It never ends, I swear.

If this back-and-forth keeps up, we're all going to get whiplash. Bloomberg News reports that once again, the courts have blocked the Taxi and Limousine Commission's ehail pilot program, just days after it was given the all-clear. The black car business has appealed the dismissal of its suit against the program, and an appeals court judge has granted a temporary injunction until there's a decision.

Good thing this broke after the end of TechCrunch Disrupt, or we might have had a disruptors' riot on our hands. 

"It is appalling that narrow commercial interests continue to try to block passengers from using the latest technology," said TLC commissioner David Yassky in a statement provided to Betabeat. "You can’t stop progress, and these obstructionists shouldn’t be trying.  We're confident this program will move forward.”

The plaintiffs' attorney, meanwhile, crowed: “This faux ‘pilot program’ is so fundamentally flawed and illegal in so many respects that it had to be stopped,” he told Bloomberg. “And now it once again has been.”

The appeals court is scheduled to issue a decision in late May. Until then, guess us residents of the outer boroughs will just have to get a cab the old fashion way: by shadily giving the nod to a livery car driver cruising down Steinway Street.

According to a press release, the Livery Roundtable and the Black Car Assistance Corporation are suing to stop the pilot program on the grounds that the Taxi & Limousine Commission, which voted the program into existence in December, lacked authority to create the program without City Council approval.

"The Bloomberg Administration has once again chosen to impose its will without appropriate public input and with disregard for existing law,"  said BCAC Executive Director Ira J. Goldstein, in the press release. "From bike lanes to pedestrian plazas, too often so-called 'pilots' become permanent at the whim of City Hall."

In the months leading up to the TLC's December vote, the black car industry lobbied heavily against e-hailing, arguing that allowing yellow cabs to make prearranged pickups (as opposed to just street hails) would infringe on the livery business. The pilot program only passed after the TLC downgraded its e-hailing plan from permanent rule changes to a yearlong test case. The pilot program is slated to allow e-hailing apps for yellow cabs starting tomorrow.

In an emailed statement, the TLC said that it had yet to see a copy of the lawsuit, but that it expected the pilot program to hold up to legal scrutiny. TLC Commissioner David Yassky, meanwhile, was not pleased by the potential impediment.

“This suit seeks to keep the taxi industry and New Yorkers in the dark ages," Mr. Yassky said in an emailed statement. "Next thing, they’ll be suing restaurants to go back to wood-burning stoves.  Our rules allow for e-hail now, and the only question is, do we embrace these new services and ensure that consumer protections are in place, or listen to obstructionists and watch e-hail apps proliferate without any regulatory input.

The new lawsuit comes as several companies, including Uber, GetTaxi, Hailo and Flywheel, are preparing to launch on-demand taxi-hailing apps.

In the meantime, anyone planning to e-hail a yellow cab tomorrow may have to wait.

Update (5:26 p.m.): BCAC spokesman Bill Farrell told Betabeat that the state Supreme Court has scheduled a hearing on the lawsuit for February 28. According to Mr. Farrell, city representatives said during a preliminary hearing today that e-hailing apps won't be ready to launch until March 2.

Update (6:03): The New York City Law Department just emailed to indicate that there is no temporary restraining order preventing the city from launching its e-hailing pilot. "We're confident the pilot program will withstand court scrutiny," said Michelle Goldberg-Cahn, a lawyer for the city, in an emailed statement. "This program was approved in accordance with TLC rules and is completely proper."

You can read the lawsuit below:

Mayor Bloomberg and Jack Dorsey during Square's short-lived pilot program.

This morning, on his weekly Friday radio show with John Gambling, Mayor Bloomberg discussed the Taxi and Limousine Commission's vote in favor of a year-long pilot program to test out e-hailing apps, which let riders flag down a cab with their smartphone.

As we noted yesterday, the pilot was a last-minute compromise when it seemed like lobbying from black car and livery car incumbents would prohibit the passage of permanent rules to open up the taxi market to any app with a license. (Black cars and liveries worry that the ability to "pre-arrange" taxi rides with an an app will hurt their business.)  

