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Can D.C. Taxis Compete With Uber? Regulators Consider Major Deregulation

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A Washington, D.C. taxi drives along Constitution Avenue in the nation's capital, Monday, March 24, 2014.
(AP Photo/J. Scott Applewhite)
A Washington, D.C. taxi drives along Constitution Avenue in the nation's capital, Monday, March 24, 2014.

In a personal transport market now dominated by Uber, struggling D.C. taxicab companies have long complained about an uneven playing field. On Wednesday, District regulators will unveil a proposal designed to help cabbies compete for digitally-dispatched rides while satisfying consumers’ demand for convenience, safety, and lower fares.

The 17-page proposal calls for deregulating the city’s taxi industry with the creation of a new class of vehicle-for-hire service, named Xclass.

More than just an app, Xclass is envisioned as an open platform that would reduce barriers to entry and limit regulations once a driver enters the market. The ambitious plan would start as a pilot program.

“The pilot will use an open network of licensed drivers, cars, and businesses committed to safe practices. There will be Xclass drivers, Xclass vehicles, and Xclass businesses,” according to a description provided by the D.C. Taxicab Commission (DCTC), which regulates the city’s 6,000 active drivers and many taxi companies.

“It’s 100 percent digital. There is no street-hailing involved here,” said commission chairman Ernest Chrappah in an interview with WAMU 88.5.

“Consumers really don’t care about the legal and regulatory definitions for the types of vehicles,” Chrappah said. “Seventy-five percent of consumers in our research indicate that they just want a safe ride and an affordable price. It doesn’t matter if the [car] is red and gray, or black or white.”

Red and gray is the color scheme mandated for all D.C. taxicabs.

An image from the DCTC proposal for Xclass service. (Martin Di Caro/WAMU)

Slow growth in street hails

D.C.’s street hail market is not withering away, but its slow growth is being out paced dramatically by the “digital dispatch” market led by Uber and Lyft.

More than 16 million taxi trips totaling $235 million in fares were hailed on the street last year in Washington, a three percent increase from the prior year. The number of active, licensed taxi drivers grew by 11 percent.

Digitally dispatched rides saw staggering growth. While Uber and its ride-hailing competitors do not share trip data, they do send one percent of their gross receipts to the District treasury.

In the fourth quarter of fiscal year 2015 (July-Sept.), the 1 percent tax generated more than $500,000 in revenues. In the next quarter (Oct.-Dec.), the revenues vaulted to more than $800,000, according to District data.

At one percent of gross receipts, the latter figure means the ride-hailing companies, overwhelmingly dominated by Uber, hauled in more than $80 million in fares from trips originating in the District in just the final three months of 2015. More than 80,000 ride-hail drivers ply the Washington metropolitan region’s streets, the large majority for Uber.

Stripping away the barriers

“We are reducing the barriers to entry,” said Chrappah in the interview at taxicab commission offices in Southeast D.C. But Xclass drivers will still face some rules, including a requirement to undergo an FBI fingerprint background check.

However, an Xclass driver — whether a licensed cab driver or new entrant in the market — will face fewer burdens to compete in the digital space.

Dome lights and dashboard fare meters will be unnecessary. Xclass drivers also will be allowed to drive personal vehicles and charge flexible fares, similar to Uber and Lyft.

“What will set Xclass apart from the existing public vehicles-for-hire? There are important differences, including: limited or zero up-front application fees, expedited driver licensing, and reduced equipment costs,” according to the DCTC website.

Consumers would be able to order Xclass service from an app, but Chrappah wants to make it even easier by pressing a single button on a key fob or at a taxi stand. And he views the FBI fingerprint background check requirement as a lure to consumers who may not trust the screening process used by Uber, in light of recent reports detailing allegations of driver misconduct.

“All Xclass drivers are going to be fully vetted,” he said. “We are ensuring that consumers have the safest transportation system possible.”

Time for change?

“In terms of the explosive growth in digital hails, and from the data we’ve seen around the depressed wages of our [taxi] drivers, and from the data on customer preferences, we think we are at a crossroads,” said Chrappah, who expects his proposal to spur debate among all sides in the industry.

“We need to have this conversation now to try to solve this problem. Instead of having a bifurcated system of public versus private vehicles-for-hire, it can be a truly integrated transportation system,” Chrappah said.

The DCTC chairman intends to announce at Wednesday’s commission meeting the creation of a working group to study the Xclass proposal, which is certain to provoke push back from both traditional taxi fleets and ride-hailing tech companies. However, potential drivers who have been unable to enter the market because of the city’s freeze of new H-tags may welcome the plans for expedited licensing and use of personal vehicles.

Regulators believe legacy taxicab companies may be forced to consolidate operations and merge as the street hail market shrinks relative to digital demand, and focus on “niche segments such as seniors and passengers with disabilities.”

Some economists argue competition is best served by reducing the regulatory burden on taxicabs instead of increasing regulations on Uber and Lyft.

“We are definitely going to need to change the regulatory burden. With that said, though, and it is a critical caveat, we also have to make sure we are protecting riders’ safety,” said Adie Tomer of the Brookings Institution’s Metropolitan Policy Program. “That was the original reason for many of the regulations, or at least the economic motivation.”

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