Uber's invasion of CEE meets mixed reception

Uber's invasion of CEE meets mixed reception
Hungarian taxi drivers managed to block Uber operating in their country.
By bne IntelliNews July 15, 2016

Competition in the taxi business is intensifying across Central and Eastern Europe, with Uber's push into the region only the latest shift in the market's development. But the US company – which is promoting itself with Ice Cream Friday on July 15, when it hands out free ice creams to clients – is also facing push-back in the region from some governments under pressure from traditional taxi firms.

In the former Soviet Union for most of the last two decades gypsy taxis have been a de facto social safety network. After official salaries were hyperinflated away to nothing, people desperate to make a little extra income, but reluctant to give up the perks associated with their jobs at state-owned companies, would cruise the streets and pick up random passengers to make a little extra money.

A throw back to the Soviet era, the unregulated gypsy cabs have actually been a blessing and far more efficient than organized commercial taxis in Russia. Stand by the side of the road and hold out your hand, palm down, and within one minute a beat up Lada, usually driven by an immigrant from a poorer former Soviet republic, would screech to a halt next to you.

While it sounds hair raising, there were few reported problems and usually it wasn't even necessary to negotiate the price, as everyone knew how much a ride from Novy Arbat in to Tverskaya, the main shopping drag in central Moscow, should cost. At the end of the ride you just handed over an appropriate amount of money. 

There were only a few basic rules to follow: never get a taxi from outside a hotel where foreigners stay, as you will be ripped off; never get in a taxi with more than one person in it; and, thanks to Russian superstitions, never put cash into the driver’s hand at the end of the ride after the sun has gone down – lay it on the dashboard instead.

That all changed in many CIS countries about five years ago when income levels rose to the point where people’s day jobs paid enough to live comfortably and yellow cab companies appeared across the entire region.

The taxi business was almost immediately transformed by the rapid spread of internet-enabled smart phones. Yandex,  the predominate search engine, quickly launched its Yandex.taxi app in 2011. With over 20,000 from the current 50,000 registered taxis always online at any given time, punters never have to wait for more than five minutes for a car in the Russian capital. The app has been a smash hit and brought prices for a ride down, dramatically only fuelling its wider use.

Where Yandex.taxi has made the biggest difference is at the airports, where a taxi mafia used to hang out around the exit doors to the terminal preying on unsuspecting foreigners. Wearing fake “official taxi” badges, these bottom feeders would try and charge $100 (in dollars) for a ride into the centre of the city that should only have cost $20 (in rubles) at most. The mafia is still there, but if you choose to haggling with them it has become infinitely easier, as you can just quote the Yandex flat rate to them and quickly agree on a reasonable price.

The companies have been a boon for the millions of immigrants that have arrived as guest workers to the Russian capital to make a little extra money. Russia introduced a taxi driver registration system a few years ago, but currently the only thing you need to get a card is a driving license. But the locals complain, as the majority of drivers seem to come from Azerbaijan, Tajikistan or Uzbekistan and have no clue where anything is or how to get there, relying entirely on the route suggested by Yandex.maps. That is important in Moscow, as the local version of London’s “the Knowledge” is extremely important for getting about; you need to know how the traffic ebbs and flows in the capital or you can get stuck in a traffic jam for hours.

The game changed again in 2013 after California-based Uber entered the Russian market, along with Israel's Gett Taxi, to compete with Yandex.

Uber has aggressively tried to steal competition from its larger rivals by deeply undercutting their prices. Where a ride to the airport from the centre used to cost about RUB1,500, with Uber it is now possible to get there for less than half as much.

But Uber has so far only gone as far east as Moscow. All the other big companies are now expanding to the other millionki, the Russian regional cities with more than a million inhabitants. Yandex is already in 17 cities and boasts over half a million users a month.

Yandex is also fighting back with its popular “short ride flat fare” of RUB99 ($1.50) for a ride of 10 minutes or less, which Russians predominately use to get back from the shopping centre with their groceries instead of walking home with heavy bags.

Bilked in Baku

Uber has also still not entered the markets of Belarus or anywhere in Central Asia, and it is unlikely to do so any time soon: too many people in Central Asia are still moonlighting as gypsy cabs for the company to work. Online taxi apps only work as a business idea if you have taxi companies.