In his remarks this morning, Mayor Bloomberg mused on some potential pitfalls of incorporating the apps into the taxi hailing experience:

"The mobile phone knows where you are, so in theory you hit a button and any taxi driver that’s on the same app on his mobile phone or her mobile phone can hit a button and say, 'I’m going to come.' What happens if two guys hit a button at the same time? What happens if you hit the button, a guy says he’s coming, and in the meantime some cab pulls up empty--somebody’s getting out? Do you hop in? And what do you do with the first cab guy? Whose obligations are what?"

Overall, however, he advocated for a free market approach, echoing statements made by TLC chairman David Yassky in our interview earlier this week.

"Everyone’s different, I have absolutely no idea which one is better. My sense is always that you should have more than one so the public has a choice and let the marketplace decide."

But things really started to heat up when Mr. Gambling guessed that cab companies and drivers would be into this sort of innovation. Mr. Bloomberg reiterated the example of adding credit card payment options, which came up repeatedly during negotiations as an example of unfounded fears of incorporating new technology.

"Uh. There is a group of cab owners that are opposed to anything, but yeah most cab drivers should like this. They didn’t like credit card use and now they’ll all tell you their tips are up dramatically."

Somehow that segued into a diatribe on corruption in the taxi industry!

"The cab industry is a funny industry. I don’t know if there’s any other place in the world where the city gives a license and the people that have that license can then trade it and resell it and the city doesn’t have any interest and any ability to share in the value going up. And the politics, because they support candidates--a normal market would just say: Well, we’ll just issue more taxi licenses. Wrong! Because they have bought the legislatures and stopped the ability to do that. It is one of the great rip-offs of the public any place I’ve ever seen."

Mr. Bloomberg's agenda for 2013 might be to disrupt medallions, but the rest of us are more concerned about the MTA.

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

(Photo: Wikimedia)

UPDATE: The TLC is only contemplating canceling the RFP for smartphone apps. "While we don't anticipate the need to proceed further with the RFP, if the rules are not passed as proposed, we may in fact choose to proceed with it," TLC spokesman Allan Fromberg clarifies. 

As expected, the New York City Taxi and Limousine released proposed regulations today that call for allowing riders to e-hail and pay for taxis through a smartphone app. However, along with the new rules, the TLC is cancelling is considering canceling its request-for-proposal from March soliciting smartphone apps: "Because the e-hail rules will enable app developers to offer riders fare payment products, the RFP will no longer be necessary," the agency said in an press release.

Nineteen startups submitted proposals, including Uber, Hailo, Get Taxi, and Taxi Magic.

The process for modernizing the yellow cab riding experience has been tumultuous, particularly since the TLC put out the RFP without actually issuing new rules about how the apps could function--angering the City Council.

The TLC has also thrown out the idea of an RFP for an updated version of the TV and credit card swipers located in the taxi partition called T-PEP. When the mobile payments company Square abruptly ended its pilot program in anticipation of new rules on how T-PEP 2.0 should function, TLC spokesman Allan Fromberg told Betabeat that the agency was opting for "the opposite of an RFP." Instead, he said, the agency would create new rules "that will set up a foundation of specs–and then any company that meets those specs will be able to compete in the marketplace.”

The Randians among us will no doubt embrace the possibility of a free market approach (although apps still have to be licensed with the TLC.) But the proposed rules are far from finalized. The agency is hosting a public hearing on November 29, 2012 and anticipates a vote during a meeting on December 13th. In a statement, TLC commissioner David Yassky said he wants to "get apps on passengers’ smartphones by early next year.”

In today's statement, the TLC pointed out that passengers have expressed a preference for paying for taxis by credit card, noting that 50 percent of all taxi trips are paid for by credit card and that 57 percent of all fare dollars are paid by credit card.

Nonetheless, the proposed rules "will also structure the means for apps to interface with the taxi technology systems" or T-PEP, the agency said, in order to "create an ongoing framework for credit card payment." The inclusion of the T-PEP seems to hinge on the fact that the TLC has exclusive contracts with Verifone and Creative Mobile Technologies that don't expire until February, 2013.

Here are the highlights, according to the TLC's press release:

Proposed Rule Highlights

E-HAIL APPS

• Rule permits app developers to market e-hail apps and drivers to use apps, provided the app is licensed by TLC.
  • Rule would permit full range of app business models (apps that do/do not include confirmation from driver; apps that do/do not include payment for taxi trip).

