Ride or Die

TLC Testimony Foreshadows October Ruling on Smartphone Apps for Yellow Taxis

"It is not the rightful function of government to protect one segment of an industry from competition from another segment," says the TLC.
 TLC Testimony Foreshadows October Ruling on Smartphone Apps for Yellow Taxis

Smartphone and the City?

In a packed boardroom across from City Hall last week, members of the New York City Council’s Committee on Transportation met to discuss the Taxi and Limousine Commission’s plans for a smartphone app that will allow riders to digitally hail and pay for yellow cabs, with just a few taps of their phone. The TLC shared the results of a survey–conducted through backseat screen, naturally–which found that almost 70 percent of passengers owned a smartphone and that 50 to 60 percent of respondents want an app that lets them find and pay for taxis.

The testy standing-room-only crowd didn’t shy away from cheering (when Councilman Vincent Ignizio accused the TLC of secret plans to destroy the livery cab industry via e-hailing apps) and jeering (Councilwoman Darlene Mealy, who represents Bed-Stuy and Brownsville, pointedly rolled her eyes when a TLC rep implied it’s not that hard to find a cab to the outer-boroughs.)

The notion of radically altering as iconic a New York moment as flagging down a yellow cab was met with wariness and derision from council members. It’s hard enough trying to explain the off-duty sign to tourists or parents visiting from out-of-town–imagine if you had to instruct them on how to navigate an app. “What happens if you are a senior citizen or a disabled person and you do not have access to the apps or you don’t know how to work with them?” asked committee chair James Vacca. “Somebody with an app will be able to hail a cab and you’ll be standing in the street longer than you normally would.”

The primary concern seemed to be creating a two-tiered system, one that privileges tech-savvy smartphone owners traveling around downtown Manhattan, credit cards in hand. The second major worry was the potentially devestating impact on the city’s black car and livery cab providers. Historically, for-hire vehicles have had the monopoly on pre-arranged rides, while yellow taxis pick up passengers off the street.

The TLC is the agency responsible for regulating and licensing city taxis. Whereas the City Council, on the other hand, “doesn’t have a lot of power to do a whole lot, other than to make noise, which they seem to do reflexively,” a source familiar with city politics said when asked about the council’s authority over the TLC. Nonetheless, testimony and off-the-cuff answers from Ashwini Chhabra, the TLC’s dapper deputy commissioner of policy & planning, offered the clearest picture yet of the agency’s thinking on e-hailing, credit card processing, and competing with livery cabs.

Mr. Chhabra revealed that the TLC plans on releasing a set of rules for comment on those issues “as early as October.”

The urgency surrounding the matter is tied to the request for proposal (RFP) for a city-sanctioned smartphone app that was released in March. For the first time, Mr. Chhabra revealed that 19 companies have submitted proposals. That includes startups like Uber, Get Taxi, Hailo, and Taxi Magic, which have all publicly acknowledged their bids. But the RFP focuses primarily on in-app credit card processing that would work with the existing T-PEP system (the credit card readers and screens run by Verifone and Creative Mobile Technologies through an exclusive contract with the TLC.) “It did not contemplate hailing functionality,” said Mr. Chhabra, although the TLC asked to hear about that feature.

The folly of requesting specs for e-hailing before the TLC had promulgated rules on how that should work it was not lost on Mr. Vacca. But Mr. Chhabra seemed convinced that could be done simultaneously and wouldn’t require postponing the RFP.

He reminded the council that T-PEP contracts are scheduled to expire in February, which might open the way for something more smartphone-friendly. “We will need to provide specs for T-PEP 2.0,” he said, pointing to the city’s pilot program with Square, Jack Dorsey’s mobile payments system, which has run a pilot program in 13 vehicles replacing T-PEP with iPads in the back seat and iPhones in the front. “We have received positive preliminary feedback. If the final results of this pilot program are similarly positive we will allow similar solutions as part of the T-PEP 2.0,” said Mr. Chhabra.

