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

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10.3.4. Effect on taxi operators and consumers A second argument about the detriment from allowing more widespread assignments is that they create a cost that must be recovered by taxi operators and ultimately by consumers. Allowing assignments and transfers creates an ‘investment market’, which bids up the prices of assignments and licences. If no assignments or transfers were allowed, it would not change the fundamental restriction on taxi licences. Rather, the profit (the excess of revenues over the actual expenses of operating the taxi) able to be earned from operating a taxi would become hidden. As the market for taxi operation is reasonably competitive (there are few barriers to potential buyers of assignments), the assignment value gives an accurate measure of how much profit can be earned from operating a taxi. Removing the ability to assign a licence could result in a benefit to consumers because assignment values could be removed from the ‘fare model’ that is used to set taxi fares: these values would no longer be a relevant cost of operation for licence holders. This might imply a reduction in fares of around 15 to 20 per cent could be achieved. Against this, removing the ability to assign means there would be a significant increase in owner-drivers, and fewer (if any) fleet operators. To the extent that fleet operators are more efficient than owner-drivers at providing services, the efficiency of the total fleet may reduce. Further, there is evidence that in taxi services that are dominated by owner-drivers, there are issues with service availability at night time. For example, this is an issue with London black cabs. In the absence of further licences being issued, removing the ability to assign licences may lead to service availability worsening at peak times. 10.3.5. Licence broking and transaction costs from assigning and selling licences A further detriment associated with assignments and licence transfers – and one raised in several submissions – is that market distortions are caused by licence brokers. Licence brokers arrange for both the sale of licences and the assignment of licences. Brokers take on the function of ‘making a market’ in taxi licences. They seek to match buyers and sellers, and the value they create in this matching provides them with a margin. Licence brokers are regulated under the Transport (Compliance and Miscellaneous) Act 1983 through rules authorised by the VTD. 72 These rules, set out in the Transport (Taxi-Cab Licences – Market and Trading) Regulations 2005), specify that: • Taxi-cab licence brokers (dealing with the transfer or assignment of licences) must be approved by the VTD • Approval requires two years ‘relevant experience’ in a commercial environment or acting as a business principal • Approval will not be given if the responsible person has been convicted or found guilty of dishonesty or fraud offences. The rules also specify a number of obligations on brokers, including the obligation to act in the best interests of their clients, keep records and hold insurance. The Victorian Government has tried previously to increase the transparency of information available to market participants to improve the operation of matching buyers and sellers of taxi licences and assignments. In 2006, a subsidiary of the Bendigo Stock Exchange (BSX) was contracted by the DOT to operate a taxi licence trading platform and to ‘licence’ taxi licence brokers. Traders were to be subject to BSX audit requirements. This scheme was not a success. Trades did not occur ‘on’ the BSX platform but were merely reported to the BSX. The DOT – BSX contract expired in March 2011 and was not renewed. The inquiry has heard a number of concerns with how brokers are currently operating in markets for assigning and transferring licences: • Brokers are able to exploit vulnerable operators, such as those whose assignments are expiring but who have committed capital to the industry (such as purchasing a vehicle under finance) that cannot readily be recovered. • The VTD points to instances of ‘commissions and under the table payments’ in relation to assignments and reassignment of licences, citing instances it characterised as ‘wide-spread’: …requiring assignees to pay large cash payments to taxi licence traders or intermediaries at the commencement of an assignment, and again at the end of an assignment term in order to obtain a further period of assignment (ie renewal)….The failure of an assignee to meet such a demand generally results in the assignee not obtaining, or losing, an existing licence. 73 72 The inquiry also considers that taxi brokers come within ambit of the Estate Agents Act 1980 and accordingly should be licensed to operate under this Act. This requirement appears to have been overlooked by the transport specific regulation 73 VTD, Op. Cit., p.30 Understanding industry performance CUSTOMERS FIRST 203
