Uber, the popular "ride-sharing" smartphone application, wants to come to Waterloo Region.

The San Francisco-based company has created a business model that effectively shirks municipal taxi regulations and connects passengers and drivers through mobile devices.

The proposed arrival of Uber shouldn't come as a surprise. The company now operates in more than 200 cities in 45 countries. Setting up shop in Waterloo may only be a matter of time.

With Uber, however, comes a plethora of problems for regional licensing staff. The current taxi licensing system is complex and costly. Through a combination of municipal regulation and industry lobbying, the market is effectively restricted to entry. Those behind Uber, however, don't play by the same rules. They don't apply for licences, which means they don't pay the thousands of dollars other drivers in the region must for the permission to operate. By doing so, they are also conducting business outside of the government's purview.

While Uber isn't perfect, neither are current taxi regulations. Licences are incredibly expensive, ranging from upwards of $800,000 in Vancouver to $185,000 in Ottawa. Municipal governments control the supply of these licences, determine who receives them, and tightly control fares. As such, the system often leaves consumers in the lurch through undersupply, while also disadvantaging drivers, some of whom find it hard to eke out a living.

So, what should officials in Waterloo Region do about Uber?

The first option, of course, is to fight back. The City of Ottawa has taken this approach. Licensing staff there have engaged in a heated war or words with Uber and have even gone "undercover" in order to catch drivers operating under the company's banner. Some of those caught have faced fines.

Despite the controversy, many in Ottawa have embraced Uber, including prominent federal politicians such as John Baird, who tweeted his admiration for the company's business model in October. It's not hard to figure out why either - Uber charges 90 cents a kilometre in the city, as compared to standard taxi rates of $1.86.

The second option is to embrace Uber, which is something we haven't seen a municipality fully do yet. Accepting Uber's business model means completely dismantling current municipal regulatory regimes and opening up the marketplace for entry and industry self-regulation.

What is clear is that both the Uber model and the existing municipal licensing model cannot operate simultaneously, which makes finding a middle ground challenging. Having both would disadvantage drivers licensed under the municipal system, who have to be regulated and adhere to a standard fare structure. Accepting Uber's model would place municipalities on the outside looking in when it comes to regulation.

The bottom line is that Uber makes municipalities confront inefficient regulation and, therefore, presents an opportunity to modernize taxi licensing. The end result may not be accepting Uber's model, but it should include measures to open up the industry and create better options for consumers. Uber may not be a perfect business model for the cab industry, but it creates an opportunity to provide for a more equitable relationship between consumers and operators.

The bad news for Waterloo Region policy-makers is that much of this is out of their control.

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Uber is a global company and since its business is entirely digital, its fate will be decided elsewhere, likely in larger markets that have put years of study into the smartphone app's business model. If Uber can crack open these larger markets, fighting the company in smaller markets may be futile.

For now, regional staff should keep a close eye on how cities like Toronto approach the company because they may have no choice but to duplicate their approach in the future.