18 November 2019
Re: Grab’s Extended Undertaking and Fines
Colleagues from the Philippine Competition Commission,
friends from the media,
We are pleased to announce that the Philippine Competition Commission has approved a new set of commitments undertaken by Grab to address the lingering competition concerns in the ride-hailing market. This effectively extends the PCC’s hold on Grab to conditions that prevent it from behaving like a monopolist to the detriment of the riding public.
Last November 1, Grab’s Extended Undertaking had taken effect and will be enforced for 1 year, with an extended lookout for exclusivity deals for 3 more years to give way for new players to effectively compete on a level playing field.
This Extended Undertaking puts in place more streamlined commitments and metrics on pricing, service quality and non-exclusivity, which Grab is compelled to abide by.
To recall, in March 2018, Grab bought its rival Uber in the whole Southeast Asia. For the Philippine market, our Mergers & Acquisitions Office issued a Statement of Concerns finding the transaction to likely result in substantial lessening of competition in the ride-hailing market.
Immediately after this buyout, the findings by the PCC turned into very real commute challenges, as the feared price increases and service deterioration began to manifest.
As a way to guard against abuse of market power and encourage new players to enter and grow in the ride-hailing market, the PCC subjected the merger to conditions in clearing the transaction on August 10 last year. Grab’s commitments were for a period of 1 year, during which the PCC monitored Grab’s compliance.
A year after these commitments were put in place, there continues to be a lack of competitive constraints on Grab and competition concerns still subsist. Such concerns include (1) Grab’s prevailing market dominance, (2) Grab’s ability to unilaterally increase prices profitably, (3) existence of significant barriers to entry, and (4) inadequacy of Grab’s service quality to the detriment of the riding public.
This is why there was a need to re-negotiate these commitments and install new mechanisms—to effectively address the persistent impact of a virtual monopoly on a sector imbued with public interest.
With this Extended Undertaking, Grab offered old and new commitments to the public that could be categorized under non-exclusivity, service quality, and price-related commitments.
For non-exclusivity commitments, drivers will have the power of choice to operate with any transport network companies (TNCs) and will not be tied to Grab by way of any agreement, policy or incentive. Grab is also obligated to assist drivers when applying for permits and licenses, even when operating under competitors.
For service quality commitments, Grab must improve passenger experience by setting standards for completion rates for drivers and by removing the “see destination” feature of discriminating ones.
For price-related commitments, the Commission underscores transparency so that consumers know how Grab arrived at computing their fares. The system-wide average fare cap is in place as well, to limit Grab’s ability to unreasonably increase fares beyond pre-transaction levels.
Now entering the second year of PCC’s monitoring, we have maintained the same framework but introduced new mechanisms to ensure Grab’s compliance with its commitments.
One of these new tools to be implemented is the disgorgement mechanism that will return price excesses to riders if Grab breaches the monthly average fare cap set by the Commission. This mechanism ensures that the public will directly be given a rebate, through their individual GrabPay accounts.
Real competition springs not from presence of a new player alone but from evident rivalry among firms in terms of capacity, price and service quality. On one hand, the commitments can keep Grab in check from exercising its market power as a virtual monopolist. On the other hand, we also advocate for allowing smaller players to grow or formidable new competitors to enter the market.
While Grab’s commitments signal its willingness to behave within a competitive space and in accordance with the competition law, the PCC will keep a watchful eye on potential violations.
In fact, the PCC has imposed a total fine of P23.45 million on Grab for breaching its pricing commitments during the 1st to 3rd quarters of the initial Undertaking.
To break this down, a fine of P11.3 million has been imposed for the 1st quarter, P7.1 million for the 2nd quarter, and P5.05 million for the 3rd quarter. To kick off the refund system, the disgorgement mechanism shall be applied on the 3rd quarter fine, with Grab being ordered to refund P5.05 million to affected riders.
The PCC stands to guard against any breach of the Extended Undertaking through an appointed impartial third-party trustee to independently monitor Grab on its commitments. Violations will subject Grab to fines of up to P2 million per breach, or even the nullification of the decision conditionally clearing the transaction.
We must emphasize, however, that even with this set of commitments and fines to discipline Grab’s behavior, there are external factors beyond the PCC’s control that continue to impact competition in the ride-hailing market. The regulatory environment, among others, poses as market limitations that must be addressed by other agencies.
We hope that with the commitments set out in the Extended Undertaking, the riding public will be protected from the threat of monopolistic behavior. The call for more viable players remains an option as a way to let real competition take place on the roads—as it is in the markets.
With this, we thank you for coming to our briefing. We also thank our Commissioners, lawyers and economists for their hard work. We are now ready to answer questions.
Arsenio M. Balisacan, PhD
Chairman, Philippine Competition Commission