Earlier this month, Uber tried to jump the gun on the RFP and expand its existing request-a-ride offering from black cars and hybrid cars into New York’s yellow taxi market. (This brash, bulldozing approach seems to be something of a pattern with Uber. Currently, the DC Taxi Commission is butting heads with the startup, although the chairman of the FCC is a fan.) Here in New York, Uber’s bum-rush was quickly shot down when the TLC started notifying drivers that using payment or e-hailing apps was punishable offense, but only after the TLC permitted Uber to offer free rides to New Yorkers for a week.

“I can tell you that looking at the availability of cabs this morning on one of these apps, it looked like there were four yellow taxis available in the whole city,” Mr. Chhabra said with whiff of amusement.

Uber did not speak at the hearing, but a trio of Hailo ambassadors were present, sporting bright yellow company T-shirts. Jing Wang Herman, CEO of Get Taxi’s U.S. operations, offered testimony explaining her company’s approach, which offers an option to sidestep the e-hailing issue by sending the passenger a beacon to locate nearby taxis, “without pre-arrangement.”

From the tech world’s perspective, the TLC’s response to Uber has been anti-innovation–a hallmark of bureaucracy and counter to Mayor Bloomberg’s pro-startup agenda. But hearing the City Council’s concerns clarifies the number of legitimate and troubling issues in play. In fact, during the hearing, the agency came across as eager to move fast and break things, as Zuck might say. “It is not the rightful function of government to protect one segment of an industry from competition from another segment,” Mr. Chhabra said. “So long as passengers win and the industry over all wins, our goal to be to encourage innovation and forward movement.”

Here are the problems any startup that wants to offer their app in yellow cabs will have to keep in mind:

SAFETY FIRST!

If you think texting while driving is hazardous, try to imagine responding to a request for a ride from within an app. After a council member quipped about implanting computer chips in drivers’ brains (to make sure there hands stayed at two and ten), Mr. Chhabra retorted, “I don’t think we have to go as far as a chip in the brain, maybe Google Glasses.” He explained that the existing T-PEP system, which is occasionally used to dispatch messages to drivers, only delivers the message when the cab comes to a halt. TLC is looking for an app that offers a similar technological fix for that issue.

YES, THE MTA WOULD LIKE A RECEIPT

Currently, the MTA takes a 50 cent tax on any ride where the passenger pays with a credit card, and the council pointedly wondered how that would work with apps. Mr. Chhabra responded that the T-PEP system currently offers “a full accounting” of everything from the rate of fare to taxes and tolls accrued during the ride. “I want to be clear that when we look at apps as technological innovation they have to be that, we don’t want to take a step backward,” he noted. “If apps are going to be permitted to play some of that functionality, then they will also have to bear some of the reporting requirements and tax collect requirements.”

HAILING FOR THOSE WITHOUT A SMARTPHONE

Mr. Vacca, the committee chair, came back time and again to his fear of a two-tiered system. “A lot of the people that I represent don’t have credit cards. A lot of people in the Bronx don’t have checking accounts. They have cash. I want to protect those people too. They’re entitled to a cab. How are we protecting the person of limited means who is entitled to our care like anyone else?” he asked, wondering whether the TLC had studied smartphone ownership outside of the Manhattan Central Business District, where the TLC said most yellow cabs have to operate. (We didn’t have the heart to tell Mr. Vacca that no amount of innovation was likely to improve Bronx residents’ chances of finding a yellow cab willing to take them home.)

Mr. Chhabra responded he didn’t want to prevent anyone from paying with cash, but didn’t really offer a picture of how a smartphone app would allow that. He did, however, point out that the smartphone apps already being used by black cars and livery cars, like Uber, allow a texting option. “So that’s something we would explore as well,” he said. During the TLC’s testimony, Mr. Chhabra also said where e-hailing may be “particularly disruptive, for example in taxi stands or transit hubs and at airports, we will seek to prohibit the use of these apps.”

IS THIS EVEN LEGAL?

As last week’s hearing, it quickly became clear the relationship between the council and the TLC was contentious at best. Members questioned the TLC even had the authority to permit e-hailing considering that it could affect the millions of tourists who come to New York City every year, especially without clarifying the rules around it. “It’s like you’ve become this superpower and something is wrong with that,” said Ms. Mealy. But political bluster aside, it’ll take more than mass-adoption of smartphones to squash these legal issues. Back in June, for example, a state judge blocked the TLC’s plans for livery cabs that could pick up street hails called “borough taxis” after the judge found that “Mayor Michael Bloomberg’s administration improperly skirted the City Council to get its plan approved in Albany.”

