Singapore Land Transport - Competition unlikely to intensify

■ CCCS provisionally finds Grab/Uber deal to have reduced competition

■ Proposes remedial actions to prevent lessening of competition

■ Strong escalation of competition unlikely, having seen the casualties

■ Maintain view that taxi fleet is likely to have bottomed out

CCCS indicates Grab/Uber deal has infringed anti-competition rule. The Competition and Consumer Commission of Singapore (CCCS) has just issued a Proposed Infringement Decision (PID) on Uber’s sale of its Southeast Asian business to Grab. The CCCS has provisionally found that the transaction has infringed section 54 of the Competition Act (prohibiting mergers that have resulted, or may be expected to result, in a substantial lessening of competition in Singapore).

The CCCS has proposed remedies to address the concerns in the substantial lessening of competition (SLC), and these include removal of exclusivity obligations, lock-in periods for drivers, exclusivity arrangments with taxi fleet and private hire car fleet, maintenance of pre-transaction pricing and incentives, amongst others. Please see the table on the next page and below for our initial comments.

At this juncture, the CCCS is inviting public feedback on the proposed remedies as to whether these are workable and sufficient to address the lessening of competition arising from the transaction, and the closing date for the public consultation submission is 19 July 2018.

Our views:
Strong escalation of competition unlikely. With the proposed remedies by CCCS, the path and eventual outcome remains uncertain. Overall, in our view, having seen a full cycle of entrants and eventual exits (since 2013 with Uber's entry) of private hailing app players, we believe that a strong escalation of competition and reversion to high incentives and discounts (where participants incur sustained losses) seem unlikely. For one, taking over/buying out competition to achieve profitability seems to be out of the picture, as the current case suggests. That leaves a “death-match”, in our view. Secondly, in view of a relatively small market in Singapore, the business case for new entrants may seem limited vis-à-vis other larger ASEAN markets.

A window of opportunity for Go-Jek? The proposed remedies may open a window of opportunity and the most credible entrant is Go-Jek, given its financial backing. We believe this could also provide an opportunity for ComfortDelGro (CD) to have a more dominant presence in the private car rental space, assuming it is able to partner Go-Jek, similar to its original plan with UberFlash/acquisition of 51% stake in Lion City Rentals (LCR).

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Risks – a painful three-cornered fight. The key risks for CD, in our view, would be the emergence of another three-cornered fight, between Grab, Go-Jek and itself – similar to the situation between Grab-Uber-CD, prior to launch of UberFlash (bundling of CD taxis within Uber app). At this juncture, this seems unlikely. Firstly, we believe rationality would prevail as evidence shows that this is not sustainable for participants. Secondly, we believe CD is now likely to be more receptive to partnership with a ride-hailing platform.

Maintain view that taxi fleet contraction has stabilised. We are maintaining our view that we have seen the stabilisation of taxi fleet, and should be on the cusp of increase. With the exit of Uber, there has been anecdotal evidence of the flow of drivers back to taxi rentals, and we have seen an uptick in taxi drivers’ vocational licence holders (TDVLs). Furthermore, channel checks suggest that drivers now recognise that income earned through private-hire car-chauffeur services (before incentives) is not materially better than that generated by providing taxi services.

Source : DBS Group Research
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