Uber and Grab may face unwinding of merger and financial penalties, warns consumer watchdog

The Competition and Consumer Commission of Singapore (CCCS) is pushing for the unwinding of the merger between Grab and Uber here, after a three-month review.

The Uber-Grab merger will potentially become the first merger to be ordered to unwind in Singapore, according to TODAY Online.

Concerns over Grab’s anti-competition practices and monopoly of the ride-hailing market in Singapore were raised by the consumer watchdog in their investigation.

In a media release titled “Grab/Uber merger: CCCS Provisionally Finds that the Merger Has Substantially Lessened Competition, Proposes Directions to Restore Market Contestability and to Impose Financial Penalties” dated 5 July 2018, the CCCS said that the merger between Grab and Uber has violated antitrust law by “substantially lessening” competition.

Under Singapore law, mergers that might result, or even potentially result in anti-competitive practices and outcomes are considered illegal, as implied in s.54(1) Competition Act 2004:

54.—(1)  Subject to section 55, mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore for goods or services are prohibited.

According to CCCS, the Uber-Grab merger has increased “barriers to entry and expansion” into and within the ride-hailing market in Singapore.

The competition regulatory body argued that new potential competitors “would likely have to incur significant amount of upfront capital” in order to attract drivers and riders, due to the “exclusivity-reinforced network” or monopoly created by the merger of Uber and Grab.

CCCS also stated that potential new entrants to the ride-hailing market in Singapore have expressed their apprehension over attaining “a sufficient network of drivers and riders” to compete effectively against Grab’s large pool of drivers and riders, on top of Grab’s extensive resources in terms of promotional materials and marketing budget.

According to its media release, CCCS has “received numerous complaints from both riders and drivers” both “in relation to the increase in effective price” and the quality of the services offered after the merger.

The CCCS believes that this is a clear indication of “Grab’s ability to increase effective prices” as a consequence of the merger.

Proposed remedies to counter the effects of the Grab-Uber merger

The CCCS has proposed the following remedies in order to mitigate the negative effects of the merger, as well as to restore healthy competition within the ride-hailing market in Singapore:

The removal of Grab’s exclusivity obligations, lock-in periods and termination fees on all of its associated drivers, including those who rent from Grab Rentals, Uber’s Lion City Rentals or rental partners;

The removal of Grab’s exclusivity arrangements with any taxi or private-hire fleet in Singapore, in order to provide a variety of choices to riders;

The reversion to or the maintenance of Grab’s pre-acquisition pricing algorithm and driver commission rates, until competition is revived in the market;

The sale of Lion City Rentals (or all or any part of Lion City Rentals’ assets) by Uber to any potential competitor who makes a reasonable offer, instead of Grab, particularly without the consent of the CCCS.

Financial penalties may also be imposed against Grab and Uber

Besides proposing potential remedies to the aftereffects of the Uber-Grab merger, the CCCS plans to “impose financial penalties upon Grab and Uber respectively”.

This is largely due to CCCS’s belief that both Grab and Uber have not been able to demonstrate that their merger has resulted in more growth or other positive outcomes in relation to the damage that the merger had caused to the competition within the e-hailing market in Singapore.

The consumer affairs regulator may even carry out an order for an unwinding of the merger, unless the CCCS can verify that the proposed remedies can be implemented, and are sufficient to address the possible damage resulting from the merger.

This is because the CCCS has found that they have proceeded with the merger “despite having anticipated potential competition concerns in the ride-hailing service platform market in Singapore”.

Grab and Uber have 15 working days from the receipt of CCCS’ Proposed Infringement Decision to make representations to CCCS, according to CCCS’ media release.

In response, Grab disputed the consumer watchdog’s findings, as the findings appeared to have a narrow definition of competition as their basis.

A Grab spokesperson said that “While we are one of the most visible players in transport, we are not the only player in the market. CCCS has not taken into account the dynamic developments and intense competition going on over the past few months, from both new and incumbent taxi and ride-hailing players,” according to CNBC.

The spokesperson added that “Even though not required by the law, we had informed the CCCS that we were making a voluntary notification, as well as proactively engaged with the CCCS before the transaction was signed. We conducted the acquisition legally and in full compliance with Singapore’s applicable competition laws.”

