Mr. Yassky.

Tomorrow morning, New York City's Taxi and Limousine Commission will hold a momentous vote at its headquarters on 33 Beaver Street concerning two sets of proposed rules--one of which could radically alter the taxi hailing experience for New Yorkers.

That highly contested proposal calls for changing e-hailing rules that have traditionally given yellow cabs province over street hails, where black cars and livery cabs focus on prearranged rides. If passed, those e-hail rules would open up New York's massive, much-coveted market for yellow cabs to any request-a-ride app that meets guidelines and secures a license.

So rather than having to hail a taxi on the street, these apps will let you flag down and pay for a taxi with a few taps of your smartphone.

The best stat we've seen to support the need for such technology: at a public hearing on the proposal last month, it was estimated that New York taxis only spend 40 percent of their time on duty occupied with a passenger. On the other hand, we can't really picture our mom getting the hang of it, considering she has yet to understand the soon-to-be-extinct "Off Duty" light.

Initially, the TLC tried to solicit e-hailing apps by putting out an request for proposal. Uber, Hailo, Get Taxi, Taxi Magic and Cabulous all applied. But in October, the TLC threw out the idea of bureaucratic RFP in favor of a free-market approach. Once you have the license, there's just the small matter of dominating the competition.

The TLC opted for a similar free-market strategy with the second proposal up for vote, which calls for upgrading the TV screen and credit card swipers in the partition of your taxi (referred to by the agency as T-PEP). Earlier this year, Jack Dorsey's mobile payments company Square ran a pilot program testing iPads in the back and iPhones in the front as an updated alternative. But that program was cut short after the TLC decided to throw out the RFP--once its exclusive contract Verifone and CMT expires in February--in favor of allowing for more competition and, in theory, more innovation with T-PEP 2.0.

We talked to TLC chairman David Yassky by phone to get some insight into what to expect at tomorrow's vote and what happens if the proposals pass. (You can find the TLC's reports on e-hailing and T-PEP 2.0 presented at last month's public hearing embedded below.)

An open-market approach could mean a lot of change for taxi riders in New York. I was wondering if you had a sense of what to expect if there are multiple T-PEP vendors and multiple licensed apps. How do you see that rolling out?

On T-PEP, there are two companies that do this work today in the taxis. I don’t think you’ll see a big influx of other companies looking to compete in that market. It’s a specialized product; it’s not as easy as it looks. If it was just credit card processing, then there are plenty. But it’s mobile credit card processing in a taxicab. It involves a lot of support equipment that’s part of the same system--text messaging to the drivers, trip records that we rely on for our enforcement and lost property, so it’s got to be accurate. I guess I think that the reason to move from a contract to a set of standards is so you allow for the possibility of competition. I think that will keep the pressure on the existing companies to keep serving their customers well and keep coming up with improvements, even. But you may not even see any new entrants, or maybe at most one or two.

But even if Square came into the picture, that would mean something very different in terms of iPads in the back of taxis.
It does open it, and you may see another competitor and with that innovation, so that would be good. Just to be realistic about what to expect, I don’t think it’ll be "a thousand flowers bloom." The barriers to entry are significant. It’s a fair amount of hardware you have to put in the taxis.

And what about the app side?
That’s the classic environment for a tech startup. I think to have a successful one, you need a certain amount of market penetration, but you can get up and running with a certain amount of investment. The market is untried and untrodden, so nobody quite knows what appeals to customers. So there I expect you'll see a decent number of competitors.

I was talking to Jay Bergman, the New York CEO of Hailo, who suggested at the public hearing that there be universal integration to help app providers who want to work with, say, three T-PEP vendors. Is that something the TLC is inclined to stipulate?