• Use of e-hail apps is optional for drivers.
  • Fleets cannot require drivers to use these apps.
  • Use of apps not permitted unless vehicle is legally standing.
  • Only licensed taxi drivers in licensed taxicabs can use e-hail apps.
  • Apps may not be used at JFK or LaGuardia airports to avoid disruption of managed passenger/taxicab queues, or at Penn Station and Grand Central taxi lines.
  • Apps must not disclose passenger destination information (or other identifying information) to drivers.  Driver only sees pickup location. 

E-HAIL APPS THAT ALSO PROVIDE FARE PAYMENT

• E-hail apps that also provide for payment must integrate with TPEP, and payment infrastructure must meet same stringent security standards as TPEP.
• App that includes trip payment must obtain fare by direct transmission from meter (via TPEP).  Without this, there is risk of driver error/wrongful entry of fare.
• Provides for confirmation of payment to driver (also via TPEP).
• TPEP systems are required to integrate all TLC-approved apps that provide fare payment.
• Apps including trip payment must identify any service charge collected by the app separately from the metered fare (including all tolls, surcharges and MTA tax) and any gratuity (gratuities shall remain non-mandatory, and shall be in an amount to be selected by passenger).
  • Total amount designated as a “tip” or “gratuity” must go to the driver.
  • Driver cannot receive any payment for e-hail trips other than fare and tip.  As a result, drivers will not prioritize e-hail trips over hand-in-air hail trips.
  • Rules permit pre-set tip amounts/percentages, so long as that amount can be changed by passenger.
  • App including trip payment must accept, at least, AmEx, VISA, MasterCard and Discover.
  • App including trip payment must offer a receipt, which can be an electronic receipt (e.g., email, SMS), at the passenger’s choice.
  • Rules permit pre-payment (prior to end of trip) to expedite process.
  • Rules permit split fares among passengers using the same app.
  • Drivers cannot accept payment by any apps other than TLC-approved apps.

 

T-PEP 2.0 Rules Would Require:

• Display of current rate code and a running total fare for the ability to see itemized fare at any time;
• Optional acceptance of electronic signature and provision of electronic receipt;
• Allow for pre-payment via early swiping & approval by the Passenger to speed disembarkation;
• The option of providing splitting of fares;
• Features to assist visually-disabled passengers with paying fare;
• Improved Spanish language content on PIM;
• Expanded passenger route map (covering more ground for out-of-town trips);
• Geo-fence rate code 4 (preventing activation unless outside of NYC);
• Acknowledgement and requirements for integrating with smartphones;
• Option to pay drivers directly via electronic debits;
• Automatically deduct the $0.06 healthcare fee for each transaction;
• More frequent updates to TLC content and surveys;
• Expansion of TLC Audio/Video Content;
• Expanded text messaging capability;
• More and better passenger survey capabilities.

This is a breaking news post and we will update you as we learn more: tips@betabeat.com. 

Misty, Instagram-filtered memories, of the way we were. (Photo: nycgov.tumblr.com)

Ouch, we think we just got whiplash. A couple weeks ago, Mayor Bloomberg was photo-opping in the backseat with Jack Dorsey, founder of the mobile payments company Square.

But this afternoon, the New York Post got its hand on a letter from Square to the New York Taxi and Limousine Commission (TLC) announcing that the company has suddenly pulled out of its pilot program in yellow cabs, which the agency recently stated was going swimmingly.

The pilot run in 13 cabs was testing Square's service--featuring iPads in the vehicle's partition and iPhones in the front--as a replacement for TPEP, the agency's internal moniker for the TV screens and credit card swipers currently run by an exclusive contract with Verifone and CMT that expires this coming February. 

The letter, signed by Square's general counsel Dana Wagner and agreed to by the TLC, says:

"Square has determined, in light of developments in prospective taxicab regulations in New York and other markets, and based on what we have learned conducting the Pilot Program to date, that we wish to pursue a different hardware and software solution," noting that the program has already covered 28,000 rides and 100,000 miles."

Reached by phone, TLC spokesman Allan Fromberg offer some clarification on those developing regulations. "There is no candidate for TPEP 2.0 because is there is no contract!" he said when we asked if Square was still in the running. "Instead of what we did with the two TPEP vendors that exist now [i.e. Verifone and CMT], for TPEP 2.0 we were going to go the rule-making route. So we are going to create new rules and regulations that will set up a foundation of specs--and then any company that meets those specs will be able to compete in the marketplace."

