Marriage Strings: Grab and Uber
Christian Andrew Labitoria Gallardo[1]
One way or another, we’ve heard a tale of star-crossed lovers with a “you-and-me-against-the-world” drama. From the classic Shakespearean tragedy of Romeo and Juliet to the forbidden Twilight love of Bella and Edward, this type of romance can be quite complicated, albeit exciting.
Allow me this time to present to you the love-hate relationship of two entities that used to compete with each other head-on- the ride hailing applications of Grab and Uber. Now we all know the story that Grab successfully bought Uber, thereby making it the biggest ride-hailing app in the country.
But isn't that anti-competitive? Let's find out.
The Acquisition
For those who are not familiar, Grab Holdings Inc and MyTaxi.PH Inc (which we shall now collectively call “Grab”) and Uber B.V. and Uber Systems Inc (which we shall now collectively address as “Uber”) operate as “Transport Network Companies (TNC)”, which means that they arrange transportation service by connecting passengers with drivers through the use of their digital platform technology. Simply stating, it is like a third party application which connects passengers to nearby drivers.
Grab has a South East Asian-wide Agreement with Uber, wherein Uber would sell its platform within the area to Grab, provided that Uber will acquire 27.5% share and one (1) board set in Grab. As part of such South East Asian-wide Agreement, the Philippine entities of Grab and Uber entered into a Bill of Sale for the latter to sell its platform in the Philippines to the former.
The Investigation
On April of 2018, without anyone filing a petition to review, the Philippine Competition Commission, on its own, decided to review the acquisition of Grab of the assets of Uber. During the investigation, Grab confirmed that the services of Uber was already being transitioned to its platform. The Philippine Competition Commission then issued Interim Measures to postpone such transition and maintain the status quo pending the investigation.
The Finding[2]
Grab suggested that its relevant market includes taxis, buses, jeepneys and even tricycles and pedicabs, such that no lessening of competition will occur as a result of its acquisition of Uber. PCC however found such proposition to be overly extending the definition of a “relevant market”, as its market should only include Transport Network Companies (TNC) using digital platform for its operation.
Given that Grab and Uber are the biggest players in the TNC market, Grab will hold more than 93% of the share of the TNC Market if Grab effectively buys out Uber. Moreover, after the announcement of the transaction, it was found out that the service charge of Grab became significantly higher. Accordingly, price regulation and surge caps will not fully remedy the lack of competition as Grab and Uber used to reduce prices way below the maximum set by the LTFRB in order to attract potential customers. The loss of competitive pressure will allow Grab to set its price at or close to the maximum imposed by the LTFRB.
Moreover, it was found out that unlike Grab, Uber does not disclose price and drop off points which prevents drivers from discriminating against customers with far destinations. Hence, more customers actually prefer Uber than Grab given this feature. Lastly, it must be noted that there is a high barrier to entry in the TNC Market. Not only will the application go through several governmental agencies, substantial capital is likewise needed as losses are expected during the initial years of operations. It is expected therefore that for the next few years, Grab will remain as the sole TNC in the country.
The excuse of Uber that it already withdrew from the South East Asian Market due to substantial losses was found out to be misleading, since Uber will actually acquire 27.5% share and 1 board set of Grab at the regional level due to the acquisition. Uber therefore remains financially interested in the Philippine Market, where it believes that it shall derive more gain through the monopoly of Grab.
Hence, the Commission found that the transaction in question would likely result in the substantial lessening of the competition.
Commitments[3]
Grab, in order for its proposed transaction to have the approval of the Philippine Competition Commission, submitted voluntary commitments to remedy, or at the very least, mitigate the negative effects on the competition resulting from the proposed acquisition. After several consultation, Grab made some undertakings effective for a period of 1 year which the Commission found sufficient to address the competition concerns from the proposed acquisition. This includes, but is not limited to, the promise not to have exclusive arrangements with drivers and operators, reduction of the rate of driver cancellation, increase in response time to complaints of riders and the inclusions of features beneficial to customers such as the automatic accept option and increase in the use of set destination function. Its pricing behavior must not also substantially deviate due to the acquisition. Lastly, a third party trustee under the direct supervision of the Commission shall monitor the compliance of Grab with these undertakings, although the cost shall be defrayed by Grab.
You know what they say. Marriage can be such a complex matter. More so if the parties involved have a long history of misunderstandings. Well, at least we know in this story that, in the end, this couple conquered it all (albeit with a lot of Undertakings on the side).
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Cover Photo from: Charles Forerunner on Unsplash
[1]Christian Andrew Labitoria Gallardo is a recent graduate of the Ateneo School of Law with a Juris Doctor degree, and is currently an associate of the Sangalang and Gaerlan, Business Lawyers, a law firm specializing in labor, corporate and business law. You may reach him through a phone call or message (09157042132) or via email (andrew.gallardo@paladinslaw.org). [2] Philippine Competition Commission Case No M-2018, In the Matter of Acquisition by Grab Holdings Inc and My Taxi Inc of Assets of Uber BV and Uber Systems Inc. [3] Philippine Competition Commission Decision No 26-M-12/2018, Acquisition by Grab Holdings Inc and My Taxi Inc of Assets of Uber BV and Uber Systems Inc.
