Taxi Industry Inquiry

The Taxi Industry Inquiry or the Fels Inquiry was an inquiry commissioned in 2011 into the taxi industry and taxi services in the State of Victoria, Australia, by the Taxi Services Commission. The Inquiry was headed by Professor Allan Fels, the former head of the Australian Competition and Consumer Commission, assisted by Dr David Cousins.

Announcement

The Inquiry was announced on 28 March 2011 by the Premier of Victoria, Ted Baillieu. According to Bailleu, the key problems with the Victorian taxi industry were:

low customer satisfaction, with a sharp decline over the past five to six years
safety and security for passengers and drivers
insufficient support for drivers
too many poorly-skilled drivers with inadequate knowledge
a high turnover of drivers resulting in a shortage of experienced drivers;
complex ownership and management structures
lack of competition
too much of the industry revenue not being directed to the service providers – the drivers and operators.
Inquiry scope

Baillieu announced that Professor Fels would investigate every aspect of the current industry.
The Premier indicated that reforming the Victorian taxi industry would occur in two stages. In the first stage, the Fels Inquiry completed a comprehensive inquiry into the service, safety and competition issues in the Victorian taxi industry. In the second stage, a Taxi Services Commission will take over the role of industry regulator, giving it the powers and tools necessary to reform the taxi industry.
The Premier indicated that the current taxi industry regulator, the Victorian Taxi Directorate, will operate as normal until the Commission was established. During the second stage staff and resources from the VTD will move to the new body as it assumes the ongoing role of regulator.

Terms of reference

The terms of reference issued for the Inquiry were to review the sector and its performance against the following principles:

customer and service focus;
safety for passengers and drivers;
support for and training of drivers;
integration with other forms of public transport;
an outcomes-based and accountable regulatory framework;
market design that is effective, efficient and promotes competitiveness; and
sustainability, in economic, environmental and social terms.

The overall aim of the inquiry was to instigate major and enduring improvements to service, safety and competition to Victoria's taxi and hire car industry. The inquiry should be wide-ranging and consider all point to point transport services including taxis, hire cars and other demand responsive services with a particular focus on service outcomes.
The inquiry should conduct broad ranging consultation to determine the views at all levels, including consultation with the general public and expert industry and other key stakeholders.
The inquiry will report regularly to the Minister for Public Transport and make a final report and recommendations focusing in particular on the following:

the appropriateness of the structure of the taxi industry including the accountability of the range of industry participants with a particular focus on commercial incentives to participants including licence holders to improve services to passengers;
service delivery and employee conditions, in particular the working conditions, training, standards and remuneration of drivers, and how these contribute to service standards and outcomes;
competition in the sector, in particular focusing on vertical integration, anti-competitive practices and incentives for innovation;
the effects of regulation, particularly relating to entry to the taxi market through capped licence numbers and to price controls and taxi fare setting arrangements, and how these affect customer service and innovation;
the performance of the Multi-Purpose Taxi Program and wheelchair accessible taxis in providing service to people with disabilities and a broad range of mobility disadvantaged people;
the current and potential role of taxis, hire cars and other demand responsive transport services in an integrated transport system, with a focus on the role of these services in social inclusion;
options for reform including benchmarking safety and service standards, appropriate market-based, legislative and administrative solutions, and communication technology advancements that may be harnessed, to facilitate improvements in the safety, service and environmental performance;
the appropriate regulatory and service model for long term regulation and operation of the industry, focussed on service outcomes;
examine, evaluate and report on other models and new approaches in the taxi and hire car sectors both in Australia and overseas;
transitional arrangements from the current regulatory and service arrangements to the recommended model; and
any other related matters."
State of the industry

The Inquiry issued an issues paper on 12 May 2011 called "Setting the Scene". The paper set out the background to the Inquiry and raised a number of issues about the performance and state of Victoria's taxi industry. The Inquiry called for public submissions in response to the paper by 24 June 2011.
The Herald Sun newspaper reported on 12 May 2011 major problems with the performance of taxi services in Melbourne under a headline "Customer satisfaction with Melbourne's taxi services hits all-time low." The Age newspaper included a similar report on 13 May 2011.

Legislative basis

The Victorian Government introduced legislation in early June 2011 to provide support to the Inquiry including by establishing a statutory authority, the Taxi Services Commission, to give clear organisational separation to the Inquiry and to provide the inquiry with sufficient powers to obtain information and report to Government.

Minister's comments

Introducing the Transport Legislation Amendment Bill 2011, the Minister for Public Transport, Terry Mulder commented that the measure -

Effect of the legislation

The resultant Act established the Taxi Services Commission as a body corporate under the Transport Integration Act 2010 along with the other central transport bodies. The Act has four parts. Parts 2 and 3 set out the two major stages for the Commission. In its first stage, the Commission is conducting a comprehensive inquiry, i.e. the current Taxi Industry Inquiry. Accordingly, the Act essentially provides the Commission with secure powers and authority to enable it to fulfil its task.
The Minister made a number of comments about the wide scope of the Inquiry -

Magnitude of reform task

Professor Fels has indicated that the reform task in the Victorian taxi industry is substantial. He has warned that the taxi industry required a "very deep review that looks at fundamental questions about how the whole system works.
"It's not just about patching the system up with a little bit of regulation here and modification there," he said. "We need to look at an industry that is not performing well systematically."
Professor Fels said the Inquiry's "Setting the Scene" paper had received more than 140 submissions, with 40 from people with disabilities. He has reported finding disturbingly high rates of poor taxi services across Victoria. He has indicated the Inquiry would consider the cost of a taxi licence - currently about $500,000 - and whether this allowed enough access to the industry.
The industry's regulatory body, the Victorian Taxi Directorate, is also in his sights. "The whole system of regulation is on the agenda and it is also true the Government has legislated already to set up a Taxi Services Commission to come into play after our report," he said. "The VTD at the moment is a separate regulatory body we are reviewing because regulation is part of the set of problems."