Said Mr. Fromberg, "This is sort of the opposite of an RFP."

Given all the fuss we heard about the lack of rules governing e-hailing and credit card processing for taxi apps in a recent City Council meeting, we were wondered if this was related. "Nope, not all," Mr. Fromberg insisted. "We just think it's the smarter, more efficient way to go to open the market up to smarter off-the-shelf solutions, as opposed to what we had to do to before and draw a specific custom-made solution," he added, referring to RFP five years ago when the TLC first starting putting this kind of technology in taxis.

Mr. Fromberg said the he expects to see draft rules for these new specs "by the end of the year."

He also dismissed rumors floating around last week, courtesy of PrivCo CEO Sam Hamadeh, that Square was about to close a deal with the city to extend its mobile payments system into 1,000 cabs. Any truth to that, we asked? "That's an absolute no," he said, emphatically. "No idea where he got it. You'd have to ask Sam Hamadeh."

By email earlier, Mr. Fromberg characterized Square's pilot run as a big success, perhaps referring to the intel the city gathered in terms of what they want--or don't want--in the back of their taxis. "The Square pilot has been a tremendously positive experience for us. From the TLC's standpoint, it's achieved every goal we had set for it, and we learned lessons about alternative technologies that we'll be applying to projects well into the future. It was a total success."

Square agreed to reimburse medallion owners for the cost of uninstallation of their pilot effort and installation of a new TPEP system. The letter also seems to indicate that Square is still planning on submitting a candidate for "future TPEP:

"It would be commercially unreasonable for Square to pursue a new hardware and software solution for a future TPEP offering while at the same time continue to support the software and hardware solution we rolled out in the Pilot Program."

UPDATE 6.40 p.m. 10/15: It looks as though Square is indeed eager to become the city's next TPEP vendor and will apply the lessons learned from the pilot program to develop a new solution. By email, a spokesperson from Square offered the following statement (with a more recent tally of the amount of rides):

“We’re very grateful to the NYC Taxi & Limousine Commission for partnering with us on this pilot. We’ve learned a ton about the specific needs of taxis over the course of more than 34,000 rides and 100,000 miles traveled. We’ll use our findings to further improve Square and make commerce and transportation even easier for millions of riders and drivers in New York and around the country.”

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

(Photo: Uber)

Uber will not go gently into that good night. The request-a-ride app raged against New York City's Taxi and Limousine Commission last week for putting a stop to its rogue mission to let New Yorkers hail and pay for a yellow cab with a few taps of their smartphone. Uber already offers the services for black cars and hybrid cars, but at a hefty premium.

To keep the company top of mind for New Yorkers, Uber is partnering with HBO today and tomorrow to promote the premiere of the third season of "Boardwalk Empire" this Sunday. The startup will be offering free rides in a fleet of vintage vehicles from the Roaring 20's on September 13th and 14th. The offer is only available 11am to 6pm and only for up to three people travelling between Midtown and Soho in Manhattan. 

If it's anything like the free yellow cab option Uber offered last week, good luck getting on board. We tried numerous times from Brooklyn and Manhattan, but got the same apologetic pop-up and text about the lack of drivers currently available.

Offering up these kind of free gimmicks is the only way Uber can operate a taxi service in New York City right now. Last week, the TLC, which posted a smartphone RFP for yellow taxis earlier, essentially told Uber to slow its roll, reminding drivers that they will be penalized for violating city regulations regarding electronic hails.

The real roadblock, it seemed, was over credit card processing related to the TLC's exclusive contracts with vendors like Verifone and Creative Mobile Technologies. The contracts expire next February and the TLC plans on going ahead with its smartphone RFP.

Although Uber CEO Travis Kalanick couched it as a moral imperative for innovation, Uber's sudden urgency may have had more to do with a British competitor, Hailo--hot on their trail to New York City's taxi market. While medallion owners, livery cabs, and even politicians take issue with the politics of e-hailing--imagine smartphone-less riders standing on a street corner, not understanding why that cab just rode by--the TLC told Betabeat that Uber could continue to offer what sounds like an outlaw taxi function, if the service was free.

