Holding Grab by the Horns
by Atty. Johannes Benjamin R. Bernabe
August 14, 2018
Grab’s acquisition of Uber is a landmark case for the Philippine Competition Commission (PCC). It is the first transaction that the PCC reviewed motu proprio (i.e., on the PCC’s own initiative) and, with the August 10 decision, resulted in a conditional clearance.
The conditions form part of a Commitment Decision and are based on a set of voluntary commitments that Grab submitted to address competition concerns raised by the PCC’s Mergers and Acquisitions Office. From where I sit, if not for the voluntary commitments, it is unlikely that the PCC would have cleared Grab’s acquisition.
The PCC’s underlying premise for accepting Grab’s offer of commitments is two-pronged: first, to ensure that existing and prospective competitors of Grab in the ride-hailing market are afforded a fair and reasonable opportunity to compete and expand their business; and second, to resolve complaints of increased prices, cancellation rates and unaccepted booking requests from the riding public. The first reason pertains to the core mandate of the PCC (i.e., promoting competition), while the second involves the agency’s corollary function of enhancing consumer welfare, particularly in the face of a virtual monopoly in the ride-haling market.
To ensure competition, the PCC, in its Commitment Decision, prohibits Grab from introducing any exclusivity provision in the company’s agreements with drivers and operators that would prevent multi-homing or otherwise result in exclusive affiliation with Grab. This includes the grant of incentives, which will likely have the effect of exclusive membership in or use of the Grab app by drivers or operators.
Consumer welfare is addressed by requiring Grab to achieve specific price-related targets and service quality standards. To ensure its pricing behavior is not unreasonably different pre- and post-acquisition, Grab is constrained under the Commitment Decision to keep fares within a price level that does not deviate by more than 22 percentage points from where it was prior to the exit of Uber, using a statistical measure prescribed by the PCC.
Riders are, likewise, entitled to a receipt showing the breakdown of the fare they paid—what pertains to the minimum charge, the distance covered, the surge pricing and the running time (if applicable).
Improvements in the quality of service are mandated under the PCC decision by compelling Grab to increase the acceptance rate for bookings requested by riders to 65 percent within the next 12 months. This represents a substantial increase from present acceptance rate levels, which have led to a great deal of frustration among the online ride-hailing public since the Grab-Uber transaction.
An additional condition designed to augment acceptance rates is the removal of the “See Destination” feature among Grab drivers. Previously, this feature allowed drivers to discriminate and reject riders who they did not want to service. With the decision, the PCC now prohibits drivers, whose acceptance rates fall below the mandated rates, from seeing the destination of requested bookings.
A complementary commitment made by Grab is the reduction of cancellation rates for rides booked and already accepted by its drivers. At the end of 12 months, this rate should be brought down to 5 percent. Further, response time to rider complaints is set at three hours for serious complaints, and six hours for all other complaints. Other commitments made by Grab relating to assistance to and the quality of its drivers, as well as addressing rider concerns, were also adopted by the PCC in its decision.
All these commitments are valid for 12 months and will be subject to strict quarterly monitoring by the PCC and a designated third-party monitor. If it fails to comply with the foregoing targets or commitments, Grab shall be imposed a fine of up to P2 million. If after 12 months, the conditions for entry and expansion remain unchanged and unfavorable to competitors, the PCC will have to consider whether the commitment period should be extended or to evaluate measures consistent with Grab’s dominant market position.
The commitments made by Grab were subject to intense negotiations with the PCC. The conditions may be tough, even difficult to comply with. For instance, fares for a significant portion of routes serviced by Grab drivers breach the deviation thresholds set under the decision. Moreover, the ability of Grab to service booking requests—reflected through acceptance rates—depends on having a sufficient number of drivers and operators, and yet the latter is influenced by Grab’s incentives, which are now subject to monitoring and evaluation by the PCC. No mistake about it, Grab definitely has its work cut out for it.
Commissioner Johannes Benjamin R. Bernabe served as adviser to the Senate and the House of Representatives in the drafting of, and deliberations on the Philippine Competition Act. A lawyer by profession, he was a senior fellow at the Geneva-based International Centre for Trade and Sustainable Development and served as the Philippines’s lead trade negotiator on select issues at the World Trade Organization, also in Geneva, Switzerland.
(Originally published on Business Mirror’s Competition Matters column on August 14, 2018 here.)