There are two different issues. Sometimes standardization helps a market develop. Like with what used to be called videocasette recorders and then used to be called DVD players. Sometimes a standard helps competition flourish, right? Maybe a better example would be Apple's approach to their iPad and iPod products, where you let a lot of other companies play on your platform. So we do want to make the T-PEP system available as a platform for apps to utilize. That's part one. But another reason to prescribe ways of doing business is customer protection. So, for example, we want to make sure that the fare that is on the meter ends up being the fare that is charged to the passenger. What we're trying to do in our rules is do both those things: make T-PEP a platform that's available, but not restrictive for app developers, and at the [same] time have some basic level of restrictions that are necessary to insure customer protections.

Another thing Mr. Bergman brought to my attention, which was also mentioned in the public hearing, was downgrading e-hailing to just the idea of a broadcast technology that puts out a beacon for riders in search of cabs, but doesn't actually connect them with taxis. The notion was put forth by some of the incumbents, so you're just broadcasting a rider's location.

Look, if we're gonna bring e-hailing apps to New York, we're gonna do it right, and we don't want a kind of half measure that won't provide real service to customers. What customers want is to be able to send a signal out to taxis and then know if a taxi is coming. You don't want a customer not knowing, saying, "Huh, here's an empty cab just went by, should I get in it, or wait for the guy who's on his way to get me?" For the system to work, the customer needs some feedback from the driver. We don't prohibit that, we absolutely allow the broadcast model too. Maybe customers will provide that. Our general approach is the customer knows best what he or she wants and what works for him or her.

Are you at all concerned about fragmentation in the market? If you look at mobile payments apps like Square Wallet, for example, everyone from Dunkin' Donuts to Walmart has their own app and that's led to maybe less adoption than you would have seen if there were one dominant player.

I figure that's really one where the market sorts it out.

Apps also offer different payment structures in terms of what they charge for their service. Uber, for example, initially wanted to take a percentage of a 20 percent gratuity to drivers. 

On this front, we just want to make sure there is full disclosure to the customer. So if the customer thinks that he or she is tipping $3 to the driver, you want that $3 to go the driver. You want the customer to know what they're paying for the taxi fare itself, which better be what's on the meter. If they're tipping, you want the passenger to fully understand what their tip is, and if there's a service fee or surcharge that the app is charging, you want the customer to understand that.

Do you have a sense of the commissioners' openness to these proposals?

I've gotta tell you, this has been really one of our best debates. We've had a really full and searching debate on the substance and merits, and there are arguments both ways. The taxis in New York work pretty well. Whenever we're considering an improvement, I think the the argument "it ain't broke, so don't fix it," is something you want to take seriously, right? The taxi system works really well for the 600,000 people a day that taxis transport. This has been one where we fully vetted the arguments about possible disruptions to that existing service, but I think weighing appropriately the opportunity for improvement. There's not unanimity of opinion about how to weigh the pros and cons here.

There has been significant opposition from industry incumbents. Do you think there's a chance that this could end up in court like the plan for borough taxis?

I think, like with borough taxis, the basic idea is quite sound. In the end, sound ideas generally win out.

How much has the mayor been involved with these proposals?

This started because the TLC put out these proposed rules as part of the Bloomberg administration’s overall communications to keep New York City at absolutely the forefront of technology acceptance and embracing it.

There has been some debate about whether it's the TLC’s job to protect one market segment, like livery cabs, from being hurt by innovation. App companies have complained about heavy lobbying against their product. In public testimony, the TLC has said that’s not their responsibility.

That’s part of the process. We should absolutely expect that business will try to protect their interest and make argument to regulators in service of their interest, and sometimes public policy does coincide with one or another’s interest and sometimes it doesn’t. We should expect that companies will be vigorous advocates for themselves. When I see that phenomenon, which I do frequently, I’m not surprised. I’m sure you’re not surprised either.

I think the commissioners have done a good job hearing all sides. What you termed ‘incumbent,’ are businesses open in New York City that employ New Yorkers. Their viewpoints are entitled to respect, and regulators would be doing a poor job if they didn’t listen. That doesn’t mean that you automatically accept them. Oftentimes businesses know better how a proposal will affect them than a regulator does.