Industry reaction

The Victorian Taxi Association, which represents taxi networks and operators, has indicated "...support for an inquiry but not an inquisition". The Chief Executive of the VTA has commented that:
However, the head of the Taxi Industry Inquiry, Professor Allan Fels observed that This is an industry like any other that is there to serve a customer. We're not there to service them.

Current industry issues - Cabcharge

One of the controversial features of the taxi industry in Australia is the influence of Cabcharge. The Taxi Industry Inquiry considered this issue as part of the Taxi Industry Inquiry and the company has been the subject of several observations by Professor Fels since the Inquiry commenced.
The Cabcharge account payment system was established in 1976 to provide a way to pay for taxi fares throughout Australia and participating countries. Cabcharge listed on the Australian Securities Exchange in December 1999 and is an ASX 200 company. It has since diversified and its key activities now include technology, taxi payments and major acquisitions in the Australian bus industry through ComfortDelGro.
The company's activities are sometimes controversial and it has faced criticism at times from inquiries and regulatory bodies. Cabcharge has been the subject of recent Federal Court proceedings over alleged anti-competitive practices including predatory pricing activities and was subjected to a record high $15 million settlement for these behaviours. The company is also facing criticism of profiteering for the 10% surcharge it imposes on taxi fares paid by card and the matter is currently being investigated by the Reserve Bank of Australia.

Outline

Cabcharge's principal activities include:

provision of charge account facilities for businesses and individuals to enable non cash payment of taxi fares.
development of a Point of Sale system that allows taxi users to pay their fare using third party charge, credit and debit cards and Cabcharge products. The system requires passengers to pay a 10% surcharge on their fare although the surcharge is currently being reviewed by the Reserve Bank of Australia following public comments and complaints that the surcharge is excessive.
software development.
provision of taxi booking and dispatch services through Taxi Networks in NSW and Victoria. Additional capture of taxi owners, operators and drivers is practised through provision of services including repairs and installation of in-vehicle equipment, insurance, vehicle leasing and training.
development of taxi-related hardware and software like taxi security camera systems, meters, and transaction processing equipment.
provision of taxi booking and dispatch through CityFleet UK with operations in London, Edinburgh, Liverpool, Birmingham and Aberdeen in a joint venture with Singapore-based ComfortDelGro.
operation of buses and coaches in NSW and Victoria through Cabcharge's associate ComfortDelGro Cabcharge Pty Ltd . In NSW this includes Westbus, Hillsbus, Hunter Valley Buses and Charter Plus and in Victoria, Eastrans, Westrans, Davis and Benders.
Concerns about Cabcharge activities

Cabcharge's commercial activities have been controversial at times and the company has faced regular accusations of excessive charging or profiteering and predatory and anti-competitive practices. The company was recently subject to adverse court proceedings and a major settlement arising from these behaviours.

10% surcharge on taxi fares paid by card

Cabcharge provides EFTPOS terminals, free of charge, to approximately 97% of taxis in Australia. The company incurs the costs associated with transactions including card and other product production, in-taxi processing, administration, fraud protection and investigation, provision of statements and driver education. However, this situation also allows the company to exert substantial and anti-competitive control over most of the Australian taxi industry and to engage in profiteering activity.
Cabcharge was criticised for the 10% surcharge it collects on taxi fares paid by credit and debit cards and for the general anti-competitive control it exerts on other industry participants through its control of electronic payments and other areas of the taxi system such as vehicle and related repairs and installation of in-vehicle equipment, insurance, vehicle leasing and training. Criticism has emanated from various sources including the chair of the Taxi Industry Inquiry, Professor Fels, the former head of the Australian Competition & Consumer Commission, and leading card companies. The 10% charge is currently being reviewed by the Reserve Bank of Australia.
In 2011 Professor Fels approached the Reserve Bank of Australia to help lower the 10% surcharge. He has been reported as observing monopolistic behaviours by Cabcharge.
Representatives from major credit card operators Visa and MasterCard have also criticised the 10% fee:
In an article in Victoria's Herald Sun newspaper, John Legge noted that customers in that state paid at least $350 million in taxi fares with banking cards, for which 95% of Victoria's taxis use the Cabcharge system. Legge noted that Australian Competition & Consumer Commission penalised Cabcharge $15 million for abusing its industry dominance.
Reserve Bank data is reported as showing that banks charge merchants an average fee of 0.81 per cent to process Visa or MasterCard payments, while the average fee passed on from the merchant to customers is 1.9 per cent for Visa and 1.8 per cent for MasterCard. The RBA considered that some companies charges are excessive and, as a result, it is drafting new rules to compel offenders to limit their charges to the costs actually incurred by merchants.