Part D â Understanding and improving industry performance (PDF ...

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Case study London’s quality controls London is often cited by taxi users, industry experts and others as providing a high quality commercial passenger vehicle service. During the course of the inquiry, many people referred to the London model as one that could offer Victoria lessons in developing a better quality taxi and hire car industry. London has over 23,000 licensed taxis and 25,000 licensed taxi drivers. The city has a unique regulatory scheme: taxi numbers are not capped but barriers to entry are especially high because of the ‘The Knowledge’ test, which requires taxi driver applicants to have an intimate knowledge of London’s geography. All taxi drivers must complete ‘The Knowledge’ and applicants can test for approval to drive either within the entire Greater London area or a smaller suburban zone. Studying to pass the All-London Knowledge test requires a commitment of at least two to three years. The inquiry has been told that the current average time for completing the test is stretching out to around four years. It is understood this is due to demand from drivers and administrative delays. Greater London area applicants need to have a detailed knowledge of London within a six mile radius of Charing Cross. Drivers have to learn 320 routes and landmarks and places of interest along these routes. They must also know all routes in reverse due to changed traffic conditions in different directions. Applicants who choose to be licensed in suburban zones must know between 30 and 51 routes in detail. The Knowledge exam consists of a written test and a series of interviews where applicants have to be able to answer a series of practical questions about taxi journeys and routes. This is followed by a practical driving examination. London taxi services consistently record high levels of customer satisfaction. According to the 2011 annual taxi report compiled by Hotels.com, London recorded the highest level of customer satisfaction of any city for the past four years, despite London taxis being the most expensive. The survey measured cleanliness, friendliness, driving quality, knowledge of area, safety, availability and value for money. It is generally recognised that ‘The Knowledge’, in combination with the fact that drivers are effectively allowed to be ‘their own bosses’, plays a central role in promoting high quality taxi standards in London. 9.3.4. Structural considerations – taxi networks An important consideration is the role that taxi networks play in different jurisdictions. Taxi networks have historically performed the role of providing telephone booking services to their associated taxis, but increasingly are required to take responsibility for the quality of taxi services. A requirement for taxi operators to be affiliated to a network may be an important element in an open market regulatory framework, although there are examples of open markets (such as London) where mandatory network affiliation does not apply. In some instances, it may be that being an independent operator in an open market affords the driver a sense of anonymity that could hinder the desire to deliver high quality services. This may be the case more strongly in the rank and hail market where the incentives to deliver high quality services through repeat business are negligible. In these cases, greater involvement of the industry regulator may be required to ensure standards are met. Following deregulation in the Netherlands and Sweden, taxis were not required to be affiliated with a taxi booking network. With deregulation came an increase in taxi availability in these jurisdictions. In the Netherlands, operators were effectively allowed to charge up to a higher maximum fare. The fact that operators were required to inform consumers of the fares prior to the trip did not prevent fares from rising. With independent operators, consumers found it difficult and impractical to make comparisons of fares and competition did not result. In Singapore and New Zealand, there are no quantity restrictions on taxi licences and there are high quality controls placed on taxi networks including specified minimum service requirements. All operators (other than a small number of remaining independents in Singapore) must be connected with a network. Operating rules set by the networks must be approved by the regulator, including the requirement for booking networks to have telephone capabilities, provide a 24/7 service, deal with complaints and keep records. In these jurisdictions, taxi networks are clearly understood to be responsible for delivering quality services. Understanding industry performance CUSTOMERS FIRST 167
Case study Northern Territory – Deregulation In 1999, following the National Competition Policy review, the Northern Territory became the first and only jurisdiction in Australia to remove quantity restrictions on taxi licences. The approach to deregulation in this instance constituted a licence buy-back and reissue scheme: • Existing licences were bought back at a price based on the last tendered price of a taxi licence in the particular area plus CPI – in Darwin the price was $95,000 per licence. • Licences were then reissued on demand (no quantitative limit) for an annual licence fee – the annual licence fee in Darwin was $16,000 – with this cost planned to be removed after the costs of ‘compensation’ (that is, the initial buy-back) were recouped. However, the annual licence fee has remained and continues to be charged some 13 years after the initial removal of supply restrictions. Taxi numbers increased immediately after deregulation, improving taxi availability. However, by the end of 2001 and with the election of a new government, the open entry regime was quickly reversed and a temporary cap on the number of commercial passenger vehicle licences put in place. The new Northern Territory Government cited poor returns and poorly trained and motivated drivers as the main reason for this reversal. Interestingly, the Government also declared that the reversal was needed before specific issues relating to poor quality standards were addressed. This cap has since been made permanent for Darwin and Alice Springs, with open entry permitted elsewhere. While some commentators cite the upheaval following deregulation in the Northern Territory as an argument against open entry regimes, the somewhat hasty and short-sighted reversal of deregulation in this case may not have allowed the benefits of deregulation enough time to filter through the system to consumers. 