Before receiving cease and desist letters in November 2012, companies providing smartphone apps connecting users in need of rides to willing drivers had operated in their own unregulated market. That has changed now that the California Public Utilities Commission (“CPUC”) voted on September 19th to accept a proposal to regulate the nascent industry.The CPUC asserted its jurisdiction over Transportation Network Companies (“TNCs”) as a subset of chartered passenger services already under their regulatory control.
The three main providers, Lyft, UberX, and SideCar, have the benefit of doing business in California, but also get the burden of stringent regulations certain to drive up their operating costs. Despite the additional costs of doing business, the companies are certainly winners here, a fact attested to by the celebratory blog posts on their respective websites. Furthermore, the decision was viewed as a loss to taxi cab companies and drivers, hundreds of whom protested in San Francisco before the ruling, demanding that San Francisco Mayor Ed Lee intervene and ban the services in the city. Some taxi drivers see these services as substantially reducing their income, and refer to the cars as “bandit cabs.”
Despite the post-ruling joy expressed in the companies’ blog postings, there were jurisdictional challenges made by the companies against the CPUC during the lead-up to the proposal. Uber in particular maintained that it is a web-service provider, not a transportation company, and compared itself to Google, which did not become an energy utility company by developing an energy service app called Google PowerMeter. But the CPUC rejected their arguments, finding Uber’s services equivalent to traditional taxi or limousine dispatching offices. The CPUC stated that the “underlying nature of the transportation service being offered” was more important than the “method used for communication.” However, it placed enough weight on the distinctive nature of the app-based ride services to create the TNC category, which applies only to services that pre-arrange pick-up services through web-based apps.
Besides obtaining a license from the CPUC, the TNCs must now adhere to multiple regulations. They must obtain $1,000,000 in insurance for any incidents occurring during transit in trips arranged through their apps. Drivers, who previously only needed to submit their driving record, must now undergo specialized training, criminal background checks, and thorough vehicle inspections. The drivers must also place visible signage on their vehicles to designate them as part of a particular TNC. The companies will also have to provide the CPUC with data after one year showing their ability to accommodate wheelchair users, and the rate of response of vehicles to lower-income zip-codes. In addition, the CPUC will collect one-third of one percent of all TNC revenues collected on a quarterly basis. These are only a sampling of the twenty-eight rules placed on the newborn industry, with the strong likelihood of more regulation to come.
If you have been enjoying these services, the good news is they will still be available in the near future. However, the question remains; which ones will be able to sustain themselves financially in the face of these new regulatory demands?