Why some say Calgary’s taxi industry needs a change, and what others are doing to stop it
Is an app-based ecosystem the answer?
by Max Fawcett
Photograph Curtis Comeau
Over the last decade technological innovation has reinvented the way we rent movies, buy music, shop for clothing and book travel. Those innovations have created billions of dollars in surplus economic value and improved, however marginally, the quality of life for hundreds of millions of people. They’ve also destroyed longstanding businesses and driven thousands of people out of work. Austrian economist Joseph Schumpeter referred to this process as “creative destruction,” and argued that it was “the essential fact about capitalism” and the primary source of both the rising wealth and improving standards of living that have defined capitalist experience. And in 2009, a Calgary-born entrepreneur named Garrett Camp co-founded Uber, a company that set its sights on disrupting an industry – in San Francisco, first, and since in dozens of other cities in 32 different countries – that he thought desperately needed disrupting: the taxi and sedan business.
As a former Calgarian, Camp understood the problem he was trying to solve better than most. It’s no secret that getting a cab on a weekend evening in Calgary requires substantial volumes of both luck and patience. Trying to get one during Stampede, the Christmas office party season or New Year’s Eve, meanwhile, is either an act of wishful thinking or a test of one’s faith in a higher power. The drivers, for their part, don’t have it much better. They’re effectively forced to toil in a kind of supervised servitude, paying a fixed rent to one of the city’s main taxi brokerages and then sent out to earn it back – and a living – if they can. “They have to put money into the kitty before they even turn on their taxi meter,” says Uber’s Andrew Noyes. “What kind of life is that?”
But as Uber learned this past October, Calgary’s taxi and sedan industry isn’t about to go down without a fight. The city’s bylaws governing limousines – the kind of vehicles Uber trades in – require a minimum hourly charge of $78.50, regardless of the trip. In an effort to introduce the public to its service, and perhaps rally the same kind of support that eventually moved legislators in other cities to change similarly restrictive bylaws, Uber offered free trips to anyone who downloaded the app and made a $5 donation to the Calgary Foundation. And while the public response was clearly positive, the city’s regulations remain as they were before Uber came to town. Indeed, they’ve even been strengthened, as the city tacked on a provision requiring sedans to be booked 30 minutes in advance.
As a result, Uber isn’t sure when – or if – it’ll be back in Calgary. “We absolutely want to be in Calgary,” says Andrew Noyes, a company spokesperson. “It’s the right size city, and the demographics are perfect for Uber – there are a lot of young people. [But] we cannot do business in Calgary right now, because the requirement to charge a minimum of nearly $80, regardless of the length of the ride, is just not our business model. Our business model is to connect you with a car, when and where you need it.”
Camp isn’t the first entrepreneur to use technology to change the way Calgarians get a ride. But unlike Camp, Jeff Doepker, the founder and CEO of FastCab, didn’t set out to disrupt an industry. Instead, he says his decision to create an app that linked customers with cab drivers – or, at least, tried to – was born out of necessity. “My wife worked right downtown, and the downtown core turns into a ghost town after 7:30,” he says. “I didn’t want her walking around looking for a cab, and we all know that the dial-in dispatch is just ridiculous to try and use. So I got off the phone, looked in my hand and had the epiphany that there’s a better way to do this. We all carry around GPS receivers, and that’s exactly what we need to make this system more efficient.”
Doepker thought it was a win-win-win situation: the customers would get better service, the drivers would get more rides and the city would hear fewer complaints from frustrated citizens. Unfortunately, the city’s existing cab brokerages thought they’d end up as losers, and so the three largest – Checker, Associated and Mayfair – banded together and filed a $1-million lawsuit against Doepker in January 2013, claiming that his app amounted to “unfair competition.” Doepker says there was another motivation. “Ultimately, it was a bullying play,” he says. “Everyone knows it, and everyone can see it. Why would three multimillion-dollar companies feel threatened by a two-person startup?”