The tagline for the HBO campaign? "Uber is going Gangster in NYC!" Sounds about right.

(Photo: Wikimedia)

"We got a love letter from the TLC," Uber CEO Travis Kalanick just told Betabeat over the phone. He was referring, sarcastically, to a statement issued today by the Taxi and Limousine Commission to "remind" medallion yellow cab drivers and owners that the TLC "has NOT authorized any electronic hailing or payment applications ('apps') for use in New York City taxicabs."

The TLC's statement (pasted below) is clearly a direct response to Uber's thwarted attempted to launch an app to digitally hail and pay for yellow cabs in New York City. (Uber already operates a separate request-a-ride payment app for private black cars in New York.) "Basically it's saying that Uber can't do credit card processing, that's what it's saying, as far as I can tell," Mr. Kalanick told Betabeat. "If we don't do credit card processing and the drivers are stopped when they get the pick up request, we'll be okay," he added.

Uber will still be permitted to offer New Yorkers a free taxi ride worth up to $25 (the deal expires next Tuesday), the TLC told Betabeat, but drivers will be penalized by fines or suspension if they use the app for payment.

Check out our interview with Uber about its plan for a New York City taxi service that only costs a 20 percent tip.

The issue is around the TLC's existing contracts with Verifone and Creative Mobile Technologies, the companies that power the entertainment screen and credit card processing on the partition of your taxi. The exclusive contracts are around running the screen and the credit card swipe, referred to internally as the Taxi Passenger Enhancements Program (TPEP).

A representative from the TLC clarified Mr. Kalanick's interpretation, noting that, "Due to contractual obligations, payment apps cannot be used while the existing technology contracts are in place. However, we intend to update our regulations to reflect new innovations and new realities by February when existing contracts expire," adding, "We don't approve or disapprove apps."

The TLC rep said this will does not affect the agency's plans to go forward with a smartphone app RFP. Earlier this year, Uber was one of at least four companies to respond to a request for an app that lets riders pay for cabs with their phone. As stipulated in the RFP, any app approved will be fully integrated with TPEP and existing vendors, so there is no regulatory issue there.

By February, when decades-old rules governing the TLC are updated, we might well see other options enter the market. The TLC seems less resistant to change than hampered by existing rules and contracts.

Mr. Kalanick said he intends on fighting this, regardless. "Our attorneys still say that credit card processing is totally legitimate and we should be able to do this," he insisted. "We believe we are totally legal."

In an earlier interview with Betabeat, Josh Mohrer, Uber's general manager in New York City said, "You can't really RFP your way to innovation."

Mr. Kalanick said Uber has a couple different options in terms of proceeding with its plan for a taxi app in the immediate term. "We can offer it for free. Or Uber can help you get the car, but then you'd have to pay normally inside the taxi," he said, adding, "But still our attorneys tell us that we should be able to process credit cards, that we're not breaking anything regulatory or in contract."

He characterized negotiations as still in flux. The point of giving New Yorkers a free option, was to allow time for "the TLC to digest bringing this innovation to market," he said, noting, "This is moment by moment, this is a very fluid situation. In a week things can change."

Immediately after the TLC issued its statement, Mr. Kalanick had a more candid take on the TLC's comments: "This makes New York a worse off place," he said, "People are more likely to get stranded in outer boroughs, and taxi drivers will have a harder time making minimum wage. This looks like a regularity regime resisting change, but without the regulations to back it."

This post has been updated to reflect breaking news. 

Here is the TLC's press release:

TLC Commissioner/Chair David Yassky………..

“The TLC is eager to pave the way for taxi riders to take advantage of the most up-to-date technology, including smartphone apps that may help passengers locate available taxicabs more quickly.  However, current contractual agreements between the TLC and payment processors restrict the use of apps.  We intend to quickly begin a rulemaking process that will permit broader use of apps when these contracts expire in February.  As part of that process, we will work collaboratively with the livery, black car and taxi industries to address their concerns about the impact of apps on existing business models and to ensure that our rules provide full protection to passengers. In addition, we are currently requesting proposals for a smartphone payment system that will integrate with our existing technology. Time and again, New York City’s Taxi and Limousine Commission has led the country in terms of putting new technology to work for riders and we are eager to see products that allow taxi passengers to take advantage of the latest innovations.”

