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In the "Sharing Economy," The Regulatory Rubber Meets the Ride-Sharing Road

BY Sarah Lai Stirland | Friday, April 19 2013

Photo: Flickr/Boltzr

Emerging transportation services Uber and Sidecar are engaging in a public war of perceptions as the popularity of their services grow, and regulators ponder how to protect consumers under laws written decades before the dawn of the on-demand, app-driven economy.

Citing a lack of "leadership" from regulators, Uber CEO Travis Kalanick announced late last week that Uber is going to offer ride-sharing services if a "competitor" operates in a market for 30 days "without direct enforcement against transportation providers." The company, he wrote, will interpret a lack of enforcement as tacit approval of ride-sharing by regulators — something Uber, which competes directly against traditional taxi services by connecting livery cab drivers with riders, has not enjoyed.

On Wednesday, San Francisco-based ride-sharing company Sidecar shot back at Uber in a blog post by accusing the CEO of trying to "pollute" the concept of ride-sharing by edging into its market. Sidecar matches "vetted drivers from the community" with people who want a ride, but argues that it "is neither a taxi nor a limo service." To get around being classified as commercial cabs, these drivers aren't required to be paid, but are offered recommended "donations" by companies based on the distances traveled.

The California Public Utilities Commission is seeking public comment on whether it should issue specific consumer protection regulations addressing ride-sharing services like Sidecar. The commission has set a date of July 9 for issuing a proposed decision. Once the commission issues its proposed decision, the public has 30 days to comment on that decision. After that, the five CPUC commissioners will vote on the proposed decision, which is expected sometime this August, according to CPUC spokesman Andrew Kotch.

What's at issue is whether the rapid growth of app-enabled ride-sharing warrants additional oversight from regulators, who worry over what happens in the case of accidents and whether insurance companies will cover individuals who provide rides using these networking services. They also worry about public safety. In the commercial world, drivers of of commercial vehicles have to undergo drug testing, make sure that the companies provide workers compensation, and are subject to other safety inspections from the California Highway Patrol. In its order for rule-making, the commission also points out that it addresses billing disputes and service and safety complaints.

The rule-making comes after the CPUC issued cease-and-desist letters to Uber, Zimride (which operates ridesharing app Lyft) and Sidecar Technologies last October and issued $20,000 citations, which were suspended in January pending the outcome of the CPUC's final decision. The original letters stated that the services were operating as passenger charter carriers without authorization. Those fines were subsequently suspended and the CPUC initiated a rule-making proceeding to determine how best to protect consumers while enabling these new services to grow. (The CPUC does not regulate taxis or work-related ride-sharing.)

Dozens of ride-sharing companies and variations thereof have sprouted up all over the country. Lyft and Sidecar, which are among the most prominent, are based in San Francisco.

Sidecar's Wednesday blog post tried to sidestep the regulatory concerns in Uber's provocative post by declaring: "It's Time to Reclaim Rideshare." Sidecar called Uber a "taxi service" and disputed the idea that it could offer ride-sharing services.

"It doesn't matter if the car is a limo, a taxi, or an unlicensed cab -- it's all just a variation on the theme," read the post. "By calling their new transportation service 'rideshare,' Uber hopes to pollute the term for regulators to protect their business. We hope regulators don't take the bait."

The difference, the company went on in its blog post, is that Sidecar doesn't dispatch vehicles like Uber. Its app is designed to enable people to enter their starting points and destinations to match others who are also going that way. The goal of "true" ride-sharing, it says, is to reduce emissions, not to drum up more business for cabs.

Sidecar's executive vice president and general counsel, Dave Phillips, argued in an April 3 filing with the commission that Sidecar is a software information company that's a high-tech version of traditional ride-boards at colleges and other public spaces.

In its post, Uber tried to define the category of service as one that offers the appropriate level of background checks and insurance to the drivers. Sidecar wants to define ride-sharing by the profits that drivers can make, and the way destinations are set.

"We need a bright line between ride matching services that allow the sharing of resources and dispatch services like taxis and Uber," the company wrote in a blog post. "This bright line should be based on passengers entering destination and putting a cap on the amount a driver can earn annually from the maximum rideshare vehicle. This is less than $12,000 a year in California -- too small to make a living, but enough to cover the annual cost of vehicle ownership."

Companies like Lyft and Sidecar have, for their part, tried to address the questions over insurance by offering insurance to cover accidents above and beyond what individual drivers have to cover themselves.

The question is, as Ron Lieber at the New York Times asks, whether that insurance is enough, and what insurance companies think of these kinds of 'sharing' arrangements.

Loretta Worters, a spokeswoman for the Insurance Information Institute, describes an answer that implies the current framework of public regulation and private insurance does not create as wide-open a space for transportation in the "sharing economy" as these companies might like. Drivers who decide to open up their extra seats this way might not enjoy the coverage they think they have from their insurer.

"I would suspect companies may view this as an added risk," she said. "This is almost akin to a taxi service."

She explained that personal automotive insurance policies often exclude coverage for medical payments if the car is being used as a "public or livery conveyance." Most insurers would similarly not extend uninsured motorist coverage under normal policies while "occupying" the car when it is being used as a public or livery conveyance, she said.

"This doesn’t apply to a share the expense car pool," said Worters, "but once there is money to be made for this, it is no longer a car pool or giving someone a ride. The same holds true for damage to your auto and there is an exclusion for loss while it is being used as a 'public or livery conveyance.'"

What the CPUC decides could influence what other regulators around the country do, since many of the services originate here, said Neil Gorenflo, co-founder and publisher of Shareable, a web magazine that's been deeply involved in convening meetings between stakeholders in San Francisco to figure out what the policies should be.

"The government needs to ensure a level playing field, and that people are safe and have the information they need," and not cave to incumbent taxi industries, said Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research Association.

San Francisco Mayor Ed Lee certainly seems open to the idea. He's formed a taskforce to examine the implications of the growth of the "sharing economy," although it doesn't seem to have come up with any recommendations yet. An e-mail to his spokesperson wasn't returned at the time of this post.

Meanwhile, New York City's Taxi and Limousine Commission is embracing the on-demand app-driven economy. Techcrunch reports that it's going to be launching its own "e-hail" app, a service that Techcrunch will be exploring at its Disrupt conference at the end of the month.

There doesn't appear to be any uniform responses from local or state-level regulators to services such as Sidecar and Lyft (aside from a pretty hostile one from the city of Austin to Sidecar during SXSW), but with major investments from venture capital companies, and even commercial car rental businesses getting into the market, it's an issue that promises to either get resolved through regulatory fights, or in the courts.