And make no mistake – they should feel threatened. As one of Checker’s drivers said, under condition of anonymity, “The FastCab app was exactly what the Calgary market needed. If anything, it was a little bit late – but it was, at the time, the first one that functioned properly. Then the brokers from the big three taxi companies in Calgary all forbid their drivers from accepting trips from the app under threat of being fired.”
In the Checker driver’s case, that directive came in the form of a message broadcast through the dispatch system. “City bylaw: You must only accept trips form (sic) Checker. You are not allowed to accept trips from taxi apps. Thank you, Kurt [Enders, the company owner].” There was no such bylaw on the books at the time.
– Jeff Doepker, CEO, Fastcab
Doepker agrees that existing brokerages realized the existential threat his app posed to their businesses. “The drivers can go out and get their own insurance, so really, the only thing left on the table is dispatch – which is what they’re trying to control, and which is why they sued me,” he says. “If FastCab was to hit critical mass, the drivers wouldn’t need the brokerages anymore. And they know that.” By the end of the year, Checker and Associated, the city’s two largest cab brokerages, launched their own apps.
Doepker didn’t fold his tent, though. He filed for, and received, a license as an official taxi broker in the City of Calgary, and announced his intention to field a fleet of 50 cars by the fall. But another industry-friendly bylaw on the books, this one that prevented anyone (other than the existing cab brokers) from controlling more than one of the city’s taxi plates, made it impossible to recruit the number of drivers that he needed to make FastCab a viable operation. “If I want to compete, I have to convince a bunch of individual plate owners to come work for me. And why would a plate owner take that risk? If you leave [the Calgary Livery Association, which represents existing brokerages], they won’t take you back,” he says. “These drivers want to support me – they really do. But are they going to risk their home, and this plate they’ve purchased for $150,000, when we can’t guarantee them enough customers to cover it?” By December, he’d decided to abandon the idea altogether. The suit, meanwhile, is still pending.
An economist like Schumpeter would have a field day with Calgary’s taxi and sedan industry. It is, after all, a jumble of twisted incentives and conflicting agendas that’s overlaid – or, if you ask some, underpinned – by ineffective or ineffectual regulation. The net result is a system in which almost nobody is getting what they want, least of all the people who actually depend on it. “If you try to call a taxi on any night in this city – it doesn’t even have to be a Friday or Saturday – you’re lucky if you get through,” says James Boettcher, the co-founder of YYCFoodTrucks. “And then, when you do, you’re lucky if you get an estimated time, and you’re even luckier if the car shows up.”
Boettcher is not alone in his frustration with the service – or lack thereof – currently on offer from the city’s taxi companies. The cab companies know it, too. “Do we need to improve? Definitely,” Enders says. “Are we making improvements? Definitely. But this isn’t going to be an immediate fix.” Marc Halat, the manager and chief inspector of livery services for the city of Calgary, says it’s not simply a matter of issuing more taxi plates to meet the demand during peak periods. “We have sufficient licenses and drivers out there doing the work. The problem is peak times. That’s the thing we have to find a solution for. Friday night, Saturday night, Christmas season, Halloween – those are the times we struggle.”
Under the current system, drivers aren’t incented to work during peak times, since keeping busy isn’t a problem in a closed-entry system. And because the price of a taxi ride is the same regardless of whether you’re getting picked up in a quiet part of downtown or outside of Stampede Park after a Calgary Flames game, drivers will often stay away from where they’re most needed. “If you’re a driver, you’re spending 30 minutes trying to get into the grounds to pick someone up and get out,” Enders says. “As a driver, would you go back and fight that traffic? No – you’re going to go find a trip somewhere else with a lot less hassle. You’re paid by butts in the seat.”
