Key Points:

Regulators responding to disruptive business models will face many regulatory challenges. While there is no "one size fits all" solution, there are some key principles which can assist to guide regulators to deliver responses which are innovative, balanced and appropriate.

New technologies and innovative business models are not new concepts. In fact, for regulators, developing and implementing appropriate regulatory responses to changed business models are familiar challenges ‒ consider the impact of the mass production of motor vehicles, or the spread of the telephone.

Today's disruptors ‒ such as UberX, AirBnB, Spotify and NetFlix ‒ however are impacting markets, industries and consumers with much greater scale, intensity and pace. Undoubtedly, this presents an array of legal challenges and issues for government regulators.

In this article, we have identified some key principles for regulators to consider in designing and implementing regulatory responses to the disruptors. To illustrate the application of these principles, we have used the Australian Capital Territory's recent regulatory response to ridesharing disruptors such as UberX.

Taxi and rideshare industry: the ACT regulatory model

The ACT Government has moved to become the first Australian jurisdiction to regulate ridesharing and allow operators such as UberX to participate in the passenger transport industry, along with the traditional industry participants such as taxis and car hire companies.

The regulatory changes took effect on 30 October 2015 and were delivered in two stages:

  • Stage 1: an "interim phase" that allowed authorised ridesharing and other booking services such as Uber to operate in the ACT market subject to safeguards such as criminal history and driver history checks; and
  • Stage 2: the introduction of new legislation to establish a full suite of regulatory requirements, including driver accreditation. The legislation, in the form of the Road Transport (Public Passenger Services) (Taxi Industry Innovation) Amendment Bill 2015 (No 2).  This Bill was passed by the Legislative Assembly on 17 November 2015.

Principle 1 ‒ Equity

The regulatory challenge: Regulators should aim to create a level playing field, and an unbiased regulatory model that applies to participants on a non-discriminatory basis and does not impose differing regulatory burdens on participants based on their different methods of service delivery.

The ACT regulatory response: There will be one mechanism for licensing or "accreditation" with all participants, including taxis, rideshare, car hire and third party booking systems to be accredited as a "Transport Booking Service" (TSB). There will not be a taxi "network" and companies such as Aerial, Uber and goCatch will need to become a TSB. All participants will therefore be subject to the same standards for accreditation and will be regulated consistently on the basis of their booking and dispatch operations. The only exception to this approach is in relation to rank and hail taxi services, which will only be provided by taxis.

Principle 2 ‒ Safety and protection of the public and consumers

The regulatory challenge: Regulators should aim to ensure that any regulatory response allows for appropriate public interest concerns to be satisfied and routinely monitored and checked, including health and safety and consumer protection standards and requirements.

The ACT regulatory response: TSBs will be subject to all applicable Australian laws and regulatory requirements and all drivers, including rideshare drivers, will be licensed and accredited applying criminal history checks, annual vehicle inspections and CTP and public passenger insurance coverage.

Principle 3 ‒ Embracing innovation as a way to regulate

The regulatory challenge: Regulators should aim to consider and facilitate the management of risks appropriately having regard to the nature of how various industry participants deliver the services they provide. In these circumstances, the proper focus is on how risk should be appropriately managed and regulated and new ways of managing and regulating those risks. There cannot be a "one size fits all" to regulating. For example, can the increased level of information about a particular industry participant such as upfront fee estimates and online, publically available consumer reviews which are incorporated into many of the business platforms used by disruptive participants be relied upon as new means of monitoring safety and consumer protection and pricing concerns?

The ACT regulatory response: Fares for ridesharing will be unregulated as these participants are considered to operate in a highly competitive environment in which ride fees and charges available upfront and performance review information is publically available online. Taxi fares in the rank and hail taxi and booked services will remain regulated until effective competition in the industry is demonstrated.

Principle 4 ‒ Lowering barriers to entry and promoting competition

The regulatory challenge: Regulators should aim to promote competition in the relevant industry sector.

The ACT regulatory response: Government fees and charges will be reduced. Taxi licence fees were reduced at 30 October 2015 from $20,000 to $10,000, with this to then drop to $5,000 in the following year. Care hire fees were also reduced. These lower fees and charges promote easier entry to the market and in that capacity increase competition.

Principle 5 ‒ Regulating for today and tomorrow, not yesterday

The regulatory challenge: Regulators should aim, as far as possible, to be responsive and not reactive to changes in business models and technologies. This is particularly relevant in an operating environment where the timeframes between disruptive intervention into an industry sector by a new disrupter are narrow and can operate on a yearly, sometimes even a monthly, cycle.

The ACT regulatory response: On demand drivers such as taxi, hire car and rideshare drivers can have access to multiple models of business from traditional taxi rank and hail jobs to ridesharing and third party booking services (ie. booking apps) if the driver and their vehicle meet certain conditions. Also, workers compensation coverage will be available to all non-operator taxi and hire car drivers as well as rideshare drivers who do not own their rideshare vehicles.

The disruptors and framing an appropriate regulatory response: common themes

Disruptors go beyond technological advancement and development, as they do not seek to incrementally improve existing models, but to fundamentally disrupt how goods and services are delivered. Clearly there are many challenges for regulators who must respond quickly and appropriately.

What can be gleaned from the experiences so far, including the ACT Government's recent regulatory response to ridesharing, is that regulators must be open to considering flexible and non-discriminatory, non-biased regulatory mechanisms, which promote competition, encourage further innovation and ensure an appropriate level of public safety.

In addition to the form and design of a regulatory regime, there are other equally complex considerations for regulators, including questions of timing of regulatory intervention in an industry sector, the form of any intervention, and what approach should be taken in seeking compliance with the requirements of the relevant regulatory regime.

These are complex and difficult considerations for regulators and there is no one-size-fits-all regulatory response to disruptors. However, the principles identified above will assist to guide regulators in developing responses which are innovative, balanced and appropriate having regard to the nature of the industry sector and the business model adopted by disruptive participants.