COMPETITION is always seen as good for the market, as this drives prices down and service levels up, but without capitalizing on existing market forces, new entrants will only see themselves on the fringe and not on the battlefield.
This is particularly true for the ride-hailing market in the Philippines, where virtually, the sector is dominated by one single player who, by chance and by choice, achieved its status by buying out its only competitor.
Grab, a ride-booking application that originated from Malaysia and is now headquartered in Singapore, continues to enjoy the lion’s share of the market, even after new players began servicing local commuters.
It may take some time before new entrants—five of them—gain traction, as their services were just recently launched after the Land Transportation Franchising and Regulatory Board (LTFRB) awarded them their franchises last month.
Philippine Competition Commission Commissioner Stella Luz A. Quimbo said new transport network companies (TNCs) should grab the opportunity of the network effects to ensure the viability of their businesses.
“How the market would look like with new providers depends on how quickly the new players can take advantage of network effects, particularly how well they are able to get drivers on board so that riders are willing to try them out,” she told the BusinessMirror.
A market study conducted by research firm Statista showed about 2.96 million users of ride-hailing apps in the Philippines. This is expected to increase this year to 3.5 million and balloon to 5.4 million by 2022.
Current supply shows there are more or less 35,000 private cars in the system—at least for Grab. The regulator has allowed the supply of transport network-vehicle services (TNVS) providers—or drivers enrolled in a TNC—to be capped at 66,750 units from 45,700 units previously.
Broken down, the new allocations are as follows: 65,000 for Metro Manila (from 45,000); 2,500 for Cebu (from 500); and 250 for Pampanga (from 200).
LTFRB Director Aileen B. Lizada said these figures are subject for review every three months. This was first implemented in February.
Grab Philippines Country Head Brian Cu has repeatedly claimed there is a gap between supply and demand in the ride-hailing market, as the company receives about 600,000 passenger booking requests each day with only 35,000 vehicles to serve them.
These days, booking for a ride—according to consumers—has been harder than ever. One user even claimed she had to wait for an hour and a half before a driver accepted her request for a 4-kilometer ride.
“With more riders, even more drivers are attracted to the platform, and so on,” Quimbo said.
Network effect, she explained, is an event when “as more consumers, in this case, drivers, join one side of the market, the platform becomes more attractive for consumers/passengers on the other side.”
There are five new TNCs in the market today, namely, Hype, Hirna, Owto, Golag and Micab.
Hype, which will offer five products, is set to launch on June 10. It allows users to book for a taxi, a pooled ride, a sedan, an Asian utility vehicle that is suitable for six persons, and a sport-utility vehicle for a more premium ride. It promises riders to as much as 30-percent savings in rides versus Grab, while providing a “fair” revenue share with its peers.
Hirna is a taxi-hailing app developed in Davao Ciy. It is currently available in the area, and “will soon expand to reach the whole Philippines.” It is set to launch services in Cagayan de Oro and Iligan City next month.
Owto offers riders with a choice of hatchbacks, sedans, subcompacts and seven-seater cars. It is currently available in Metro Manila, Camanava, Bulacan, Rizal and Cavite.
Go Lag is a private car-hailing app that will operate in Laguna, Metro Manila, Bulacan and Rizal. It vowed to have lower fares versus its competitors.
And lastly, Micab is a Cebu-based ride-hailing platform that offers taxi services in Metro Manila, Cebu and Iloilo. It will offer its services in Davao “very soon.”
Quimbo explained that the entry of these players could result in better services and more affordable prices.
Fares for private car rides are typically computed using the so-called dynamic pricing scheme which, in a nutshell, takes into account the supply-demand ratio.
Companies may put in “surge prices” in areas where there is huge demand. It is currently capped at double.
So, if a commuter tries to book for a ride in an area with a lot of drivers and fewer riders, he may be able to book for a more affordable ride. However, if he is in an area with fewer drivers and a lot of riders, he may have to pay more than the original price.
The system also takes into account factors such as the length of the ride in kilometers and hours.
“With more players viably competing—e.g., taking advantage of network effects—prices should be lower and services should improve, for example, in terms of availability and rider incentives,” she said.
But without taking advantage of these network effects, new entrants will only see themselves “competing” on the sidelines, and not on the actual field.
“If a monopoly situation will arise, it will likely be a situation with a dominant firm and some small competitors on the fringe,” Quimbo said.
The new players came just in time—by a strike of coincidence, for the sake of argument—when Grab acquired its only competitor, Uber, at least in its Southeast Asian operations.
Uber sold its Southeast Asian operations last March, raising funds to expand in the US.
Grab signed last month a contract with Uber for the acquisition of its Asean assets, including operations in the Philippines.
This prompted the PCC to conduct a motu propio review on the matter, as this might pose a threat on the market by giving Grab a “virtual monopoly.”
Initially, the competition watchdog ordered Uber to continue its operations in the Philippines until after the regulator finishes its evaluation of the offer.
Heated discussions ensued during meetings between the regulator and the two other parties, but in the end, Uber retaliated, saying that it no longer has money flowing into Southeast Asia, thus operating in the Philippines would be impossible.
“The review by the mergers office is ongoing. Data collection and rigorous analysis are being conducted. Testimonies from the public are being collated,” Quimbo said.
Normally, a motu propio review—an evaluation set by the agency itself—has two phases.
The first phase of review can go up to 75 days. The second phase can go for as much as 120 days. Hence, the review can take up to 195 days.
But due to the nature of the deal, the regulator intends to fast-track the review, which can be done if parties involved in the evaluation will be cooperative in producing documents required by the antitrust body.
It will also evaluate how well the parties followed the interim measures set by the regulator. Penalties and fines may be imposed if parties failed to follow the government-issued orders.
“The commission is also evaluating compliance with interim measures,” Quimbo said.
Despite all the hullabaloo in the market, Grab Philippines Country Marketing Head Cindy Toh vowed to up the ante of its services offered in the country, saying it is now implementing a 100-day program to improve driver behavior and welfare, provide better ride experience, and upgrade customer support.
“We are directly addressing rider complaints on booking cancellations, driver behavior and pricing, and will make our drivers undergo intensive transformation programs to make them models of road courtesy and public service,” she said.
Grab was a hot item in headlines of late, as a slew of complaints online surfaced after its acquisition of Uber. Riders complained of rude drivers, overpricing, and mediocre services.
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