[SINGAPORE] Ride-hail and delivery giant Grab’s entry into the taxi sector was approved because it intends to start a new taxi fleet rather than acquire an existing one, regulators said on Wednesday (Apr 2).
Meanwhile, industry observers said the move would increase competition in the sector, possibly benefiting commuters and drivers, though some warned that the potential for anti-competitive behaviour remains.
In a surprise announcement on Wednesday, the Land Transport Authority (LTA) said it had issued a street-hail service operator licence (SSOL) to GrabCab, a subsidiary of Nasdaq-listed Grab Holdings.
Grab will be given a three-year grace period to expand its fleet to at least 800 taxis, which is the minimum fleet size for a street-hail operator. A Grab spokesperson said the company will introduce a taxi fleet featuring hybrid and electric vehicles in “the coming months”.
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Grab’s entry comes after its proposed takeover of taxi operator Trans-cab fell through last year, with the Competition and Consumer Commission of Singapore (CCCS) citing competition concerns in its review of the merger.
In a joint statement on Grab’s new licence, CCCS and LTA said that the proposed merger had raised worries as it was “likely to result in a substantial lessening of competition in the market for the supply of ride-hail platform services” in Singapore.
This was due to the fact that Grab sought, through the merger, to acquire one of the largest taxi or private-hire car fleets not owned by, or in partnership with, any ride-hail platform in Singapore.
For the issuance of the new SSOL, LTA considered the input of CCCS and assessed that a new entry would require Grab to grow its fleet and market share organically.
The company would need to start a new taxi fleet, which could result in a net increase in the supply of street-hail services if GrabCab can attract new taxi drivers.
Such a move is consistent with CCCS’ general view that businesses are not prohibited from entering new or adjacent markets through organic growth, or striving to protect their market position through competitive merit, the regulators said.
Grab more
Industry observers said that Grab’s entry into the taxi space was no surprise, given the low barriers to entry and the potential for profitability despite a shrinking market.
Dr Victor Kwan, senior lecturer at the Singapore University of Social Sciences, said the move also makes sense following recent regulatory shifts that have made it easier to build a taxi fleet.
In March, Singapore made moves to support taxi fleet growth, including continuing the suspension of a 2 per cent limit on taxi fleets’ annual growth, and allowing operators to access the used passenger car market to acquire or sell their vehicles.
Any unutilised private-hire cars in Grab’s fleet could be easily converted into taxis under the new rules, so creating a new fleet would not require massive capital investment, said Dr Kwan.
Terence Fan, assistant professor of strategy and entrepreneurship at the Singapore Management University, pointed out that Grab and BYD’s strategic partnership – which could see the carmaker provide Grab with up to 50,000 vehicles in South-east Asia – would allow the operator to acquire taxis at low prices.
In the wake of the failed Trans-cab deal, Grab may have realised how profitable a taxi operation could be, he added.
He also pointed out that the company could utilise proven tactics applied in ride-hailing to achieve a dominant position first – a move that may benefit commuters in the short term, as Grab would also incentivise them to use its platform to establish market share.
“Grab historically has been patient in first securing a large market share before focusing its attention on profit. It can well do the same with (promotion) codes and vouchers… such that price cuts could be harder to detect by rivals,” Prof Fan added.
Taxi fares, however, would not be affected by Grab’s entry, as they are mostly regulated in Singapore.
Observers also said that Grab’s move may improve competition in the industry, which could be a boon to drivers.
Associate Professor Raymond Ong of the National University of Singapore’s civil and environmental engineering department said: “If I was a taxi driver, I would be happy.”
He added that the limiting factor in taxis and private-hire cars is not vehicles, but the supply of drivers.
Therefore, to establish itself quickly, Grab would need to offer attractive deals to convince existing drivers to switch to its platform. If these moves are sufficiently aggressive, existing taxi companies could even find it challenging to hold on to their drivers.
Grab has used such tactics before. In 2017, it dangled significant rental discounts for drivers to jump ship from ComfortDelGro to its taxi partners.
The ideal situation would be for Grab to attract new drivers to the industry, said Prof Fan, and avoid a zero-sum game.
Fare game
Despite Grab having to grow its taxi fleet from the ground up, observers are still concerned the company could abuse its dominant position.
Data platform Measurable AI said that Grab had a 50.2 per cent share of Singapore’s ride-hail market as at March 2022. Across South-east Asia, Grab’s ride-hail market share is around 70 per cent.
Both Dr Kwan and Prof Fan said it was possible for the operator to exert influence due to the size of its platform.
Grab’s entry “should improve competition in theory, although it can use its prevalent app to subtly favour its own taxis (over) others, and therefore stifle competition”, said Prof Fan.
“Grab is very dominant now, and when it establishes a major presence in both ride-hail and street-hail sectors, that could eventually mean less competition,” said Dr Kwan.
Regulators said they are keeping a close eye on developments.
LTA and CCCS said: “Conduct that protects, enhances or perpetuates the dominant position in ways unrelated to competitive merit may be anti-competitive. CCCS will continue to monitor the industry and can commence investigations should there be reasonable grounds to suspect that a business has engaged in conduct that prevents, restricts or distorts competition.”
Meanwhile, Grab’s key rival, ComfortDelgro – which has the largest taxi fleet at around 8,450 vehicles – said it was prepared for increased competition.
“Competition is a natural part of the market dynamics. We will continue to build up our ecosystem, driver benefits, and adapt our strategies as necessary to ensure we remain a leading provider of taxi services in Singapore,” said a ComfortDelGro spokesperson.
