BERITA DAILY LETTER: From YS Chan, via e-mail
Since 2014, Uber and Grab were the two dominant transportation network companies operating ride-hailing service using private vehicles and licensed taxis in Southeast Asia.
Last year, I wrote several articles cautioning that these two competitors could easily collude at the detriment of passengers who have been enjoying rock bottom fares.
Recent reports that Grab will be taking over Uber’s business in Southeast Asia have not only confirmed this possibility, it is likely to be a reality soon.
And there is little the Malaysia Competition Commission could do, although it was set up mainly to safeguard the process of free and fair competition in commercial markets for the benefit of consumer welfare.
I have previously proposed the 20 local operators of taxi apps to consolidate and add private vehicles to their taxi-hailing service to compete more effectively with Uber and Grab. But this is unlikely to happen, as transportation network companies operate on an entirely new business model.
Taxi apps derive its income from commission for each taxi trip. But 20 operators would each get an average of only one percent market share if 80 percent of both taxi and ride-hailing service is captured by Uber and Grab.
Globally, Uber almost decimated the taxi industry where it operates by subsidising fares and offering incentives to drivers. It has no qualms in incurring losses just to capture market share and build customer base, as data is the new currency.
In 2016, Uber lost US$2.8 billion and last year US$4.5 billion, but still had US$6 billion in cash. Although Grab does not disclose its losses, it must be substantial in order to grab 71 percent of ride-hailing service and 95 percent of taxi-hailing in Southeast Asia.
As long as Grab is looking beyond ride-hailing and keen to expand into many new areas, which it has already done such as delivery services for parcels by GrabExpress, GrabFood and GrabPay e-money service in Malaysia from this year, it will continue to prioritise customer base over profits.
But in a near monopolistic situation, it is bound to raise fares and cut losses, and surged pricing would become the norm and not limited to peak hours. However, such exploitation would attract one of the many giant transportation network companies to enter the Malaysian market.
And they can set up business virtually overnight as they are already operating in cyberspace. All that is needed is setting up a local office and apply for the intermediation business licence from the Land Public Transport Commission to operate in Peninsular Malaysia, and Commercial Vehicle Licensing Boards in Sabah and Sarawak.
This is likely to happen but for anyone of them to survive, it would have to emulate Grab by continuing to expand its customer base and businesses by placing profits secondary, which would allow passengers to continue enjoying low fares.