Regulators Prepare to Kill Smartphone Based Car for Hire Business

By Gary Kim November 16, 2012

Taxi and limousine regulators from 15 U.S. and Canadian cities plan to place restrictions on the use of smartphone applications and online services that allow people to find and use taxi services.

The story would be a familiar one for many veterans of the communications, broadcasting, cable TV and radio businesses, and a newly-heard story for technology industry participants. And that story is the foundational role played by regulations in enabling or barring a new industry from developing. 

Image via Shutterstock

The rules, created by a task force of the International Association of Transportation Regulators, would, for example, ban the use of a GPS-equipped smartphones in place of a taxi meter. Any experienced executive in the communications business could likely point to many instances where a regulator ruling on a technology matter had large business consequences for a service provider, or would-be service provider.

The rules would essentially kill Uber Technologies, and others like it, which use drivers' phones to determine the length and cost of rides. That appears to be a simple “technology” rule, but it also has business consequences.

The rule is, in some cases, and perhaps ultimately, about controlling entry into the business. The use of new smartphone based systems essentially undermines the licensing system used in the taxi industry. By banning the use of smartphones for metering, regulators also control entry into the business.

That is a hallmark of communications regulation as well, where a wide variety of rules, some based on technology, also prevent or enable contestants to enter the business.

The proposals also speak to retail packaging and pricing, another hallmark of communications regulation. The new rules would forbid "demand-pricing,” where fares for trips of equal length and destination could vary based on supply and demand.

As always, regulators will say the new rules are intended to protect the public from unfair fares and protect safety. The corollary is that the rules will protect an incumbent industry from competition that represents more consumer choice.

It’s an old story, indeed.

Edited by Brooke Neuman

Contributing Editor

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