Merger of Grab and Uber drive monopoly, pricing concerns

Grab is acquiring Uber's ride-sharing and food delivery businesses in Southeast Asia and integrating them into its transport and fintech platform.

The merger between Grab and Uber is driving market concentration to monopoly levels, underlying the urgency of regulations that legalise and keep in check ride-sharing service in Thailand, say industry and research analysts.

Sumet Ongkittikul, research director for transport and logistics policy at the Thailand Development Research Institute (TDRI), said the consolidation of ride-hailing firms in Southeast Asia might increase prices to "unaffordable levels".

Regulators need to take steps to protect consumers, legalise the service and implement anti-dumping laws, he said.

A TDRI study on ride-hailing for the Department of Transportation (DLT) found that 15-20% of taxi passengers use mobile ride-hailing service applications on a regular basis. Players like Lineman will still operate in the delivery service and logistics sectors, but they will not make much of an impact, said Mr Sumet.

This ratio is still low compared with that of the overall public transport industry. TDRI estimated the taxi sector is worth 43 billion baht per year (taxis generate average daily revenue of 1,600 baht, with 60,000-70,000 of them in Bangkok). Ride-hailing services generate 6-7 billion baht, with less than 20,000 personal cars employed in this sector.

TRDI said DLT should enable those ride-hailing app to register as long as they fulfil certain conditions, like passenger protection, insurance and cancelled trip refunds.

Moreover, drivers who use private cars to provide hailing services need to pay special taxes to obtain public transport licenses. Private ride hailing vehicles need to display special stickers as they do in markets like Singapore.

But Jarit Sidhu, head of operations of IT research firm IDC Thailand, said the Uber and Grab deal in Southeast Asia reflects a mature ride-hailing industry, just like similar moves reflected a transition to the consolidation stage for e-commerce.

Price treaty

Disruptive technology firms rely on price competition to obtain customers. With lower competition, Grab's pricing strategy may take a 180-degree turn.

"The company needs to see how consumers will react to price and promotion changes as users also hail vehicles from the street, in addition to using mobile apps," said Mr Jarit.

The new Uber CEO announced the company plans to launch an IPO in 2019, which will force it to focus on markets on which it can make a profit like the US, Europe, Australia and Japan.

In Southeast Asia, Grab has moved fast to introduce services like GrabBike and Grab Taxi.

Strategic Investors

Tarin Thaniyavarn, country head of Grab Thailand, said the acquisition came "after a year of significant growth and expansion."

The deal reflects Grab's leadership position in the region, and it is the largest acquisition by a Southeast Asian internet company to date, he said.

Grab is acquiring Uber's ride-sharing and food delivery businesses in Southeast Asia, and integrating them into Grab's transport and fintech platform.

In exchange, Uber will receive a 27.5% stake in Grab, which is reflective of the companies' respective market shares.

The acquisition reflects Grab's transport market leadership in Southeast Asia. Grab will also take over the Uber Eats operations to immediately become a major player in the food delivery sector.

The GrabFood service will expand from two existing countries to all major Southeast Asian countries by next quarter. This move is viewed as a great use case to drive continued adoption of the GrabPay's mobile wallet and support its growing financial services platform.

The acquisition is intended to accelerate Grab's profitability drive in its core transport business as it's the most cost-efficient Southeast Asian platform.

The terms of the deal reflect Grab's strong and steady expansion.

In 2017 alone, Grab saw more than 2.5 times growth in downloads, quadruple growth in driver-partners and quintuple growth in cities of operation.

Grab is now backed by the world's two largest global ride-hailing companies (DiDi Chuxing and Uber), in addition to leading global investor SoftBank. All three companies have significant stakes in Grab and are committed to its continued success in Southeast Asia.

"We're embarking on the next phase of growth to build Southeast Asia's leading online-to-offline (O2O) mobile platform," said Mr Tarin.

He said all Uber employees will receive offers to join Grab.

"Together, we will strengthen our O2O mobile platform for meaningful everyday services, and drive rapid growth in transport, food delivery, package delivery and mobile payments and financial services," said Mr Tarin.

Uber employees whose coverage is wider than Southeast Asia will continue to work at Uber.

A smooth transition

"Our priority is to continue serving our passengers and drivers, and minimise any disruption for them. Both platforms will operate simultaneously for the immediate future to ensure there is sufficient transition time for interested Uber drivers to get on board the Grab platform," said Mr Tarin.

Moreover, combining Uber's and Grab's platforms will improve efficiencies, which will allow the company to offer lower fares for passengers and provide higher wages and benefits to drivers, he said.

Mr Tarin said Grab and Uber are working together to migrate Uber drivers and riders, Uber Eats customers, merchant partners and delivery partners to the Grab platform.

The Uber app will continue to operate for two weeks to give Uber drivers time to sign-up to drive with Grab online. Uber Eats will run until the end of May, after which Uber delivery and restaurant partners will move to the GrabFood platform.

Mr Tarin said nothing will change overnight, and operations will continue normally.

"As we work together to combine the Uber and Grab platforms, passengers can expect better services with more drivers and transport options available on one app," he said.

Uber customers who do not already have a Grab account will need to download the Grab app and create one.

Uber for Business, a service for company employees, will not be supported in Southeast Asia after the transition. Uber rides outside of Southeast Asia will still be supported through existing Uber for Business agreements.

Uber said it will continue to serve and resolve all existing requests in this transition period. The drivers can contact Uber support within the 'Help' section of the Uber app, on the Uber website or at any of Uber's Greenlight locations.

"By combining our selections and operations, we will bring even greater choices and better services to consumers. Our combined delivery fleets, together with Grab's sophisticated demand matching technology, will reduce waiting and delivery times for the best food delivery experience," said Mr Tarin.

"With the new GrabFood app, we are striving to become one of Southeast Asia's largest and most popular food delivery services, offering an expansive geographic reach and quality range to suit every palate and wallet."

Moving Forward

Mr Tarin said the transport landscape in Southeast Asia continues to be highly dynamic, with multiple innovations and platforms emerging constantly.

"Passengers in Southeast Asia and Thailand have plenty of transport options, including street-hailing taxis and public transport like trains or buses. Many taxi companies and DLT are also developing their own booking apps," he said.

"We are working closely with competition regulators and will address any questions or concerns they may have."