Introduction

The service quality of the Hong Kong taxi industry has long been an issue of consumer concern. However, with the rapid emergence of E-hailing services, the taxi industry is now facing an unprecedentedly challenge. By use of communications technology, E-hailing service operators can provide more personalized and efficient services to those consumers who are seeking personalized point-to-point transport.

While E-hailing service has received overwhelming welcome global wide, it has also raised important issues of regulatory oversight and consumer safety. Recently, there have been a number of reported cases of serious crimes by E-hailing service drivers in other places who have deliberately concealed their criminal records. Such cases have once again put consumer safety in E-hailing service in spotlight. In Hong Kong, these ride-sharing business fall outside the current regulatory regime and are considered illegal if the drivers do not comply with the law by applying for a licence. There is yet to be specific regulatory framework to deal with the operation of E-hailing services.

Deeply concerned with these issues, the Hong Kong Consumer Council has undertaken an in-depth study entitled “More Choices, Better Service – A Study of the Competition in the Personalised Point-to-Point Car Transport Service Market” (“the Report”). In the Report, the Council recommended the Government to level the playing field between the E-hailing services and taxi services through a “progressive approach”. It is hoped that this approach will eventually lead towards a more open market-based system.

Lack of Competition

The personalised point-to-point car transport industry is divided into three broad market categories, i.e. the stand market, the hail market and the pre-booked market, the three of which are close substitutes. At present, only taxis are allowed to operate in the stand market and the hail market. Further, taxi licences are issued on a permanent basis. The Government is unable to either introduce new terms and conditions or revoke the licences on grounds of service quality, thus causing the industry service to stay at a stagnant stage. Moreover, taxi fares are regulated and there is no price competition between taxis. Owing to the lack of competition, while taxis only contributes around 7.4% of public transport patronage in Hong Kong, nearly half of the complaints lodged with the Transport Advisory Committee on public transport are on taxi services. Common complaints involve refusing hire, behaving in a rude manner and overcharging, etc.

Overseas Trends

In the Report, the Consumer Council examined the manner in which other jurisdictions have approached the issues that arise with regard to the E-hailing services. Generally, the Council noted, there are three ways in which E-hailing services have been allowed into the markets around the world:

• The first way is to create a level playing field between E-hailing services and taxi services; examples being Beijing, New South Wales, Singapore and Toronto.
• The second way is by attempting minimal regulatory disruption of the market through providing minor legislation changes; examples being London and New York.
• The last way is to introduce protectionist measures for incumbent taxi service providers; examples being Barcelona, Copenhagen and Seoul.

At the Competition Drinks of the Hong Kong Competition Association in our office on 18 December 2017, Ms. Linda Chan SC, the chairperson of the Consumer Council’s Competition Policy Committee, spoke about the recent Report and commented that reforms in Beijing, Mainland China, is a good reference to Hong Kong.

The Mainland Government has since mid-2016 implemented sets of measures and regulations in different cities in China, including Beijing, to address the various issues arising from E-hailing services. Overall, the regulation of network car haling in Mainland China is divided into four aspects: regulation of E-hailing platform companies; regulation of vehicles for transport services; regulation of drivers; and regulations on delivering E-hailing services.

Under those regulations, E-hailing service providers, such as Didi Chuxing and Uber, are responsible for the safety of the consumers and are required to review qualifications of their drivers and to guarantee their services. They are also responsible for inspecting drivers’ private cars to ensure that they are in good conditions and are insured. Regulations on E-hailing drivers require that the drivers must have more than three years’ driving experience and has no traffic or violent crime record. There are also certain requirements for operating vehicles such as the car must be equipped with GPS and an emergency alarm system. The car must also be registered at the Public Security Bureau to obtain an online pre-booked taxi transportation permit.

Worldwide, in implementing the regulatory changes on E-hailing services, some governments have adopted a progressive approach by allowing a gradual increase in the number of hire care permits under which E-hailing service providers are required to operate (the “Progressive Approach”), while the others have taken an open market competition approach that allows an unrestricted number of hire car permits through the introduction of E-hailing (the “Open Market Competition Approach”).

The Progressive Approach allows gradual implementation for better monitoring and control for the overall traffic. Further, new requirements can be put in place easily to enhance passenger’s safety and improve service quality of transport. However, the observable effect on competition may take time. On the other hand, the Open Market Competition Approach will increase consumers’ choices and competition immediately. However, allowing an unrestricted number of hire cars on the road might cause traffic problems and inevitably, it will cause direct impact to the incumbent taxi industry.

Council’s Suggested Approach

In the Report, the Consumer Council recommended that the Hong Kong Government adopts the Progressive Approach in order to minimize disruption to existing taxi drivers. The Council takes the view that the introduction of a parallel regime consisting of taxi and E-hailing services will increase competition, which in turn will strengthen the service quality of market players in the long run.

The Council suggested that the Government could start the process with the existing 1,500 Hire Car Permits issued by the Commissioner for Transport by relaxing the stringent requirements. At present, it is difficult for E-hailing service providers to obtain one of the 1,500 hire-car permits because of strict criteria, including the requirement to provide a business address and identify specific routes the car will be cover. Further, the Council suggested that a licensing regime be implemented to regulate E-hailing platforms, vehicles and drivers. Depending on the market’s reaction and the pace of the reform, the Council expects that the number of E-hailing operators in the city be between 3 and 11. In order to obtain the licence for E-hailing services, the service providers must meet the following requirements:-

• They should conduct background check on drivers to ensure they are suitable candidates for the job;
• Ensure E-hailing drivers have purchased adequate insurance cover for passengers;
• Safe record keeping of each and every trip;
• Offer proper channels for passengers to record feedback and to check the past record of driver service.

As for the E-hailing driver licences, the partner drivers are required to have at least three years of driving experience, pass the background security checks (no serious driving convictions, no criminal convictions for violence, threatening behaviour, driving under the influence), and meet required language skills and health condition fulfilment. Lastly, in respect of the E-hailing car licences, the conditions of the hire cars must meet certain standards, such as to be in good condition, insured to carry passengers and not older than 7 years old. It is expected that within a reasonable period of time, the regulatory framework would shift to one that is amendable to an open market.

Conclusion

Despite the popularity of the E-hailing services in Hong Kong, the Government has maintained a tough stance since those ride-hailing firms first began to pop up in the city in 2014. The experience in other jurisdictions suggests that the legalization of the E-hailing services has increased the competition in the personalized point-to-point transport industry, which in turn has fostered the improvement of service quality. It is hoped that the Hong Kong Government will seize this opportunity to adopt a forward-looking strategy in relation to the E-hailing services.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: competition@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.