Meanwhile. in a statement on 5 July, the Land Transport Authority (LTA) said it supports CCCS’ Proposed Infringement Decision, according to Channel NewsAsia.

“We note that CCCS has proposed remedies to restore market contestability in the point-to-point transport (P2P) sector. This is in line with LTA’s review of the broader regulatory framework for the P2P sector, which aims to ensure that the sector remains open and contestable and that no single operator dominates the market to the detriment of commuters and drivers,” it said.

CCCS seeking feedback from the public regarding proposed remedies

Concluding their media release, CCCS announced that they are seeking public feedback as to whether the current proposed remedies are “sufficient and workable” to mitigate the harm towards competition in e-hailing services that might have resulted from the Uber-Grab merger.

More information on the public consultation regarding the Uber-Grab can be accessed and downloaded from the CCCS website, www.cccs.gov.sg, under the “Active Public Consultation” page of the “Public Register and Consultation” section.

Feedback may be submitted before 19 July.

Earlier in March this year throughout Southeast Asia, Uber was sold to its primary competitor, Grab. As a result, the San Francisco-based company has acquired a 27.5 percent share in Grab.

Uber CEO Dara Khosrowshahi has also joined Grab’s board.

CCCS move generally lauded by local netizens

Local netizens have been highly responsive towards the move made by CCCS, and have even given input on possible remedies, post Grab-Uber merger.

Edmond Tam said:

This is amazing – standing up for the consumer and showing the world what a sensible regulatory framework against anticompetitive behaviour looks like. Well done CCCS!

John Low stated his support for the CCCS’s actions in relation to Grab’s response towards the findings:

“overreaching and (going) against Singapore’s pro-innovation and pro-business regulations in a free market economy” so grab says about watchdog…

The opposite is true, the purpose of CCCS is most pro-innovation and pro-business. Without competition, the need to innovate will evaporate. Should all market leaders start to merge into one operator and the choice of consumer will be gone. This will result in high cost for other business to thrive. Monopolistic nature of any form of business is anti pro business in the long run. For the sake of our country, it is important that there is competition. Well done CCCS.

Vincent Tan suggested increasing the frequency of trips:

Competition watchdog should consider increasing hitch rides to 10 trips within 24 hours as a former of competitive offering to support competition.

Jacques See also suggested doing away with booking fees altogether:

Remove booking fee for taxis will help […] It will stop errant passengers from cutting queue for taxis when waiting at malls or shopping centres from many patrons waiting in front of them.

John Low suggested the sharing of Grab’s user database to any taxi or private hire service:

This type of merger, if allowed, then disaster will surely come to our country. Can you imagine even if it is possible for a new stronger competitor ever to rise up against Grab, [and then] thereafter they do the same Uber/Grab thing and merge? We [will] be damned again. 

The best way out is to force Grab to share their database. To do this, anyone who offer private hire or taxi service can offer ride to Grab’s database of users through their own app. Technically this can be done through consultation with IT experts. In the telecommunications industry, they can share resources even when Singtel was a sole provider in the past.

However, certain netizens argued against CCCS’s move, and had even criticised the competition watchdog’s role in tackling the issue of the Uber-Grab merger.

Calvin Lim wrote that the burden of restoring competition within the ride-hailing market in Singapore should not only be placed on Grab, rather other companies should step up and elevate the level of their service and technology:

Grab does not seem to be Uber’s only competitor. Taxi companies like ComfortDelGro are after the same pool of consumers willing to spend on cab hailing service.

Should the fine be made on Uber, it’s only a matter of [giving them the] incentive to not [in]novate and and improve on current technological capabilities within Comfort.

Rather than being ‘Comfortable’ (pun intended) on what they have, should CCCS also not suggest that existing competitors like ComfortDelGro improve to retake the marketshare lost?

Singh Prem said that he had foreseen this consequence prior to the merger and felt that CCCS should have been more proactive long before the merger had taken place:

From day one I had commented, on CNA online, that CCCS needs to quickly rein in GRAB, before it becomes a power-house monopoly and starts to dictate terms [that are] not “friendly” to drivers and customers. I had queried then [on] why CCCS moved so quickly to investigate the Uber-Comfort Delgro tie-up [which would be been good for the market], causing Uber to go make a deal with GRAB instead, but when the latter occurred, CCCS did not move with the same speed as it did on that Uber-Comfort Delgro proposal. After that, GRAB just proceeded to do whatever it wanted, not bothered about the interim meaures of CCCS.

