Taxis vs Uber: A war between very similar enemies

Customers of taxis and ride-booking services want very similar things: chiefly, to travel from point A to point B in the city. But while these two activities may be practically interchangeable, they are regulated in completely different ways.

In the ongoing war in Spain between drivers of taxicabs and VTC (vehicle for hire) cars, such as those operated by Uber and Cabify, it is easy to forget that both sectors share some fundamental traits. One of them is a limited number of licenses, something that encourages speculation and has allowed certain individuals to turn a quick profit.

Artificial barriers make no sense in either sector

Joaquín López Vallés, CNMC

There are also differences: taxi drivers are subject to much stricter health, safety and driving qualification rules than their colleagues at Uber and Cabify.

Legal sources with ties to the taxi sector said that authorities should make the same requirements of all city transportation services. “It makes no sense for taxi drivers to have to pass tough driving tests and demonstrate knowledge of the city’s streets, while some VTC drivers are cruising around with their L-plate [indicating novice drivers],” said one source.

Taxi drivers also note that their rates are set by city authorities, and that VTC cars can raise their rates when demand is higher.

This week, taxi drivers in Barcelona secured a pledge from regional and municipal authorities to make customers of ride-hailing services book the car up to one hour in advance. Affected companies, opposition parties and competition watchdogs are criticizing the move, which they say creates artificial barriers that will cost thousands of jobs and lower the quality of the service for consumers.

They may be right, but the problem goes further than that.

The trouble lies in treating two very similar activities as though they were different. And this problem has been compounded by the perverse effect of the limit on available licenses.

In the short term, taxi and VTC drivers will have to be compensated

Jordi Damiá, EAE Business School

Despite a rise in Spain’s population, not to mention a surge in tourism, in January there were 65,657 taxi licenses according to Public Works Ministry figures. That is actually a drop from the 72,000 available in 1994. Last year, a taxi license in Madrid was selling for anywhere between €135,000 and €160,000.

This scarcity, and the unwillingness to offer new licenses, means that a document that originally costs just a few euros in administrative taxes can get sold on the secondary market for hundreds of thousands of euros, in the case of taxi licenses, or tens of thousands, in the case of VTC licenses.

A reduced group of entrepreneurs controls up to 40% of all VTC licenses, according to the industry association Unauto VTC. By comparison, taxi licenses are less concentrated.

Consumer needs

Spain’s competition regulator, the CNMC, has been demanding a solution for years. “Regulation has to keep pace with consumer needs, not the other way around,” says agency official Joaquín López Vallés. The CNMC is critical of the quota system.

“Artificial barriers make no sense in either sector. It makes no sense that you can only book an Uber ride an hour in advance, and it makes no sense that taxis cannot work on a specific day out of the week,” adds López Vallés.

Jordi Damiá, who teaches business strategy at the EAE Business School, believes the conflict will get worse before it gets better, and sees two distinct phases on the road towards a solution.

“In the short term, taxi drivers will have to be compensated as they see their huge investment in licenses plummeting in value; compensation will also be required for the VTC drivers who may be out of a job. But in the mid-to-long term the only solution is to seduce clients and offer them technological platforms and services that are in line with the current times,” he says.

English version by Susana Urra.