Iran Government Rejects Bill That Could Hurt Ride-Hailing Firms

EghtesadOnline: A bill proposed by the Interior Ministry that put online taxi firms’ survival at stake and could wipe out thousands of jobs has been dismissed by Cabinet.

News ID: ۷۴۶۸۵۰

05 March 2019

If ratified by the parliament, the bill would have obliged ride-hailing companies to get work permits from municipalities. It was rejected by the Cabinet on Sunday, Iran e-Commerce Union spokesperson Reza Olfatnasab told Financial Tribune in a phone interview.

“The bill was discussed during the Cabinet meeting on Sunday. However, it was scrapped with a push from Sorena Sattari, the vice president for science and technology.”

Since being appointed to the post by President Hassan Rouhani, Sattari has been a stalwart ally of startups and tech firms, according to Financial Tribune.

The fracas has a lot in common with cases in other countries where ride-hailing services like Uber and Lyft and authorities and old-school cabbies clash for a larger slice of the pie.

In an earlier talk with the Tribune, Olfatnasab said, “If the bill becomes law, it will take a toll on ride-hailing firms. It can push most private companies on the brink of bankruptcy and force them to shutter their business.”

The Interior Ministry drafted the bill that it says outlines reforms to the Public Transportation Expansion Law. If approved it could bring ride-hailing services like Snapp and Tap30 under the municipalities’ thumb.

Stance of e-Commerce Union

Ride-hailing firms and unionists oppose the latest intervention arguing that such moves will certainly create conflict of interest involving authorities.

All cities have their own taxi organizations controlled by the municipalities. Through the organizations municipalities at the start of the year announce taxi fares and closely monitor their activities.

With exponential growth in ride-hailing firms in terms of user traction and revenues, taxi companies affiliated to or overseen by municipalities have been reporting sharp decline in their income.

With the apparent claim to a share of the online transportation market, taxi organizations have launched their own ride-hailing services. But the problem is that these services have tried but failed to attract users.

Aware of the seemingly bitter transportation business reality and at the same time unable (some say unwilling) to adapt to changing times, municipalities are resorting to anti-competitive measures.

The fracas has a lot in common with the ongoing fight in most countries where ride-hailing services like Uber and Lyft and authorities and old-school cabbies clash from time to time for a bigger slice of the pie

Olfatnasab says, “The conflict of interest can certainly harm the business of online taxis. Major ride-hailing companies operate in many cities. Imagine the burden of paperwork they will have to bear if they are obliged to get permits from the municipalities.”

In the past the ministries of industry and interior had been pushing hard for a guideline for ride-hailing firms, as per which their activities would be overseen by the Interior Ministry, he recalled. “Officially development of that guideline has not been ditched yet, but in practice the ministry is moving in another direction.”

Noting that ride-hailing services are popular with large and growing sections of the people, Olfatnasab says rather ironically, “It seems that the people’s approval and satisfaction with a service does not carry much weight with the authorities.”

Elaborating the point, he adds, “We have nothing against government oversight. We are willing to collaborate with the authorities to find a mechanism for regulating and monitoring activities of online taxi companies. However, this recent measure is aimed at disrupting business, not regulating it.”

Tap30 Stance

Homman Damirchi, CEO of TAP30, earlier told the news website Peivast, “Ratification of this bill would be disastrous for online taxi companies and will kill their business.”

He said by wanting to curb competition in the market “municipalities are (discreetly) trying to control online taxi fares. With an agile smart system, ride-hailing firms can offer lower fares compared to the old-school cabbies. By interfering with online taxi fares, municipalities seek to wipe out market competition.”

The Tap30 boss is of the opinion that municipalities want to also limit the number of trips made through ride-hailing platforms. “They want to impose a tax on the activities of such firms,” he rued.

Snapp Stance

Snapp CEO Jhubin Alaghband told the Tribune, “Employing outdated monitoring used by municipalities to control the activities of old-school cabbies and regulating ride-hailing firms, would put an end to online taxi companies.”

Head of Iran’s most popular online cabs, said, “If online taxi companies must get permits from municipalities, urban authorities will impose conditions that could crush our business and in the long run destroy us.”

Just like Damirchi, Alaghband insists that municipalities   want to control ride-hailing fares. He points out that the fares of online taxi firms are determined by a complicated algorithm designed to set prices instantly based on supply and demand plus traffic conditions. “Imposing a rigid pricing system by municipalities would render the algorithm dysfunctional.”

Municipalities also want to limit the number of drivers working for online taxis, he claimed.

Echoing Olfatnasab’s comments, Alaghband says online taxi firms and the e-Commerce Union are willing to collaborate with authorities to create an oversight mechanism for regulating the sector. However, he reaffirms that companies and the union will fight unwanted and unhelpful intervention.

Tehran Taxi Organization

If the bill becomes law, in case of Tehran, the largest market for ride-hailing services, Tehran Taxi Organization affiliated to the capital’s municipality will be charged with regulating the activities of the online firms.

Alireza Ghanadan, head of TTO says, “Fares will not be imposed on activities of ride-hailing companies.”

He added that “22 taxi companies employing 80,000 drivers offer services in Tehran. TTO does not offer transportation services itself but regulates activities of the taxi companies. Thus, the organization should not be considered as a business rival but a market ombudsman.”

“Of the 56 online taxi companies registered in Iran, hardly four have permits from municipalities.”

He says for receiving the permits ride-hailing firms will be required to meet few conditions including: vehicles employed in their fleet need to go through technical auto inspections tests twice every year, and drivers working for them need to pass some tests. Each driver cannot work more than 12 hours a day because fatigue can increase the risk of road mishaps.

Standing Laws

In a phone interview, IT Organization deputy for legal affairs, Mohammad Jafar Nanakar, reflected on the e-commerce law and what it says about the current dispute.

“As per law, online companies are divided into three categories. Those offering tech services like cloud computing and computer programming are required to receive permits from the ICT Guild Organization affiliated to Iran IT Organization. Then there are firms offering general services, like online shopping. They too must get permits from the same authority.”

“In fields like healthcare or transportation, where the law has specified authorities overseeing the market, the companies should have permission from the relevant authorities. In this specific case law has it that online taxi firms must get permits from municipalities.”

All said, the present rules are vague. The issue is to be resolved with the help of reforms proposed by the Interior Ministry to the Public Transportation Expansion Law.

Nanakar said requiring online taxi firms to get permits from urban authorities in each and every city would be time-consuming and add to the bureaucratic burden. Snapp and Tap30 respectively offer services in 68 and 15 cities.

Minus the major players (Snapp and Tap30), over four dozen ride-hailing firms have registered in Iran. More than a million drivers work for these firms and millions of people use their service.

In addition to undermining ride-hailing companies, it is highly likely that unwanted state and government intervention will impact the lives of a large number of drivers who depend on this business for their livelihood in the present difficult economic times and when jobs are far and few between.