Have you tried out e-hailing apps for black cars, like Uber?

I personally have not, although several TLC employes have, so I’ve been able to get their sense [of the] customer experience.

What did they say?

I, uh, the reason I don't want to answer that question is that we’re not advertising for one company or another. I can tell you which of the two pizza places near 33 Beaver Street employees prefer, but I would have to tell you off the record.

E-Hail Commission Presentation FINAL

TPEP 2.0 Presentation JR v3

In April, the San Francisco startup expanded its service in Chicago from black cars to include taxis as well. (Uber's recent attempt to expand from black cars to yellow taxis in New York City were swatted down last month by the Taxi and Limousine Commission.)

Although Uber's brash tactics and outspoken CEO, Travis Kalanick, have rankled city governments and competitors--the complaint even features a screengrab of a contentious tweet from Mr. Kalanick and references his open criticism of "of any regulation in general"--this marks the first time a taxi or limousine company has filed a suit against Uber.

The complaint was filed in the Northern District of Illinois, on behalf of the following companies: Yellow Group, Yellow Cab Affiliation, Taxi Affiliation Services, YC1, 5 Star Flash, Chicago Medallion One and Your Private Limousine.

It accuses Uber of violating numerous local and state laws regarding public safety, consumer protection, and fair practices.

Twitter really has made it!

Mr. Kalanick had not yet seen the lawsuit when Betabeat reached him this afternoon, and said he would respond with a full statement once his attorneys had looked over the document, although he did offer clarification on a couple matters below.

The most noteworthy claim in the suit, at least where consumers are concerned, is related to pricing. In Chicago, Uber charges consumers a 20 percent gratuity as the only charge associated with its e-hail and payment service. When Betabeat spoke to Uber last month, they hoped to be able to use the same 20 percent payment structure in New York's yellow cabs.

The lawsuit, however, alleges that only half of that "gratuity" goes to the driver, with the other half going to Uber. It also says the practice violates Chicago ordinances by charging more that the meter's set rate and that its illegal to pass on the credit card processing fees to passengers.

Mr. Kalanick  responded that the 20 percent tip passes through the driver and that "Drivers pay a service fee to Uber for bringing them the additional business," similar to many radio dispatches in the Chicago area.

The unlawful practice allegations seem to rests on the argument that Uber does not have the knowledge or consent of cab and limo companies, but rather contracts directly with drivers driving the taxi and livery cars. It's worth noting that while Uber develops relationships with black car companies (only one is named in the suit), it reaches out to taxi drivers directly. That's partially a function of the fact that it has a dispatch license in Chicago for taxis.

"We connect riders with taxi drivers directly, we've never claimed otherwise" Mr. Kalanick told Betabeat in regards to the lawsuit. In fact, Uber is currently trying to recruit taxi drivers in both Chicago and New York. However, the suit also calls that dispatch license into question, stating that "mischaracterized its true methods of operation in order to fraudulently acquire a dispatch license" and "failed to disclose" that it had no taxi affiliations.

According to the complaint, this "false impression" of association with transportation companies gives Uber  "the aura of legitimacy," with the public, while avoiding "the costs and time necessitated by compliance with the laws and regulations."

The suit then goes on to accuse Uber of "outright violations of the laws and regulations governing legally operating transportation companies," for example, the liability for checking whether vehicles are inspected and licensed. Chicago taxi drivers, the suit also notes, are prohibited from using cellphones "whether or not hands-free, while operating a cab."

Today's lawsuit is hardly the only legal morass Uber will have to climb out of in Chicago. Earlier this week, a Chicago attorney filed a class action lawsuit in the Circuit Court of Cook County on behalf of local passengers for "false price advertising and deceptive use of wording in communicating how Uber makes a profit from each booking."

Looks like the New York City Council's objections to e-hailing might be the least of their concerns.

This is a breaking story and we will update the post as we learn more. 

Yellow Group LLC Et Al v Uber - FILED Complaint