OUTER-BOROUGH DISCRIMINATION

Many of the council members present represent constituencies in the outer-boroughs and seemed particularly concerned about discrimination when it comes to both appearance and destination. For those of us that have kicked out of the backseat of a taxi once we utter the word Brooklyn or Queens, it’s not hard to see the danger in disclosing our end point to a driver via an app. But Mr. Chhabra said an app that doesn’t disclose your destination could “introduce an element of colorblindness.” This elicited some laughs. Almost every council member who spoke felt compelled to share their story of being denied a ride because they wanted to go to the airport or the Bronx, despite the fact that drivers are legally required to take you there.

Another argument Mr. Chhabra made in favor of smartphone apps was that they, “may also serve to reduce deliver reluctance to take trips out of Manhattan, if drivers think these apps can provide a greater prospect of finding a passenger for a return trip.” It was at this point that Mr. Vacca talked about how of the people he represents don’t have smartphones.

DEATH TO LIVERY CABS?

The notion that the TLC is not responsible for protecting one segment of the industry, which could refer to its contracts with Verifone and CMT, did not sit will with Mr. Ignizio, who worried that offering pre-arranged rides via yellow cabs would cut into livery cab margins. “That’s true in a free market,” he said, but as a government agency, the TLC should “ensure that both survive and thrive. I don’t believe they want a livery industry. The TLC wants to be the big base station that’s the unstated goal of the TLC,” he ranted, eliciting a “Hallejuah,” from the older gentleman sitting next to Betabeat. Mr. Vacca echoed those sentiments when he told Mr. Chhabra, “It’s within your purview to cushion an industry.”

Mr. Chhabra pointed out that black cars and livery cabs are already using these smartphone apps themselves, but said the TLC would be vigilant about monitoring negative impact. During earlier pre-written testimony on behalf of the TLC, he pointed out that the same concern was voiced when the agency discussed offering credit card processing. The TLC heard back that some businesses now allow employees to use yellow cabs because they’re able to pay with a card and get a receipt. “But no one would suggest that credit card readers is a bad idea. Not least of all the 100 million plus passengers, who pay for taxis trips with credit cards each year.”

SLIM MARGINS

Councilman Fernando Cabrera wasted no time getting to point, asking “For these app companies, how are they gonna make money?” The council was concerned whether riders or drivers would have to pay a premium for this enhanced mobile service. (When Uber discussed its yellow cab plan with Betabeat, the company proposed a flat 20 percent tip to cover its service. That’s a little lower than the average credit card tip since the TLC installed those automatic tip buttons starting at 20 percent, and much cheaper than the prohibitive fee for its black car service, but it also means less of the tip is going to the driver.) “I don’t think the margins are going to be very substantial,” for smartphone startups said Mr. Chhabra. “That said, I’m not the entrepreneur and if someone thinks there is a business model that they can make work, we want to give them that opportunity.” At the same time, he said, the TLC wants to make sure that e-hailing and paying only becomes an option for people who can afford it.

NECESSARY EVIL INNOVATION?

Companies like Uber, Get Taxi, and Hailo all currently offer their service for the equivalent of yellow cabs in taxis from Chicago to Moscow, but council members suggested that startups have a stronger burden of proof that it’s necessary in New York. Mr. Chhabra himself noted more than once than he didn’t see the necessity of this kind of app. “New York, of course, is unique. Unlike Chicago or San Francisco, you don’t generally need a smartphone to hail a taxi. At least not in the Manhattan Central Business District, which is where yellow taxis operate for the most part. All you need is to put your hand in the air, and as if out of nowhere, a taxi appears to take you where you want to go.”

“Yeah, if you can fit in the back seat,” an older woman in a wheelchair yelped from the audience.

Follow Nitasha Tiku on Twitter or via RSS. ntiku@observer.com