NOTE: The notice below will communicate to our regulated industries the relevant current requirements, in advance of our commencing the rulemaking mentioned in Commissioner Yassky’s above statement.

 

Electronic Hailing and Payment

 

The New York City Taxi and Limousine Commission (TLC) reminds medallion taxicab drivers and owners that it has NOT authorized any electronic hailing or payment applications (“apps”) for use in New York City taxicabs.

In light of the recent release of applications which may permit the electronic hailing of taxicabs and payment of taxi fares, including a release by UBER, taxicab drivers and owners are reminded that:

• Taxi fares must be accurately entered into the TPEP system.  A passenger paying by credit or debit card must use the TPEP system.

• TLC rules also require that medallion owners maintain accurate trip records; if a driver accepts payment of taxi fares through a payment app not connected to the TPEP system, the trip records will not be accurate and the medallion owner will be summonsed.

• A driver cannot charge a passenger more than the fare on the meter for a taxi ride.  If a driver uses a payment app that charges the passenger more than the fare on the meter for a taxi ride, the driver is responsible for a passenger overcharge.

• A driver must not use any electronic communication device, including a cell phone or smartphone running a hail or payment app while operating a taxicab.  Any driver using such a device at any time except when the taxi is legally standing will be summonsed.

Drivers and owners are reminded that violations of Commission rules can lead to fines and, in some cases, the suspension or revocation of their TLC license.

(Photo: Wikimedia)

Yesterday, we broke the news that Uber, the San Francisco-based request-a-ride service, was close to launching an app in New York City to let you digitally hail and pay for a yellow cab with your smartphone. The launch was planned for today, but hit a road block in discussions with the Taxi and Limousine Commission (TLC)--prompting CEO Travis Kalanick to offer free taxi rides for New Yorkers for a week while they sorted it out.

This morning, we spoke to Mr. Kalanick, as well as Uber NYC's general manager Josh Mohrer by phone. Both offered more detail regarding what Uber's taxi app might cost riders and drivers, why the launch was delayed (cough Verifone cough), and why they rushed into the market (hint: it concerns a different kind of British invasion). 

(Photo: an unverified screen grab of Uber's messages to drivers)

How the Taxi Service Might Work

A similar service Uber offers for private black cars and hybrid cars comes at a prohibitive premium on your standard cab--40 to 100 percent for black cars and 10 to 25 percent for hybrid ones. Negotiations are ongoing in terms of how the taxi option will work in New York City. However, Mr. Kalanick pointed out that Uber's yellow cab service in Chicago and Toronto only sets riders back a 20 percent tip, with no additional fee.

"The level of details we have on New York are not finalized," he said, "But what we would like to do is charge what's on the meter plus gratuity and that's it."

In other cities, riders request a cab through the app and the meter is turned on. Once the ride is over, the meter is turned off, the fare is punched into the app. "The 20 percent tip is automatically added and that covers our service charge, so the driver is still getting a tip," said Mr. Mohrer. According to Mr. Kalanick, if you average it out across the board for all Uber taxi services in Chicago and Toronto, "Uber makes [a] single digit percentage on rides."

It's worth noting that after New York City introduced default payment buttons with a 20 percent, 25 percent, and 30 percent option, the average tip percentage for riders who paid with credit cards jumped to 22 percent.

To keep the service "elegant," Uber doesn't let riders increase or decrease the size of the tip from 20 percent. "We may have to put in choice in New York," Mr. Kalanick noted, emphasizing that discussions are very much up in the air.

Uber's taxi app also doesn't allow for payment in cash, which is one of the reasons trade groups representing cab drivers--like Metropolitan Taxicab Board of Trade and the Livery Roundtable--have expressed reservations about the service creating "a two-tiered taxi system" for riders with smartphones, as the New York Times reported.

Mr. Mohrer explained, however, that Uber's use case is more about filling dead time with supplemental income. Since launching a taxi cab service in Chicago in April, Uber has seen the thousand-odd drivers that have registered for its service earn an average of an extra $200 a week through a couple extra fares a day.

"You'll probably have a pretty easy time getting street hail," during rush hour in Midtown, said Mr. Mohrer. "We're thinking more about outer-boroughs, off-peak times, parts of the city that don't always get a lot of coverage. Late night when it might not be safe."

