Ride-hailing mobile apps Ola and Uber, both of which have confounded various state governments with their dynamic business and pricing models, will soon be governed by laws designed specifically for cab aggregators.

Last week, India’s ministry of road transport issued guidelines to regulate firms such as Uber (Uber Technologies Inc.) and Ola (ANI Technologies Pvt. Ltd), identifying them as on-demand information technology-based transportation aggregators and not taxi companies.

The guidelines suggest the aggregators must not own or lease any vehicle, employ any drivers or represent themselves as a taxi service, unless also registered as a taxi operator, among other requirements (http://mintne.ws/1MoDuFZ).

It’s up to the state governments to accept or reject the guidelines. It’s reasonable to assume at least some state governments, especially the ones run by the ruling party, will incorporate some of the suggestions.

Whatever happens, Ola and Uber will continue to attract regulatory scrutiny and ire.

The fast growth of these two companies—one local (Ola), the other American (Uber)—has come despite attempts by state governments to rein them in. However, in many cases, the companies have simply ignored most orders.

With the exception of their operations in Delhi, their business hasn’t been meaningfully harmed in Indian cities because of regulatory attention.

Current laws are woefully inadequate to deal with their dynamic business models. The lack of regulatory clarity only gave more freedom to cab aggregators to experiment with flexible pricing and innovative services.

The central government defined cab aggregators for tax purposes in February. That was four years after Ola started and roughly 18 months after Uber entered India (http://mintne.ws/1AEqjz4).

A new regulatory framework, however, is likely to impose compliance burdens. It is not inconceivable that new laws may pose bigger threats to these companies. There are four broad reasons for this:

1) The business models of both Ola and Uber depend to a significant degree on flexible pricing. Because of the rare situation of a near duopoly in cab-hailing services, Ola and Uber have more freedom than perhaps any other Internet businesses in India, to set prices for both drivers and customers (http://mintne.ws/1KGflhM).

While the base fares on their low-cost offerings are cheaper than autorickshaws, when customer demand surges, so do their prices.

A person can end up paying up to five times the regular Ola/Uber fare on, say, a rainy night. On such occasions, customers cry predatory pricing. State governments will surely consider their pricing models as part of the regulatory framework.

For many widely-used regulated goods and services in India, prices are capped at a certain level. Can Ola and Uber escape this?

2) The new guidelines expressly state that aggregators shouldn’t own or lease cars. Already, that guideline is being flouted. Ola announced on 14 September that it started buying cabs and lending them to new drivers, as it moves to a part-inventory model.

A report in the Financial Times newspaper on the same day said Uber will also enter a cab leasing agreement. Cab leasing represents a big shift in the business models of Ola and Uber, which never aimed to own cars. In the past, these companies only connected customers with drivers who owned the cars.

Now, Ola and Uber (if it does launch a leasing business) will be putting up cash to buy cars. Sure, their lawyers will find a roundabout way to skirt regulations, just as online marketplaces have.

But if Ola and Uber, do in fact take part ownership of cars, their business models, in one big way, will resemble that of Meru, whose model is part inventory-part marketplace. And since Meru is registered under the Radio Taxi Scheme, 2006, will Ola and Uber, too, have to follow suit?

3) Who will bear responsibility for the quality and safety of the service? In December, Delhi’s transport regulator banned unregistered cab booking services after a female passenger using a cab through Uber’s service said she was raped by the driver.

In such cases and even those that may involve a lesser alleged crime such as thievery, Ola and Uber would want to avoid responsibility by pointing out they don’t own cars or employ drivers. Will new laws look so kindly upon their positions?

4) Finally, the core reason Ola and Uber are successful is that they move quicker and more adeptly than incumbents, on the back of their tech prowess. New laws, whatever they are, will most likely curb these abilities which had blossomed in the absence of a regulatory framework for cab services.

My Reads Logout