Taxi assignment market share by broker type, 2009 to 2011 Figure 10.4 Taxi assignment market share by broker type, 2009 to 2011 Independent 24% Fleet operator 13% NSP controlled 63% The inquiry has received a small number of submissions about the role of brokers. A submission from AMB Taxi Brokers argues that the true market value of assignments is in the vicinity of $3,200 per month ($38,400 per year). AMB states it has a waiting list of operators willing to pay this amount. It says that licence holders and operators engage in cash transactions without records and from time to time AMB is approached to facilitate these kinds of payments. However AMB told the inquiry they do not engage in cash transactions or offer incentives relating to taxi licence or assignment transfers. 74 Source: VTD data • Brokers are often affiliated with the major NSPs. These brokers are said to be keen to control the market for assignments on the basis that they can secure other streams of revenue from the taxi operator’s use of the NSP’s services, such as payments processing systems, vehicle fit outs and affiliation fees. The inquiry notes that the brokering market is split between NSP-controlled brokers, large fleet operators, and independent brokers (brokers that are neither operators or licence owners). VTD data indicates that the NSP-controlled brokers have the largest share of the market, as shown in Figure 10.4. Figure E1 Price dispersion for metropolitan taxi licence assignments, 2008-2011 Figure 10.5 Price dispersion for metropolitan taxi licence assignments, 2008-2011 $45,000 Other confidential submissions suggest that some brokers have acquired a reputation for being ‘ruthless’ with operators and for using sign-on fees, and are artificially inflating the value of assignments (beyond their ‘fair and reasonable’ values). On the other hand, the inquiry received many submissions from licence owners that indicate they are receiving payments from brokers that are well below the average price, even for assignments recently renewed. Analysis of assignment data supplied by the VTD reveals significant discrepancies in assignment prices. The inquiry recognises that licences are not traded with identical conditions: in particular, different terms may be offered in relation to guaranteeing payment to the licence holder and may include other assets such as a vehicle. However, even taking account of these factors, the persistently high level of price dispersion for assignments (illustrated in Figure 10.5) suggests that the assignment market is not close to being fully efficient. Efficient prices would take account of all relevant information about the assets for sale and would be expected to be in a much tighter range than that observed. $40,000 $35,000 $ per annum (annualised) $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $- Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Source: VTD data Date transaction reported 74 AMB Australia (2011), Response to the Taxi Industry Inquiry’s survey regarding the role of taxi brokers in Victoria, unpublished, p.1 204
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 12 and 13: Case study London’s quality contr
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 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
Page 62 and 63: KPMG argued that these restrictions
Page 64 and 65: 10.7. Vehicle regulations Taxis and
Page 66 and 67: Advertisements The policy to remove
Page 68 and 69: In recent years, NSPs have increase
Page 70 and 71: Some respondents argue that the mar
Page 72 and 73: Driver obligations to the NSP NSPs
Page 74 and 75: There are nine accredited secondary
Page 76 and 77: From 1953, the use of two-way radio
Page 78 and 79: 11.4.2. Mandatory network affiliati
Page 80 and 81: The inquiry considers that there is
Page 82 and 83: Walters FM also said: Until such ti
Page 84 and 85: The ACCC has been called on a numbe
Page 86 and 87: The ACCC also noted that West Subur
Page 88 and 89: This also means that other NSPs and
Page 90 and 91: Metropolitan NSPs charge affiliatio
Page 92 and 93: Figure 12.1 Average fare costs, met
Page 94 and 95: 11.8.3. Affiliation with more than
Page 96 and 97: However, unlike most other goods an
Page 98 and 99:
12.3. Characteristics of the paymen
Page 100 and 101:
A further key feature of two-sided
Page 102 and 103:
Case study Cabcharge penalised for
Page 104 and 105:
To compete with Cabcharge, the newe
Page 106 and 107:
12.5.1. Removing regulatory barrier
Page 108:
In addition, given the well establi
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