GRAB is getting out of hand. It continues to bull-doze its terms on the commuting public, and this reflects poorly on the effectiveness of CCCS. I hope someone can shed light on who are the major corporate investors of GRAB, and the extent of their respective shareholding.

Eddie Lim, also argued against the CCCS’ findings, stating that fares that are too low will not be sustainable for ride-hailing businesses such as Grab:

Dear watchdog, don’t be silly… [do] not increase fare… but merger makes the price right… cheap fares are not sustainable… to ensure safety and high quality of drivers, and adequate insurance coverage for riders, fare must be set correctly… don’t be so ignorant n naive ok

Benjamin Lim argued that monopoly in itself is not the problem, but how companies handle the position of being a monopoly, further stating that decisions regarding abuse of monopoly should rest in the hands of regulatory authorities and not the public to ensure fairness and consistency:

People need to understand [that] monopoly is not the issue. Many industries are natural monopolies, e.g. MRT. The important factor is that the company does not abuse its monopolistic position and disrupt free market.

The regulator has to decide if company has abused its position base on rule of law and not public opinion. Public sentiment is not the law. Proper law should be general, uniform and universal.

QuaChee InspiringDreams provided a bigger picture beyond the immediate Grab-Uber merger issue:

If mergers create such issues, it means that we can’t allow mergers to happen. DBS, POSB, and other banks [have] had their rounds of mergers before… It surely reduced competition one way or rather. This case can’t be viewed as an isolate case.

Whyboon Yeo said that the CCCS’s investigation and findings have arrived too late when the damage has already been done by the merger:

Die already, then send the ambulance. What a joke. Call the undertaker lah, goondu.

Complaints against Grab’s business practices

Several netizens have also aired their grievances regarding what they deem to be Grab’s sub-par and even “unethical” business practices.

Keynes Goh aired his frustration regarding Grab’s business practices:

Grab is not only out of hand, it is arrogant, high handed and unethical… There are many things it has done behind the screen that do not fit into the [frame]work [of] business ethics of [our] lawful and orderly Singapore business environment. Sending agents to dig Uber drivers to jump ship, openly sending SMSes to Comfort[DelGro] taxi drivers to ask them to jump ship, openly condemning Uber-Comfort tie up on Lion CIty Rental, arrogant remarks in newspapers […] non-transparent incentive systems for drivers, biased ride allocation to riders, unreasonable banning of drivers, and many more…

Singh Prem echoed Keynes Goh’s sentiments:

[…] seems GRAB has, for some reason, or other, been given that opportunity to make big bucks, and, up to now, still no firm imposition of penalties or measures on them, as though GRAB must be accorded “due respect”, when they have been viciously rotten to the community of private hire drivers, and the commuting public.

Why would Grab bother to offer discounts to passengers and benefits to drivers after squeezing out their competitor? If the market can allow Grab to sustain then it is going to be [a] long term trend, unless the conventional cab company will return to normalise the industry.

Lucas Lim Hk implied that Grab’s algorithm had been engineered in a way that only profits the company, at the expense of drivers and riders:

Confession of a supercomputer managing a ride hailing network. My algorithm shall most likely be:

1) Cancel drivers and passengers who match if demand surges; that way, passengers pay more for their ride.

Indicate to passenger as driver cancellation and vice versa for driver. 

2) Always deploy driver to passenger who are far away so that incentives are not easily achieved; thereby saving money for company. 

3) Always charge certain high-worth addresses higher surge prices.

4) Charge the maximum prices tolerated by a passenger.

Since I can’t be audited by any authority, my loyalty must lie in serving my owner first and last.

Dave Chew also aired his dissatisfaction against Grab:

YES. GRAB IS VERY ARROGANT. IT HAS AN **ENFORCEMENT** TEAM TO CATCH DRIVERS EVERYDAY [AND TO] FIND FAULT WITH DRIVERS AND ULTIMATELY TO REDUCE THE DRIVERS ON THE ROAD.

THEIR SO-CALLED ENFORCEMENT TEAM PROBABLY EVEN EARNS COMM[MISSION] FOR EVERY SUCCESSFUL DRIVER BAN.