And because the dispatch system is often overloaded by the mismatch between the demand for taxis and the available – and willing – supply, drivers often avoid booking in. “A lot of the drivers don’t like to book in to those areas when it’s busy,” the Checker driver says, because they’re just going to end up chasing down passengers that have left in another vehicle when they could just drive around and pick up customers that hail cabs on the street rather than by using the dispatch system. That, of course, creates a negative feedback loop – the customers get in a different cab because they’ve waited too long for the one they called to arrive, and drivers stop checking into the dispatch system because the fares they get sent to pick up are long since gone. “It’s partially brought on by the customers, partially brought on by the drivers and partially brought on by the companies, and nobody wants to take the blame,” he says.
It is, in other words, a broken system. And while the taxi brokers talk a good game about improving customer service, their economic incentives don’t exactly line up with the goal of fixing it. As the Checker driver says, “It honestly doesn’t matter to the company, in any way, shape, or form, whether the trip was a dispatched trip or a flagged trip or an app trip. They’re making the same amount of money off me every week whether or not I get any taxi trips.” FastCab’s Doepker agrees. “The brokers don’t make money by helping their drivers to get more customers. They make money by having drivers pay them stand rent.”
The city, for its part, seems intent on trying to regulate that system into some sort of coherence. It attached a condition to the most recent batch of taxi plates that stipulates the cars sporting them had to be on the road from 4 p.m. to 4 a.m. on Friday and Saturday, and in February, Halat announced that he wants to extend that to all city plates. He expects to see it in place by the time Stampede rolls around. The provision would also require all of the city’s taxis to be on the road during high-traffic events like Stampede, St. Patrick’s Day and New Year’s Eve.
But such a move would be fundamentally at odds with the nature of the relationship between cab drivers and the companies they work for. They’re independent contractors, not employees, and while the city could theoretically mandate them to work 12-hour shifts Thursday through Saturday, it’s safe to assume that many – if not most – drivers would resist such a directive, possibly by striking. As the anonymous Checker driver says, “I know of no other job where they’re dictating to you that you must work 12 hours without any compensation for overtime.” Still, Halat is undeterred. “We really, truly want these guys to comply with the legislation,” he says. “Don’t put us in a situation where we have to bring out that hammer.”
David Seymour, a researcher with the Frontier Centre for Public Policy, says the city is merely delaying the inevitable – and interfering with the evolution of a superior system. “The smartphone network would be a dispatch system in its own right, albeit one that is much more efficient due to its GPS capability, its ability to create mini auctions between drivers set to serve a particular passenger, and its built-in feedback regarding the quality of the drivers’ service and the passengers’ civility. It would also come at zero marginal cost to drivers, most of whom already have cellphones, so there would be no incentive not to have one.”
It would also promote a kind of entrepreneurialism that is effectively discouraged in the current system. “We hear every day of drivers whose livelihoods and experiences have been so incredibly improved by being able to build their own small businesses on our platform,” says Uber’s Andrew Noyes. “In San Francisco, where we’re headquartered and where we launched first, there are drivers who have been with us since the early days who have gone from a one-car, one-driver company to employing 30 drivers and having 30 or more cars in their fleet.”
Not surprisingly, perhaps, FastCab’s Doepker also thinks an app-based ecosystem would be a major improvement. “It’s just personality and hustle,” he says. “If you get good ratings more people are going to request you, and if you’re an asshole nobody’s going to get in your cab.”
It’s not just self-interested entrepreneurs who see it this way. Karen Cameron, the manager and chief inspector of Livery Transport Services in Calgary from 2003 to 2007, says apps have changed the game for the better. “The apps actually fix some of the market’s failures that justified regulation in the first place,” she says. “If we measured the amount of harm done by the current approach, we’d find that it outweighs the perceived benefits of a limited system.”
And she thinks there’s one app that seems particularly suited to addressing the market failure that makes Calgary’s taxi and sedan market so inefficient. “Uber is trying to fix the fundamental problem with the current business model, which is the failure to match supply and demand.” Boettcher, for one, is more than happy to pay that premium. “I’ve always said that at key times I’d be willing to pay a little bit extra. It all comes down to that market demand, and they’ve been smart about it – and kudos to them for being able to think on that level.”