In Chicago, Uber has experienced a spillover effect into its premium offerings. "It has does great things for our black car service too," explained Mr. Mohrer. "It just brings a lot of people under the Uber tent at a more accessible price point."

Free-for-All

Currently, the only way riders can utilize the taxi option is to access the free offer--one ride per person, up to $25, until midnight on Tuesday, September 11th.

We've already heard reports from riders about some difficulty redeeming the offer. Uber only has 105 cab drivers pre-registered with the app. "We're working really hard this week to add as many drivers as we can," said Mr. Mohrer.

To that end, Uber has brought in staffers from other cities and Mr. Mohrer said he expected to add about 500 drivers this week.  "We know it's hard to get everyone in a car this week but we're going to do our best," he added.

One source mentioned that Uber is offering taxi drivers a $50 bonus if they pick up at least two Uber fares today, as per the unverified screen shot (above) of messages Uber sent its taxi drivers obtained by Betabeat. Mr. Kalanick wouldn't offer any specifics except to note that incentives are often packaged and aren't typically contingent on one thing.

In the meantime, Uber is hoping a week will buy enough time for the app to be up-and-running. "We're confident that in that time frame, the TLC will come to some kind of resolution," noted Mr. Mohrer.

The Hold Up Is Over Payments

A New York Times article out last night said Uber's taxi service was potentially in violation of a number of city regulations, including prohibitions on prearranged rides in yellow taxis and restrictions on cabbies for refusing a fare. But both Mr. Kalanick and Mr. Mohrer, who were present in yesterday's meeting with the TLC dismissed those concerns, pointing only to objections regarding using Uber's app as a payment system.

"They're concerned about credit card processing and whether we're even allowed to do it," Mr. Kalanick admitted.

In terms of ignoring street fares, Mr. Mohrer said, it won't be any more of an issue than when you get passed up for the person across the street. "By the end of the week, the maximum distance is going to be less than half a mile. Our electronic hail is never gonna be more than a few blocks away. It was just the payments," he said.

Uber initially met with the TLC about this launch a few weeks ago, at which point the startup was instructed to take a look at the existing contract governing medallion drivers. Uber thought they met the existing terms, but last week they were once again called in by the TLC, which had concerns about whether it interfered with an exclusivity clause with Verifone, a payments conglomerate with a $3.8 billion market cap.

"It's also our understanding that those contracts run out in February [2013] and it hasn't been communicated to us that those contracts are going to be renewed," said Mr. Mohrer. Both the TLC and Verifone declined to comment.

Back in March, the TLC put out an RFP for a smartphone app that will let riders pay for taxis from their phone. After looking through the lengthy RFP, it's clear that any proposal will face integration issues governed by the TLC's contract with Verifone.

A British company called Hailo, an Israel company called Get Taxi, and another company called Taxi Magic are all competing for the same RFP.

"We really don't think that's a great way to do this," said Mr. Mohrer. "You can't really RFP your way to innovation. You need to let free enterprise do its thing."

The British Invasion

Why the rush to market, if Uber still has to lock down its payments service and could benefit from onboarding more drivers? As we reported yesterday, Hailo's impending entry into New York City may have been a deciding factor.

Reports about Hailo's launch suggested the TLC wasn't waiting around to decide the RFP. "Hearing that a potential competitor was launching in New York, one of our most important cities, indicated to us that the TLC was open to have these things move forward now," said Mr. Mohrer, who noted that adding a yellow cab service had always been a part of Uber's long-term plan.

Yesterday, Betabeat received confirmation from Hailo that it had 2,500 drivers pre-registered for its service, which seemed to pale in comparison to Uber's scant 105 drivers.

Mr. Mohrer questioned Hailo's numbers. "What they mean by 'pre-registered drivers' is an email address. When we say we're working with a driver, the relationship is a little more committed than that," he said. "They've been trained on our system to have one of our devices, they have a real relationship with us."

In response to questions from Betabeat, a representative from Hailo said the company had 1o drivers currently evangelizing the service to other drivers in New York City. Through those relationships, the representative said Hailo had obtained verified driver information, including email addresses, phone numbers, and medallion status, although that did not represent a commitment to use the app.