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

This also means that other NSPs and operators will
be concerned about installing equipment that cannot
process Cabcharge-branded cards. Regular taxi users,
and particularly corporate users, who tend to be higher
users of Cabcharge cards likely have an expectation that
these cards will be accepted. If alternative equipment is
installed that does not process Cabcharge cards, there
is a strong possibility of user dissatisfaction and ultimate
loss of taxi users.
The inquiry is concerned primarily about the effectiveness
of competition in markets for payments processing and
payment instruments. Over time, it appears to the inquiry
that Cabcharge has been extremely effective in stifling
the development of competition in these markets. The
merger approval process is clearly not preventing these
competition issues from emerging.
Future issues likely to emerge
A key issue for the inquiry is how future mergers and
acquisitions might be treated by the ACCC, particularly if
certain changes are recommended.
The inquiry notes that further consolidation of NSPs in
metropolitan Melbourne is unlikely, as a duopoly already
exists. Further consolidation will almost certainly reduce
competition. In addition, even if the current structure
stayed the same there will be little opportunity for future
vertical mergers to lessen competition, as Cabcharge
now has a very strong market presence across payment
instruments, payments processing, taxi equipment supply
and network services.
However, the inquiry is concerned about the potential
effect of the ACCC’s recent merger approach if
significant changes in zoning result from the inquiry’s
recommendations.
11.7.2. Barriers to entry
In order to be sustainable, a new network must establish
its business concurrently on both sides of the two-sided
market. Acquiring enough operators to meet customer
demand is further complicated by any restriction on
licence numbers since this means that new NSPs have to
attract taxi operators away from existing NSPs.
Two critical and competing elements are present that
further act as barriers to the creation of a successful
new network. The first element is the need to establish
goodwill and brand understanding with consumers,
encouraging them to change their behaviour and move
away from more established brands. The second element
is that operators need to be assured of a sufficient
supply of revenue derived from booked work from the
new network to meet their own high operating costs and
retain bailee drivers. These two factors compete in that
a new network may find it difficult to offer acceptable
wait times to customers without an adequate number of
taxis in the fleet, while operators will be reluctant to join a
network that cannot provide them with sufficient work to
make a profit.
As mentioned above, the current limited supply of taxi
licences results in new entrants needing to encourage
existing taxi operators to break their affiliation with the
established providers and move to the new network.
Due to the high number of ancillary services currently
provided by the existing NSPs, operators will likely
incur a high level of costs in switching their affiliation,
including equipment removal and re-installation (for
payment terminals, dispatcher technology and cameras),
refinancing of vehicles and licences, a risk of losing
assignments, and the loss of supply of network trained
drivers. The inquiry understands that there are few
instances of operators switching networks.
Where these costs are borne by the operator, they act
as a very effective deterrent to switching. Alternatively,
if these costs are subsidised by the new network as an
incentive for operators to switch affiliation, this will result
in significantly higher set-up costs for the new NSP.
The one new entrant into the Melbourne market in recent
years is Platinum Taxis. Platinum Taxis has experienced
only marginal growth over its first four years and continues
to offer its services to taxi operators at a significantly
reduced rate than that of the two major metropolitan
networks. Platinum Taxis have focused their consumer
offerings predominantly at ‘high end’ service in long
wheelbase vehicles having originally emerging from a well
established secondary network. Despite reduced affiliation
fees (see Figure 11.6), Platinum Taxis has not experienced
material growth within the Melbourne NSP market.
Most operators that are affiliated with Platinum Taxis are
also known to continue to source work through their
association to secondary networks and through private
clients of the operator and/or driver. This reduces their
reliance on booked work from the primary network.
As long as licensing numbers are subject to quantitative
restriction it will be difficult to overcome the barriers to
entry for new NSPs. In this context there is a stronger
case for removing the mandatory affiliation requirement.
In an open market there will be more opportunities to
establish new NSPs.
Understanding industry performance CUSTOMERS FIRST 243