PART D – IMPLEMENTING REFORM

6. 
   Improving services in country Victoria
   

As discussed in chapter 16 of the Draft Report, country and regional markets have a number of distinguishing features. These include smaller market sizes, less developed public transport networks, proportionately higher demand by elderly customers, high rates of pre-booked services compared to rank and hail work, higher market concentration of networks and a model of operation dominated by owner-drivers.

The Draft Report discussed the major issues facing country and regional markets. These included the poor availability of services in some locations, the dominance of local networks (and high network charges), the cost burden imposed by the current regulatory framework and the limits to competition under the public interest test. The inquiry found that country and regional markets had experienced only modest growth in supply of taxi services, with a number of constraints preventing the growth of businesses, service innovation and competition.

Issues relating to country Victoria as a result of the inquiry’s licensing and zoning recommendations are canvassed in detail in chapters 3 and 4 of this report. This chapter discusses specific concerns and matters raised with the inquiry by country taxi operators, networks, local councils and taxi users, and should be read in conjunction with chapters 3 and 4.

1. 
   Issues raised in submissions
   

Regional NSPs strongly endorsed the proposed moratorium on safety cameras, retaining vehicle age restrictions, changes to MPTP eligibility and a stronger regulator presence in regional Victoria.

Submissions from networks and operators expressed strong disagreement with the key recommendations covering licensing changes, zoning, network affiliation and driver remuneration. As licence owners, these respondents were concerned about the impact of greater competition and the loss of value of their licences. Examples of typical comments were:

I do not feel that market forces are appropriate to determine the number of taxis needed. The country taxi services as found in the inquiry do not have the same issues as Melbourne as [sic] must be looked at differently.²²³

Country taxi business are mainly family businesses operated from people who have dedicated their lives into this industry and I do not feel it is justified to remove the public interest test so as to have licences granted again for a set price, this just undermines the whole structure of the system and the way it works. People have paid money and built these businesses from scratch and to do this would start to diminish their livelihood.²²⁴

There are enough Taxis to supply the demand in the area I live. To allow other Taxis into the area would be very detrimental to the existing Taxis which are struggling to keep their head above water as it is.²²⁵

While not supporting the inquiry’s recommendation for ‘as of right’ licensing, some submissions from regional operators suggested more taxis were needed urgently and that the regulatory impediments to entry in country areas needed adjustment:

Networks argued that without a public interest test and mandatory affiliation, there will be a flooding of the market at peak times and that no operator will choose to service the quiet periods. Networks also suggested they will not run a 24/7 operation if independent operators are not required to do so and that, as a result, the community will lose all services at certain times of the week.

Networks put forward the suggestion that a formula driven method be employed to determine future licence releases, taking account of population increase, existing public transport, demographics, wait times and general demand for services. Other suggestions by networks included the release of licences to the incumbent network so the network can lease out the licence to a driver. One respondent at the inquiry’s hearings suggested that career drivers with more than 10 years’ experience be given a licence.²²⁷

The 60/40 driver remuneration was considered unviable for networks, with many stating their operating profit would fall so much they would have to sell their businesses.

Some submissions stated that if this arrangement becomes mandatory, they will find ways to pass on other costs to their drivers.

Country networks stated that they already provide a high quality of service for their customers and, as such, no change to the current regulatory environment or industry structure is needed. There was a common belief that the inquiry’s recommendations represented a ‘one size fits all’ approach based on the deficiencies of the metropolitan taxi market.

Like most of the regional areas, we're a little perplexed as to the reasons for the need to overhaul our services given the high customer service satisfaction results from surveys undertaken throughout regional areas. ²²⁹

This is where our problem with the inquiry is: our service doesn't need fixing. We run an impeccable service, a very high standard, our clients are absolutely ecstatic with what we offer.²³⁰

There were few submissions from user groups or local governments in country areas in response to the Draft Report. However, one submission from a taxi user in rural Victoria was supportive of the removal of entry restrictions, believing it has the potential to increase the number of vehicles servicing small towns. If the country licence was priced more reasonably, this submission suggested that:

…long suffering rural communities across Victoria will finally have a taxi service. Importantly it will be a viable business for the local entrepreneur.²³¹

The East Gippsland Council submission expressed concern for the viability of local taxi businesses as a result of the new proposals and put forward modelling of the financial flow-on effect that the loss of a taxi business would have on the local economy and community.²³² The Council suggested new entry could lead to customer confusion, compromised safety and disputes amongst drivers. The new zoning and licence proposals were concerning to the Council as they believed this model would pose equity issues and threaten the viability of operators and WAT vehicles. Overall the Council sided with the views expressed in taxi operator submissions.