Uber is only just now taking off in Azerbaijan's capital city of Baku, and is relying on PR stunts like the World Ice Cream Day to attract new customers. Offering free first rides and free ice cream from Turkish restaurant chain Mado, which is famous for its ice cream, on July 15, the California-based taxi service is hoping to attract new customers in a city where the numerous gypsy taxis often fail to deliver good quality services. Baku has tried to regulate taxi services in the capital city by instituting fixed-fare London taxis in 2012, but customers would be hard-pressed to find taxi drivers that know the city well or that use GPS. 

By including Baku in the list of 400 worldwide locations where it will deliver free ice cream on July 15, Uber is banking on Azerbaijani and foreign customers willing to pay a little extra for pain-free service.

Tip: Most Bakuvians speak Russian. If your taxi driver does not speak Russian, he is likely from rural areas and most likely does not know the city well. Let them know where you are going before getting on the taxi and negotiate the fare beforehand if they do not have a metre. 

Tallinn taxis

Further West, Uber has received a warmer welcome in some CEE markets than others. Living up to it reputation as an e-pioneer, Estonia is set to become the first in Europe to fully legalise Uber.

The basis for that is Tallinn's innovative approach to tax, the central issue for states in dealing with the ride-sharing service. Estonian officials claim even Uber was surprised when the government suggested its drivers should simply be digitally linked to the tax office. Since February, Uber sends data on its driver's income down this hotline. The Estonian parliament expects to pass a bill legalizing ride sharing in November.

In Ukraine Uber has also been welcomed as a symbol of the country's westernisation. Uber just motored into town on June 30 to a warm welcome from the top. "Dear friends, Uber has started operating in Kyiv today. I tried the application on my mobile phone this morning," Prime Minister Volodymyr Groysman wrote on his Facebook page. "Uber is comfort and safety," the PM gushed, adding that its entry into the Ukrainian market would become "a strong indicator" of changes in the country after its Euromaidan revolution in 2014.

Ukraine's largest lender PrivatBank, owned by controversial oligarch Ihor Kolomoisky, also said it will become Uber's partner in developing innovation services in Ukraine. "By late August, clients of Privat24 mobile banking application would be able to order Uber taxi," the bank said. "This will help to ensure the effective launch and operation of Uber in Ukraine."

But in some of the more developed Central European markets Uber has run into the same sort of resistance that it has met elsewhere in Europe like France, where traditional cab driver protests have helped lead to the suspension of the Uber Pop service.  

A regulated taxi business limits the number of drivers and so supports prices. Allowing Uber or its competitors to enter a market in effect deregulates the taxi business and drives down the drivers’ income dramatically. In a country like Russia where the taxi business was never regulated but taxi companies exist, the appearance of Uber is not a problem. But that is not true further west. 

In Romania, Uber operates in a grey zone. Uber has been operating in Romania for more than a year despite a bill adopted in May last year forbidding the delivery of transportation services without holding a license. Meanwhile, Uber representatives claim that UberX is a ridesharing service and is therefore not regulated in Romania.

Uber runs fares that are slightly higher compared to the cheapest taxi operators in Bucharest, but offers the comfort of a whine-free ride and fairly consistent cost estimates. Add to that the perks of free ice cream and free first rides, and it might just widen its customer base this Friday. 

Uber has run into controversy in Bulgaria since it launched in the capital Sofia in December 2014. Last July, the Council for Protection of Competition (CPC) decided that Uber was engaging in unfair competition by offering unregulated taxi services and should halt immediately. The competition watchdog said the app could only resume operations when it complied with Bulgarian legislation, and imposed fines totalling BGN200,000 (€102,200) on the Dutch-registered companies Uber and Rasier Operations. A lengthy court battle is expected.

Despite this, the company said in June that it plans to expand its research centre in Sofia (one of six worldwide) where it develops software used by Uber around the world.

One place Uber won't be handing out ice cream on July 15 is Hungary. The company announced on July 13 that it is quitting the country, after the government forced through legislation to shut it down.

Budapest has suffered months of protest by traditional taxi drivers over the ride-sharing service. The ruling Fidesz party – already under pressure due to demonstrations from teachers – well remembers that taxi drivers forced the government to back down in 1990.

Uber insists it has tried to negotiate with Budapest, but has got the cold shoulder. However, a political lobbyist who was hired by the company as it entered in 2014 claimed to bne IntelliNews that Uber arrived with a very different approach. At that time, Budapest's efforts to talk were spurned, he says. "Their approach was: 'Compromise is not in our business model'."