-Über sentiments than NY), taxi medallions cost a more “reasonable” USD 300k… Both cities have rules that regulate the taxi and for-hire-vehicle services, but they’re much less restrictive than Europe’s, and the price of a traditional taxi licence there is still unbelievably high.

    Miguel

    3 July 2015 at 3:52 pm

    • Hi Miguel,

      Thanks for sharing your thoughts! My question for you: why would people pay as much as USD 800k for a medallion if it is not because there are regulatory privileges attached to it (as well as an expectation that these privileges will remain in place)?

      Pablo Ibanez Colomo

      3 July 2015 at 4:52 pm

      • Hi Pablo!

        Well, that’s essentially my point: Uber is highly successful in NY, and even though (a couple of) city councillors have recently tried to curb their growth by limiting the number of for-hire-vehicles in the city, FHV services (such as Uber itself) have a different regulation to that of taxis.

        So medallion prices can’t be only the result of a protectionist taxi regulatory landscape. I instinctively think that something else has to be influencing those prices as well, although what exactly I haven’t quite been able to put my finger on yet.

        You know, maybe you’re right and medallion demand & supply is still subject to certain perks granted by taxi regulations, as a remnant of a time when FHVs couldn’t actually compete with taxis (bookings were over the phone and in advance, often involved higher fares, something you could hardly go for if you needed a cab right now). Or maybe FHV regulations impose certain restrictions that outweigh the short-term, potential financial benefit of not bidding for a medallion.

        For example, only black-car (aka posh) cabs and limousines are allowed to pick up passengers in Chicago’s O’Hare airport, to the exclusion of any other kind of online car booking mechanism. So the most popular Uber choice (the cheap and cheerful UberX) is unavailable to arriving travellers. Other cities, for example, impose a minimum time limit on online car booking apps, so that they don’t “supplant” on-street hailing, which is reserved to traditional taxis. Not sure that system applies anywhere in the US, though.

        But still, cab drivers in US cities who do get regulatory perks must surely know by now that these won’t cover them forever or entirely against market disruptors such as Lyft, Uber and the like. It’s exactly what has happened lately: their business has been threatened; but their reaction has been (seemingly) a little more elegant than in France.

        Miguel

        3 July 2015 at 5:54 pm

  5. Hi, it’s indeed perhaps instructive to compare taxi medallion prices in the US with ‘plate’ values in the UK. In larger US cities they tend to be several times that of those in the UK, which is difficult to rationalise economically.

    I suspect it might have something to do with the fact that in the UK the market is perceived as something of a grey or perhaps black one, thus yields are high to compensate for this and the risk of deregulation.

    For example, you could buy a UK taxi plate for £50,000 and rent it out for perhaps £150 per week, thus it’s yielding 16%, and the ‘investment’ has been repaid in six years or so.

    Yields on US medallions are probably less than 5%, reflecting the lower perception of deregulation risk and the more legitimised nature of the market.

    As you may be aware New York medallion numbers were largely set in stone from around the 1940s until just a few years ago. Since then some new medallions have been released via public auction, which would ceteris paribus depress medallions slightly (assuming only a relatively small number were released), but paradoxically this has perhaps further legitimised the market and cemented the view that the numerical limit would stay in place at such a level as to maintain medallion values at significant levels, in turn meaning that the increase of medallion numbers has had little effect on prices, or indeed has perhaps even increased values!

    Of course, low global interest rates have probably also been responsible for the significant increase in New York medallions in recent years, although from the point of view of income from taxi users this clearly reduced significantly during the recession. The plates in one UK city, for example, apparently dropped from around a peak of £50,000 in the late 2000s to £30,000 at the nadir of the economic downturn.

    To what extent Uber has now impacted on medallion/plate prices is obviously an interesting question. Of course, plate values depend on the monopoly on street hires, which Uber’s impact on is obviously limited. Uber’s influence, in the UK at least, seems to me to more obviously impact on the minicab/private hire firms servicing telephone bookings rather than public hire taxis who monopolise the hail/street hire markets.

    Of course, to the extent that Uber is regarded as a substitute for hiring a taxi in the street then that will impact on the latter market, and thus could impact on taxi plate prices. But intuitively I think the greater impact will be on established telephone booking despatch networks, many of which are of course competing with Uber in terms of apps to supplement their existing telephone bookings.

    Stuart Winton

    14 July 2015 at 3:27 am

  6. Ubiquitous technology change is posing similar regulatory challenges here in India also!
    And the response is more rhetoric on these same two issues of Net Neutrality & Regulation of Taxi services! On Net Neutrality the debate seems to be opinionated with few public statements relating Net Neutrality to basic fundamental rights.
    Uber was banned in the New Delhi (capital of India) by government for a crime committed by one of its driver, although the ban on Uber was revoked by the High Court later in early July this year. Regulation Anarchy continues….!

    Saket (@Antitrust_IP)

    23 July 2015 at 7:39 am


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