Lyft and uberX operate illegally in Philadelphia.
If you’re one of the nearly 455,000 who have used uberX in Philly since October, you might not have realized that the Philadelphia Parking Authority considers the ride-hailing platforms to be illegal, or “hack”, taxi services. The PPA regulates taxis and limos in Philadelphia.
In case you’re not part of the nearly half-million riders, a brief explainer: uberX and Lyft are mobile phone apps that connect regular car drivers with individuals looking for a ride for a fee. Y’know, kind of like a taxi dispatcher does, only without forcing you to call an operator who clearly hates their job, you, taxis, and probably puppies, too.
Meanwhile, uberX and Lyft have simply ignored those regulations, skipping the applications, the licensing fees, the inspections, the disclosures and the rest. (Note: Uber also operates a legal limo service using licensed limo drivers; the legal service and the illegal service use the same app.)
As a regulator, the PPA don’t have a lot of leeway to decide whether uberX is or isn’t a taxi company. The ride-hailing platforms clearly fit the definition of “taxicab service” under the state statute that the PPA is required to enforce – uberX and Lyft haven’t even attempted to argue in Pennsylvania courts otherwise.
But the PPA does have leeway on how much time and money they spend on enforcing the law and trying to fine the noncompliant ride-hailing companies. And PPA Executive Director Vince Fenerty says the authority is “doing everything we can.”
But “everything” is not enough. Taxicab law enforcement against the ride-hailing platforms is virtually zero, allowing those companies to flaunt the law so brazenly you might confuse them for a bunch of white guys after a championship game. According to James Ney, the Director of the PPA’s Taxicab & Limousine Division, the authority has impounded a total of just 56 cars since October– a statistically insignificant rounding error compared to the more than one million rides from 6,000 different drivers uberX has coordinated during that time frame.
Right now, uberX’s cost of compliance with the law is greater than its fines for defiance. Being rational businessmen (and we’re talking mainly about men, here), the uberX execs have simply decided to ignore the law. (Same goes for Lyft, too, but because they have a smaller presence in Philadelphia, and haven’t published ridership data like their better-known competitor, I’m going to focus on uberX, despite my deep distaste for the brand’s peculiar capitalization preferences.)
Until the PPA steps up enforcement, the situation will remain the same. uberX will operate with impunity and destroy the woefully ill-equipped yet legally operating competition of conventional taxi cab companies.
SO WHAT? HAVE NOT TAXIS WROUGHT THEIR OWN RUIN?
Of course, that sounds just fine to many Philadelphians. Taxis refused for years to do so much as accept credit cards, and more than one passenger has held on for dear life as their un-showered chauffer wove in-and-out of traffic while chatting on the phone.
They’ve made their beaded seat cover, you might be thinking, let them sit in it!
If the shiny ride hailing companies had simply come in and defeated the old taxis on a fair battlefield, I’d join in the cabbie schadenfreude. But they haven’t. These tech giants have simply ignored the rules of engagement.
Call me a naïve Ned, but this just feels wrong, like cheering on Petyr Baelish’s machinations. When companies offer superior products and services – and uberX is in many ways superior to traditional taxis – they can and should dominate the weaker competition. Such is capitalism’s survival of the fittest.
But this isn’t that. At least, not entirely. uberX isn’t just the bigger, faster, stronger team, they’re ignoring the rules of the game. And the referees are either too scared of the hometown fans, too weak, or too inept to call a foul.
It’s like being a New England Patriot’s fan who doesn’t care that their team cheated, repeatedly. Swap out “the Bill Belichick way” with “disruptive” and the justifications for this behavior is exactly the same. Might makes right.
And as Emily Guendelsberger so expertly and illuminatingly explained in City Paper, uberX and Lyft aren’t cheap alternatives just because of technological superiority. They shift tons of costs on their drivers that taxis usually pay, like insurance and upkeep.
This isn’t to say that the taxicab laws are great – they’re clearly onerous, innovation stifling and incentivize rent-seeking behavior by the existing cab industry. But the answer lies in fixing the legislation, not ignoring it.
FINE WITH THE FINES – JUST ANOTHER COST OF DOING BUSINESS
We can do some back-of-the-beer-napkin math to figure out what enforcement needs to be in order to get uberX to either comply with existing law or wait for Harrisburg to adopt a more conducive regulatory scheme.
First off, how much are they making? uberX drivers have made over $9 million operating in Philadelphia. Assuming the company takes a 20 percent commission, uberX itself made $2.25 million in Philly during the six-month period. That’s about $375,000 a month.
For each enforcement action, the PPA levies at least three fines of $1,000 each: one against the driver for operating an illegal hack, one against the company for operating as an unlicensed dispatcher and another against the company for aiding and abetting the driver’s violation of the law. If the driver doesn’t own the car, then the owner also gets a $1,000 fine, meaning $3,000 to $4,000 in fines per enforcement action. The cars are also towed ($175) and impounded ($30 per day) until the fines are paid.
For the sake of argument, we’ll assume each enforcement costs uberX $3,800. That means PPA would need to increase enforcement to 99 cars per month to reduce uberX to a break-even point.
Right now, they’re doing just under 10 a month.
