This is the third installment of a four part series on Uber’s entry into Canada.
To summarize Parts 1 & 2: at the heart of Uber’s global business strategy is a political strategy. Because Uber has difficulty competing with established taxi companies under existing taxi industry rules, it needs to pressure Canadian licensing authorities into creating a separate set of taxi rules for it to operate under. Put bluntly: without its own set of rules that reduce its costs, Uber can’t afford to undercut the fares of existing taxi brokers – by far its most important competitive advantage.
There are four deal-breakers for Uber in any new set of licencing rules that it pries from governments through its ferocious lobbying: 1) the new rules must allow UberX to charge “surge pricing” with no maximum cap (think New Year’s Eve, an 8.9 times multiplier, and a $1,115 charge for a 60-minute ride in Montreal) while its competitors must continue to charge fixed-rate fares; 2) the new rules must exempt Uber from the commercial insurance coverage that is mandatory for licensed taxis so Uber drivers can carry a new, less comprehensive kind of “hybrid” insurance policy that is cheaper than commercial coverage; 3) Uber must be exempted from the existing licensing fees that govern both cab owners and drivers – and be given its own licensing fee regime with much lower fees; and 4) the background safety check rules for Uber drivers should not be so onerous as to scare off potential Uber drivers. For Uber this usually means that it objects to rules requiring that driver safety checks be done through local police departments.
Because getting new rules that lower its costs is so crucial to Uber’s business strategy, when Uber doesn’t get the above provisions in a new set of rules from taxi regulators, it will either leave the market (e.g. Calgary) or simply operate illegally outside the existing rules (e.g. Toronto and many other Canadian cities). For example, even though Calgary gave Uber much of what it wanted in a new set of rules passed by Calgary City Council in late February, Uber still pulled out of the Calgary market because the specifics of the new licensing fee and driver background check rules weren’t to its liking.
There are two other major areas where Uber plays by different rules that give it an advantage over its competitors: 1) its (apparently legal) international tax avoidance strategy; and 2) its (legally contested) claim that Uber drivers are independent contractors as opposed to employees. These issues, of course, are not regulated within municipal (or provincial) taxi licensing regimes but are nevertheless central to Uber’s Canadian (indeed global) growth strategy.
The rest of this post deals with Uber’s global tax avoidance and labour strategies.