But the city doesn’t appear ready to join them there. And that, Cameron says, is a reflection of the fact that it’s lost sight of who it’s truly accountable to. “All regulators are very well versed in what the industry needs and wants, but they have to guard against the regulatory capture that is so prevalent in taxi regulation,” she says. “Listen to what the consumer is telling you.” That’s why Cameron says it’s up to politicians to push the issue forward.
“It’s up to Mayor Nenshi’s office. He has to signal to Livery Transport Services that it’s time to stop shoring up the antiquated system and think about what it truly means to be in consumer protection and public safety without relying on entry controls.” Under the current system, Cameron says, “consumers are the biggest losers. They don’t get to access taxis how they want and when they want.” The biggest winner, meanwhile? “Those whose monopoly profits are being hard-coated in regulation.”
so prevalent in taxi regulation.” – Karen Cameron, former manager and chief inspector, Calgary Livery Transport Services
The biggest impediment to meaningful change might be the 1,526 taxi plates that underpin Calgary’s system. Roughly half of them are owned by individual drivers, with the balance being held by the city’s taxi brokers, and opening their industry up to meaningful competition would mean those plates would lose their considerable value. In his 2013 report on Calgary’s taxi industry, Seymour noted that the plates trade for $150,000 and return as much as $10,000 in rent per year to their owners. All told, they’re worth an estimated $200 million on the grey market that’s developed for them – and that despite the fact that the city legally owns them.
Notwithstanding that fact, Rupinder Gill, the former head of the Calgary Cab Drivers Society and one of the driving forces behind United Cabs, a newly created company that promises to be “the WestJet of the taxi industry,” says the city would face lawsuits from disgruntled drivers if they deregulated the system and effectively undermined the value of those plates. Many of the drivers, he told Metro, have taken out mortgages to buy one. And it’s no wonder, given that, as Seymour noted in his report, at their current price they would take 15 years before they delivered any return on the initial investment.
But, as Seymour argues, the city cannot delay the inevitable, as much as it might like to try. All that remains is for the city to determine whether it wants to euthanize the existing system or hook it up to the regulatory equivalent of a feeding tube and watch it die a slow and painful death. “It will become difficult to enforce the current regulations as rogue taxi drivers will find it increasingly easy to do business without detection by authorities,” Seymour says. “Incumbents will still lose their monopoly, but they will become angry as rogue operators entering the market erode the value of their plates.”
There already are angry incumbents, it seems. When asked about the impact Uber might have on his business, Checker’s Enders didn’t pull many punches. “You’ve got people that are not being let out of the vehicles unless they give the driver a five-star rating or a bigger tip. They kill a six-year-old-girl, and Uber says, ‘Not my problem,’ ” he says, referring to a case in San Francisco in which a driver hit three pedestrians, killing a girl. Uber is arguing in a lawsuit that the driver was not working at the time. “You have drivers sexually assaulting their passengers, and Uber stands back and says, ‘Not my problem.’ We’ve got very strict rules for the safety of the public as well as the safety of our drivers. These fly-by-night apps like Uber, they are breaking the rules and are now being challenged by the regulators. They’re going to have to start complying properly.”
That compliance will now include the 30-minute book-to-pickup provision for sedans. The city’s Marc Halat says the existence of a pre-arranged ride was always in the bylaws, and that clarifying it in this way will help the city crack down on bandit taxis. “We need to be able to see that a contract has been pre-arranged. We felt 30 minutes, in consultation with industry, was sufficient.” Still, it’s difficult to see this as anything other than another roadblock for Uber.
But Boettcher, who knows a thing or two about creative destruction and what it’s like to challenge an entrenched system, likes Uber’s long-term prospects. The growing popularity and acceptance of food trucks in Calgary is proof, he says, that in the end the people will get what they want. “Everybody said it would be too difficult to change – there was too much red tape and there was going to be a bunch of restaurants or hot dog guys that were going to be pissed off. But at the end of the day, it does make Calgary a better place to live, and I think this is one of those things as well.”Related