The Yarra Ranges Shire Council submission strongly supported the introduction of a PBO model and revision of zoning boundaries to accommodate greater competition and availability of services. The submission also supported greater choice of vehicles, allowing in-cab advertising and continued subsidies for WAT training. Adjustments to some of the draft recommendations were suggested to enhance the safety and accessibility attributes of the reforms.²³³

The Council’s sentiments were echoed in a submission from a resident of the Yarra Valley, who commented:

The submission from Westmont Aged Care Services stated that extra taxi licences would not lead to a better service provision in the Wodonga region. The submission argued that competition may introduce a lesser service quality to the detriment of elderly passengers.²³⁵

The inquiry also received a submission from B-Line, a Transport Connections program based in the Bendigo and Loddon area. B-Line requested that the inquiry look further into the integration of taxi and hire car services with other public transport services, particularly for customers with mobility or accessibility needs.²³⁶ The submission also made suggestions for greater flexibility of taxi and hire car services, sentiments echoed in the submission from the East Gippsland Council.

2. 
   Inquiry’s response to submissions
   

The inquiry’s strong view is that, while service performance is higher in country areas in terms of driver quality and service reliability, the argument is self-serving and fails to acknowledge the potential benefits of reduced regulation and increased competition for both consumers and industry participants. An inherent assumption in these remarks is that only incumbents have the ability to provide taxi services in a particular location.

The inquiry also notes that the issue of taxi availability is also a service performance issue  one that goes largely unacknowledged by incumbents.

The inquiry does not consider that its draft recommendations represent a ‘one size fits all’ approach to reform. Indeed, if anything, the opposite is the case as the inquiry has sought regulatory solutions that reflect differences in industry structure: for example, in relation to fare setting and uniform livery requirements. Nor do the draft recommendations reflect a ‘metropolitan only’ focus. The inquiry has found inefficiencies specific to regional Victoria and major gaps in service availability. It is clear that operators are subjected to unnecessary costs and have little opportunity to work outside the small service ‘box’ defined by their licences. The inquiry is surprised that more country networks do not see the potential offered by the draft recommendations to expand their businesses by purchasing more taxi or PBO licences, enabling them to provide more flexible services and open up new markets for services.

There is little evidence to suggest that there will be a ‘flood’ of new entrants to regional and country markets. Incumbent operators will have a significant market advantage and new entrants will have to incur significant costs associated with the acquisition of their licence and other set-up expenses. New entrants will still have to assess whether they can maintain a viable operation.

Many in the industry opposed the new zoning and pricing proposals, suggesting they will devalue licences and encourage ‘poaching’ of pre-booked work from outside the zone. The draft recommendations noted the importance of zones being the primary place of work for a vehicle and that if regular movement out of zone becomes an issue, a stepped-up enforcement task will be required.

Very few submissions discussed how the new zoning price structure would materially devalue their licences; however, the inquiry acknowledges the points raised in submissions around the sale value of country licences including the goodwill of the operator, success of the business and assets such as depot infrastructure and vehicles. In light of these suggestions, the inquiry has reviewed its proposed zoning arrangements to give greater weight to other factors such as town population sizes, as well as licence values (see chapter 3).

The inquiry notes the concerns expressed by regional operators about the effects of more entrants on the requirements and incentives to service passengers at non-peak times. However, the requirement to provide continuous service is not widely followed at present and the inquiry is sceptical that new entry would cause a major loss of service.

The inquiry is perplexed by the mixed messages from many country networks:

Many networks argued against ‘as of right’ licensing because it will introduce more taxis to regional Victoria and affect the viability of businesses, which are already ‘marginal’. However, many of these same submissions also discussed the rise of an ageing population and the need for greater access to specialised transport care as public transport is inadequate in many regional areas. Analysis by the inquiry shows that regional and country areas have on average fewer taxis per head of population compared to metropolitan Melbourne, but (as operators have told the inquiry) a higher dependence on taxis.

Submissions also discussed the close relationship between networks and the local community and the ‘extra mile’ the network will go to provide a good service. Yet they also claim that ‘as of right’ licensing will bring in ‘cowboy’ operators who will poach the most profitable work. The inquiry has heard no compelling evidence as to why long time, well-served customers will make use of poor service offerings. Only in a market of low supply will this occur as customers have no other choice. Lower barriers to entry are as much an opportunity for incumbent operators to expand their services as they are for new players to enter the market.

Many networks supported retaining the public interest test, arguing it provides country towns with ‘security’ that their taxi businesses will remain viable. However, such restrictive regulation places great faith in existing service operators. The significant conflicts of interest associated with applying a ‘public interest’ test mean it will never be a truly objective measure of a town’s need for additional services. The public interest test (together with the formula driven metric proposals put forth in submissions) does not account for unmet demand and new opportunities for service providers. As noted elsewhere in this report, the inquiry considers such entry restrictions to be inherently anti-competitive in that they protect incumbent businesses from competition in locations and periods when a greater range of options could be of substantial benefit to consumers. If, as networks suggested, the service cannot be bettered in a particular local community, there seems no reason for a competitor to establish themselves. A more likely scenario  given the familiarity customers are likely to have with existing networks  is that any new entrants will need to align with the incumbent operator to establish and grow their businesses.

