Tuesday 25 July 2017

Tech or taxi company? Uber may be forced to change gear

The Uber app connects passengers and drivers via smartphones Photo: Akos Stiller/Bloomberg
The Uber app connects passengers and drivers via smartphones Photo: Akos Stiller/Bloomberg

Leonid Bershidsky

It is now highly likely that the European Court of Justice (ECJ) will later this year do away with Uber's fiction that it's a marketplace bringing together drivers and riders and declare it a taxi company.

That may not change how the company is regulated in most of Europe today, or hurt it much financially, but it will set an important precedent, telling companies that having a software development operation doesn't entitle them to different treatment than others in the same industry.

ECJ Advocate General Maciej Szpunar has submitted an opinion to the court, saying Uber is not an intermediary matching supply with demand but "a genuine organiser and operator of urban transport services", which itself creates the supply.

Mr Szpunar's argument turns on its head Uber's boast (which is likely to be accurate) that it doesn't just take away business from existing taxi services, it expands the market.

"Drivers who work on the Uber platform do not pursue an independent activity that exists independently of the platform," Mr Szpunar wrote.

"On the contrary, the activity exists solely because of the platform, without which it would have no sense."

Uber, Mr Szpunar argued, creates and controls the supply by setting prices and rules for drivers that allow it to "manage in a way that is just as - if not more - effective than management based on formal orders given by an employer to his employees".

The opinion was filed in a case referred to the ECJ by a court in Barcelona, where the Spanish taxi business association wanted Uber recognised as a taxi firm, rather than information services firm. In Europe, this kind of classification falls under European Union law, not national law.

The court complies with the advocate general's suggestions in about two-thirds of cases.

If it does so this time, Uber will be classified as a transport services company everywhere in the EU, which will mean obtaining the necessary local licences and complying with the same labour and safety regulations as other taxi companies.

Uber won't be able to appeal the ruling, putting an end to an expensive legal and lobbying effort that has spanned the entire continent.

Uber says that won't change much for it: its UberPop service, which uses amateur drivers without taxi licences, is banned in Spain, France, Sweden, Germany, Italy and other European countries.

The company is mostly confined to using licensed taxis and limos in the EU, which makes it difficult for the company to undercut existing taxi services - the cornerstone of Uber's expansion strategy.

A private company, it doesn't report detailed financial results, but it's safe to say that Europe doesn't account for a large share of its revenues.

Last autumn, reporters found out from a regulatory filing that in 2015, Uber London, the firm's UK holding, racked up £23.3m (€27.5m) in revenue.

Even if the amount doubled last year (it did in 2015), that's less than 1pc of the company's 2016 revenue - and the UK is the country that has been the most welcoming of Uber in Europe.

Bloomberg

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