An Uber problem for the cab industry

First in a series

THE NUMBERS DON’T LIE: Uber and other ride-sharing companies are steadily chipping away at the business of taxi and livery companies which find themselves hamstrung by a regulatory environment that once protected their operations but now may be their undoing.

Records on file with the Hackney Division of the Boston Police Department indicate the taxi industry is struggling with a steep drop in business brought about by the arrival of California-based Uber Technology. There has also been a dramatic drop in both the number of medallions changing hands and the price those once-valuable assets fetch. It may not be long before the medallions that cab companies once invested in like gold bullion will be about as valuable as the paper they are written on.

“When you add 10,000 unrestricted cars into a city, it’s going to have an impact,” says James Endicott, owner of Summit Management, which owns 30 Boston cab medallions.

The cab industry in Boston, like the rest of the world, has been reeling from the rise of so-called transportation network companies, of which Uber is the uber-service, dwarfing its competitor Lyft and other nascent ride-sharing companies. According to Uber officials, the Boston area has a higher penetration of Uber drivers and riders per capita than any other city in the country. The customer base for ride-sharing services is growing dramatically because of the convenience and cheaper prices they offer. An Uber ride sometimes costs half of what a similar taxi ride costs.

Uber uses an app to bring together people needing a ride and private car owners willing to take them where they want to go. Customers download to their smartphones an app that uses GPS to identify their location. When seeking a ride, customers punch in their destination and a car is dispatched to pick them up. The charge goes directly on the customer’s credit card that Uber has on record, so no money changes hands. Uber keeps about 20 percent of the total fare as well as a $1 “Safe Rides Fee” charged on every trip. Drivers, considered independent contractors who are responsible for their own taxes, fuel, and insurance, pocket the rest.

Uber has been the target of increasing criticism and regulation. Cabbies in Paris rioted earlier this summer over Uber’s refusal to comply with orders to cease their low-cost service, which taxi drivers say was putting them out of business. New York Mayor Bill de Blasio tabled a plan to cap the number of ride-sharing vehicles in the city after heavy advertising pressure from Uber. A California court has ruled that the company must pay a $7.5 million fine and cease operations in that state for failure to comply with regulations about distributing rides among its drivers and turning over records to state officials. Several of the presidential candidates have also weighed in, with Republicans touting Uber as a free market success story and Democrats saying government must step in to level the playing field between taxis and ride-sharing services.

Drivers working for ride-sharing services and taxi owners face very different regulatory environments. Ride-sharing drivers are largely unregulated by state and local officials, and attempts to impose regulations on them in communities such as Cambridge and Braintree have been thwarted. Taxi drivers, by contrast, must be licensed, carry required levels of insurance, and abide by fare regulations. In communities such as Boston, Cambridge, and Brookline, taxi owners must purchase medallions to carry passengers. With caps on medallions in place (only 1,825 are available in Boston), the cost to enter the taxi business is high, while Uber can recruit unlimited numbers of its private contractor drivers.

Uber entered the Boston market in the fall of 2011. According to data from the hackney division, there were 13.1 million cab rides in the city in 2010, generating total revenue of more than $214 million. In 2011, cab revenues rose by more than 12 percent to nearly $240 million while the number of rides increased nearly 9 percent to 14.3 million. Both 2012 and 2013 continued to show increases, albeit much smaller, before both revenues and ridership plummeted in 2014. Revenues hit a peak of $257 million in 2013 before dropping nearly 7 percent to $240 million last year. The number of rides hit 14.5 million in 2013, but fell more than 12 percent to 12.8 million in 2014.

Revenues continued to show significant declines in the first two months of 2015, though some officials have attributed a portion of the decline to the historic snowstorms that blanketed the region starting at the end of January. Rides for the taxi industry for January and February of this year were down by nearly 24 percent from the previous year and by nearly a third from 2013. Revenues dropped by more than 20 percent compared to the same two months in 2014 and by 25.6 percent from 2013.

Even more alarming for cab owners and drivers is the value of the city’s medallions, which many buyers took out mortgages to purchase and are now, like houses during a recession, losing value like never before. The average price of medallions sold this year is $402,444, down from $666,547 last year, a decline of 40 percent. The demand for medallions has also plummeted. In 2009, there were more than 90 medallions sold and, through 2014, between 40 and 50 changed hands each year. In the first six months of 2015, there have been just 10 sales, one of which was an auction after a foreclosure by a bank. There were no auctions in the previous six years, according to the records.

Uber officials say they are not surprised about the decline in the taxi industry, which spokesman Taylor Bennett called the product of a “decades-old failed regulatory system” that hampers competition and provides a disservice to riders. Bennett said Uber is clearly making inroads among cab customers, but he said part of the company’s growth is coming from people who rarely, if ever, took cabs before.

Bennett points to a 2013 study on Boston’s taxi industry commissioned by the city that shows low response rates by cabbies to requests in neighborhoods such as Roxbury, Dorchester, and Mattapan, with customers waiting a half-hour or longer for a taxi. Uber, said Bennett, has a 96 percent response rate for ride requests within 20 minutes in those same neighborhoods, with the median response time being under four minutes. That availability, he said, is what’s drawing customers.

“We’re now serving parts of the city that never were served before,” said Bennett. “We have drivers going where taxis may have never gone before. That option, that choice, was never available before. We’re expanding the pie.”

For regular users like Lynn Julian and her boyfriend Doug Julian (no relation), Uber is their choice and there’s no going back.

“I’ve had some negative cab experiences,” said Lynn Julian, a 38-year-old actress who lives in the Back Bay and uses Uber four to eight times a month. “I have taken cabs and been charged much more than I knew the fare should have been. Sometimes, [cab drivers] don’t know Boston, there’s a language barrier, and they’re driving in circles and running up the fare.”

She said the reports of assaults and other criminal allegations by Uber drivers are more what she fears  with Boston taxis. She said that, with the Uber app, she knows who the driver is.

“Outside South Station, I’ve gotten into what I thought was a cab, but it wasn’t a licensed cab, and I felt very unsafe,” she says. “I’ve had friends argue with me they feel more safe in a cab. I feel more safe in the Uber because when I request a car, Uber sends me a picture of the driver and the make of the car so I know who I’m getting in with.”

Doug Julian, a 47-year-old Internet start-up entrepreneur, said he took cabs for years because it was “the default system,” but said the difference isn’t a matter of how they operate or are hailed but rather cost and convenience as well as the personality of the drivers.

“It’s an alternative to the cab service,” said Doug Julian. “It’s no different than dispatch service. I’ve used it in multiple cities. The Uber drivers are a lot more conversational. It’s almost like you made a friend.”

Endicott, of Summit Management, said the regulatory system cab owners and drivers have had to deal with is choking them and creating a Ted Williams Tunnel-size hole for Uber and others to drive through. In Boston, for example, medallion owners are required to drive newer vehicles, have regulated fares, and carry more in insurance, requirements that Uber drivers can ignore. Endicott, however, said the answer isn’t to put cabs on the same regulatory footing as ride-sharing drivers.

“They can change the rules, but that doesn’t help us,” he said. “We’ve already made the investment of hundreds of thousands of dollars [in medallions.] It’s like the Wild West out there. We don’t make the rules, we have to live by the rules. They should, too.”