Under usual economic analysis, the question isn’t how to divest a non-compliant company of all its profits – it’s how to make breaking the law more expensive than obeying the law.*
WHEN CRIME (OK, REGULATORY NONCOMPLIANCE) DOESN’T PAY
Increased enforcement, of course, is the answer. And it seems like a simple enough job: there’s literally an app for getting drivers to roll right into the sting operation.
But the PPA says that the fines they collect aren’t enough to cover the costs of enforcement.
PPA Executive Director Vince Fenerty told PlanPhilly that enforcement is harder than it seems. The PPA has to create a new account for each enforcement action. After the PPA hails an uberX or Lyft as part of a sting, those companies place the phone numbers and credit card numbers used on a black list – if the PPA tries using the same phone or card again, no one will come.
This effectively forces the PPA to use burners for their stings. According to Fenerty, this translates into a lot more work for his inspectors, and the PPA simply doesn’t have the money for the overtime or new hires required for tougher enforcement.
“I don’t have the resources that I would like to, to go out and pull 20 of them a day, okay?” Fenerty said at a recent PPA board meeting in response to public comment from a taxicab owner.
“I can’t take nine inspectors – I’m not Jesus Christ – I can’t take nine and make them twenty-two.”
The PPA’s Ney declined to provide a line-by-line breakdown of the PPA’s enforcement costs, but even making overly generous assumptions of $300 per smartphone, $10 per debit card, and $690 in labor costs per sting, the PPA should be making $2,000 per enforcement (using the lower $3,000 fine figure).
Even if the enforcement costs are double my assumptions, enforcement should still be a net earner for the PPA, which makes the authority’s alleged inability to increase stings baffling.
And, of course, if the PPA really wanted to put an end to ride-hailing services – and they say they do – the authority could simply fine the riders, too, for aiding and abetting violation of the law. The political blowback would be fierce and swift, but it’s not like the PPA is exactly beloved in this town. And it would force Harrisburg to move a bit more quickly on finding a legislative solution to this regulatory morass.
THE BEST STATE LEGISLATURE MONEY CAN BUY
But even assuming the PPA could levy more fines against uberX and Lyft, it’s unlikely that they’d ever decide to comply with the current law.
Cab compliance ain’t cheap. Taxi medallions still go for hundreds of thousands of dollars, and the PPA levies a $1,457 annual assessment on each taxicab, not to mention dozens other fees. More than the fees, it’s the regulations that uberX can’t abide by: rules requiring taxi markings, signs with info for the passenger, and detailed ride logs.
Critically, the existing legislation proscribes the variable pricing model used by the ride-hailing platforms. Taxicabs are supposed to file their rates with the Authority and stick to them. Until there is a reform to that specific provision, ride share will either operate illegally in PA or not at all.
The PPA’s Ney suggested that a Transportation Network Company bill introduced by State Representative Tom Killion (R-168) would bring uberX into regulatory compliance and place it on a level regulatory playing field with other companies. But that bill would require uberX to set mileage rates like conventional cabs, and give the PPA the power to inspect ridership records, something uberX has fought elsewhere. And the fines would remain set at $1,000, meaning the cost of non-compliance would remain unchanged.
There’s no reason to expect Uber or any other to comply with the law, other than a calculated decision that the positive PR would be more beneficial than the new regulatory burdens. And it still does nothing to level the playing field for the existing cab companies, which would still face today’s large set of regulatory burdens.
Uber has effectively established itself as first mover in Philly, creating an entrenched network of drivers and customers. It’s the power of this network effect that has uberX ignoring the law. As the Economist noted recently, uberX has calculated that “by providing a better service than incumbents, and by portraying their critics as defenders of vested interests, they can mobilise public opinion and get the rules changed, or interpreted in their favour.”
By operating before legalization, uberX has set itself up as the primary app in Philly – it’s the only speakeasy in town before Prohibition’s end. And if Harrisburg does pass legislation to regulate the ride-hailing platforms as “Transportation Network Companies” without any sort of penalty for previously flouting the law, then Uber’s bet will pay off and they’ll start legal operations with a huge head start.
It’s not just the traditional taxis that’ll lose the race for Philly rider share – uberX and, to a much lesser extent, relative late-comer Lyft will have huge advantages over Sidecar, which skipped town after a few PPA stings in 2013. Consumers who hated the monolithic and callous cab industry won’t find Uber über alles any better.
Taxicab regulations aren’t the only laws that Lyft and uberX aren’t interested in following. Some of their drivers have sued in California, arguing they’re really employees – not independent contractors – and entitled to benefits and protections. If the jury finds for the plaintiffs, it would inspire similar lawsuits in Pennsylvania and drive up operating expenses. If that in turn made the TNCs more expensive than cabs, it might level the playing field a bit.
But Uber’s already working on dealing with that problem: the company is investing heavily in driverless car technology, in the hopes of, one day in the not-too-distant future, reducing that number of employed drivers it crows about now – over 162,000 – down to zero. For those who may come to rely on their driving income, Uber will be disruptive, indeed.
* Also, if this was real economic analysis and not the mere imprimatur of precision, I’d have to make the number of enforcement a function of rides made and account for the fact that, as enforcement rose, rides made would likely decrease. And account for various tertiary costs. And model compliance costs. And probably a dozen other things that I’m only mentioning here so I don’t have to deal with nitpicky criticisms in the comments.