9.3.5. Innovation Regulation should not inhibit the growth of new services and innovation. Flexibility in regulating taxi services post-deregulation is important to maximising the consumer benefits expected to arise from competition and efficiency gains resulting from the removal of licence and fare restrictions. For example, in terms of fare controls, the OECD observed that “if price regulation is to be retained care must be taken to ensure that it does not inhibit the development of premium services or, on the other hand, of shared ride arrangements.” 18 New Zealand provides a good example where, after libealising entry and fare controls, service innovation flourished, with the introduction of specialised services, innovative payment systems and advertising. 19 In contrast, deregulation in US cities in the 1970s and 1980s apparently led to little innovation or the introduction of price-service combinations in the taxi industry. This highlights a need to actively focus on and facilitate competition and innovation in an open market. 18 OECD (2007), Op. Cit., p.43 19 Soon, J. (1999), ‘Taxi!! Reinvigorating competition in the taxi market’, Issue Analysis, Centre for Independent Studies, NSW, p.7 9.3.6. Making the transition The experiences of jurisdictions that have liberalised taxi licences suggest that the design of transitional arrangements is important. The inquiry observed that, in many cases, it takes some time for competition and efficiency outcomes of liberalisation to be realised. While many jurisdictions experienced significant periods of unrest in the aftermath of liberalisation, sometimes resulting in a regulatory void in cases where deregulation was wide-reaching and occurred immediately, the long-term results have generally been positive. This reinforces discussion in the previous sections about the importance of a supportive regulatory environment during efforts to deregulate. The inquiry is also aware that jurisdictions can take different approaches to the timing of reform, primarily electing to either adopt an immediate or staged approach to reform. 168
Page 2 and 3: Part D Understanding industry perfo
Page 4 and 5: The number of licences is restricte
Page 6 and 7: 9.2.2. Quality and safety controls
Page 8 and 9: Case study New Zealand’s experien
Page 10 and 11: Case study Singapore’s unique reg
Page 14 and 15: A report commissioned by the inquir
Page 16 and 17: Another possible explanation for hi
Page 18 and 19: From these comparisons, we can obse
Page 20 and 21: New Zealand is an example of a taxi
Page 22 and 23: Chapter 10. 10. Taxis, hire cars an
Page 24 and 25: 10.1.2. Substitution with public tr
Page 26 and 27: Nonetheless, there are market mecha
Page 28 and 29: 10.2.2. Detriments from restriction
Page 30 and 31: On the other hand, some submissions
Page 32 and 33: 4. The regulatory burden of decidin
Page 34 and 35: Country licence releases and the pu
Page 36 and 37: 10.2.3. Are there offsetting benefi
Page 38 and 39: The inquiry conducted research into
Page 40 and 41: 10.2.4. Valuing the effect of licen
Page 42 and 43: It would also be possible to implem
Page 44 and 45: Inquiry findings è The detriments
Page 46 and 47: In its 1999 report, KPMG argued tha
Page 48 and 49: 10.3.4. Effect on taxi operators an
Page 50 and 51: The practices raised with the inqui
Page 52 and 53: Historically, the zones generally r
Page 54 and 55: Merging the taxicab markets of two
Page 56 and 57: A further summary of these data is
Page 58 and 59: 10.5. Regulation of taxi-cab fares
Page 60 and 61: • It exposes taxi operators to a
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KPMG argued that these restrictions
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10.7. Vehicle regulations Taxis and
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Advertisements The policy to remove
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In recent years, NSPs have increase
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Some respondents argue that the mar
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Driver obligations to the NSP NSPs
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There are nine accredited secondary
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From 1953, the use of two-way radio
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11.4.2. Mandatory network affiliati
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The inquiry considers that there is
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Walters FM also said: Until such ti
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The ACCC has been called on a numbe
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The ACCC also noted that West Subur
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This also means that other NSPs and
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Metropolitan NSPs charge affiliatio
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Figure 12.1 Average fare costs, met
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11.8.3. Affiliation with more than
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However, unlike most other goods an
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12.3. Characteristics of the paymen
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A further key feature of two-sided
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Case study Cabcharge penalised for
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To compete with Cabcharge, the newe
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12.5.1. Removing regulatory barrier
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In addition, given the well establi
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