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

Historically, the zones generally reflected the catchment
areas of local taxi-cab companies. They gave some
protection to members of the local taxi cooperative
against operators coming into the zone from other zones.
In the metropolitan area, zones largely became redundant
as taxi depots merged or were taken over by bigger
operators and hire car licences (which provided services
in outer suburbs) were converted to taxi licences. But
remnants of the past remain, despite previous reviews
having recommended the abolition of zones.
10.4.2. Analysis of zones in previous
reviews of Victorian taxi regulations
Foletta review
In 1986, the Foletta review 80 recommended that the
Road Traffic Authority extend the metropolitan zone taxi
boundary to include the then Frankston and Dandenong
zones and convert all the country licences in these zones
to metropolitan licences with full rights. At the time, the
fares that applied in the two zones were different to those
in the metropolitan zone. Foletta noted that most people
considered the Frankston and Dandenong zones to
be part of the metropolitan area and that uniform fares
should apply across the whole metropolitan area. He
considered the existing boundary of the metropolitan area
to be illogical.
These recommendations followed lobbying by Black
Cabs, which considered the zones severely restricted
the availability of cabs in newer areas. The Frankston
and Dandenong depots argued that the zones helped
to maintain local services by keeping their cabs in
their zones. Foletta recognised that the Frankston and
Dandenong depots provided a better level of service, but
considered that they would continue to do this without
the zones. The depots were strongly established in their
local areas and well placed to meet competition from
metropolitan operators.
KPMG National Competition Policy review
KPMG examined legislative restrictions on competition
and considered whether the benefits to the community
of these identified restrictions outweighed the costs
associated with them. One of the restrictions identified by
KPMG was zoning, which had the effect of limiting entry
of potential competitors.
The review considered there was little substance to the
claim that zoning protected operators who had greater
understanding and experience of local issues and
concerns, commenting that “in the absence of the zone,
the travelling public would choose to use the service
that offers the best combination of price and service
quality”. 81 The review considered that zones might help
to ensure that service was maintained across a zone:
“We are unable to quantify the magnitude of this benefit,
but suspect with the current regulations in place on fares
and entry it could be significant.” 82 However, the outer
suburban zone provided less of a benefit in this respect.
There is substantial traffic already existing in these
zones (which is reflected in the similar licence values
in comparison to the metropolitan zone), and the
impact of merging the zones would be relatively
small. Other outer suburban areas of Melbourne do
not appear to have significant supply problems. 83
While the public benefits associated with zoning were
considered limited, there were significant costs created
by zones, especially as a result of dead running:
When a taxi-cab moves out of its zone on a fare it
basically is resigned to returning to the zone without a
fare. This increases the costs of operation and can
even discourage working outside of that zone. 84
There are further costs from limiting taxi-cab mobility.
During high demand periods in certain areas (e.g.
Saturday nights in Melbourne) it is possible that outer
suburban zone taxicabs could alleviate supply shortages
and still service the outer suburban zone area. Similar
situations could apply in country areas. 85
The review concluded that the outer suburban zone
“is a restriction on competition that is likely to have
costs that outweigh its benefits. The zone makes an
artificial distinction between this area and the Melbourne
metropolitan region and should be removed.” 86
Less information was available to the review to determine
whether the benefits of country zones outweighed their
costs. However, the review pointed out that the higher
proportion of booked jobs in country markets weakened
the case for zoning. This was even more the case if
‘public interest’-based restrictions on entry were removed
as recommended by the review. Accordingly, the review
concluded that these zones should also be removed.
80 Foletta, Bruce (1986), Op. Cit.
81 KPMG (1999), Op. Cit., p.96
82 Ibid., p.96
83 Ibid., p.96
84 Ibid., p.97
85 Ibid., p.97
86 Ibid., p.98
Understanding industry performance CUSTOMERS FIRST 207