The inquiry considers that there is no justification for a public interest test, especially one that includes consideration of the impacts on other competitors or that allows other competitors to object on commercial grounds.

However, the inquiry is also firmly of the view that ‘as of right’ licensing will only result in additional licences where there is a clear demand for the extra service. As noted above, the start-up costs are significant. Incumbent operators, networks and drivers are also in an advantageous position (compared to new entrants) to capitalise on their investment by growing the local network if they believe there is latent demand for their service.

The biggest losers from maintaining a highly regulated taxi market in country areas are customers. Customers are faced with limited choice of service, a highly regulated tariff system and inflexible point-to-point transport options. These customers stand to benefit from a relaxed entry requirement, particularly in relation to a greater availability of services during peak periods.

Regional tourism businesses also stand to benefit from these changes, particularly those located in areas adjacent to metropolitan Melbourne such as the Yarra Valley, the Mornington Peninsula and the Bellarine Peninsula. More taxis in these and other country areas may also help to reduce the documented problems of drink driving in country areas associated with a lack of transport options.

3. 
   The inquiry’s final recommendations
   

As noted above, the inquiry has reviewed its zoning recommendations in light of concerns raised by country networks and others. These changes are set out in chapter 3.

The inquiry’s recommendations will also remove unnecessary regulation and ‘red tape’ for country and regional operators. Many of these regulations were imposed across the State to address issues that are largely metropolitan-based. Operators and networks should benefit from advertising opportunities and the removal of the uniform livery requirement. The removal of the continuous service provision will also give operators a much greater choice around the services they offer and enable them to better match services with community needs.

The inquiry has maintained its position in relation to a price notification system in Regional and Country zones. The adoption of this system will put greater control in the hands of country operators and ATOs, allowing a tailoring of services and prices to the costs of running their businesses. Removal of such restrictions will also encourage greater flexibility, innovation and choice in taxi services.

In relation to training, the final recommendations will encourage mentoring new drivers ‘on the job’. The recommendations also include the continuation of the WAT Performance Based Booking Service in Regional and Country zones and the continuation of the WAT vehicle subsidy scheme in the short term.

Revenue for country operators should be boosted by allowing shared ride and fixed route services and allowing taxis to provide community transport when it is efficient to do so. Taxi operators may also choose to run bus-like services that take in a broader catchment than their current operations. The expansion of the MPTP to older people no longer able to drive and permitting advertising should further boost income, as should reducing operator and network costs through more streamlined accreditation.

In short, the inquiry’s strong view is that its proposed reforms offer significant new opportunities for country operators and networks, as well as opening up the prospect of more flexible and responsive services  and a greater availability of services  to customers in regional Victoria.

7. 
   Effects of reform on industry participants
   

1. 
   Reform impacts on industry sectors
   

1. 
   Taxi drivers
   

The inquiry’s Draft Report and this Final Report recognise the important role that taxi drivers play in providing a service to customers that meets their expectations. Despite this key role in the provision of taxi services, drivers work under relatively poor conditions and have low levels of remuneration. Consequently, many of the inquiry’s recommendations target improvements for taxi drivers.

The proposed reforms would give existing taxi drivers improved bargaining power with taxi operators and provide protections for drivers through the introduction of a new mandatory Driver Agreement. This agreement will provide more certainty to drivers about their role in delivering taxi services and delineates responsibility for expenses such as repairs and maintenance and damage caused in the event of an accident. In addition, the recommendations aim to improve very low levels of driver remuneration through increasing the driver’s share of taxi revenue from 50 to 55 per cent. The reforms also offer a better career opportunity to drivers through obtaining their own licences from the Government for a fixed annual fee. Drivers would be protected to some extent by the proposed measures that will lead to tougher entry conditions for drivers. In effect, this will raise the costs of driver supply, thereby improving the bargaining position of drivers as a whole.

Those tougher driver entry requirements, combined with increased remuneration arrangements, will likely lead to a change in the demographic of new drivers. The requirements will require applicants to have a greater understanding of local knowledge, road rules and communicating in English. Increasing remuneration while retaining an incentive based earning scheme will put taxi driving more on par with employment in other sectors such as manufacturing. Taxi driving offers other benefits, such as flexible working hours, that when combined with satisfactory conditions and increased remuneration should attract new participants and may even result in drivers returning to the industry.

Taxi operators will have clear responsibility for vehicle running and repair costs (including fuel costs) under the new mandatory Driver Agreement. Operators will need to be more selective about the drivers they choose, to minimise their vehicle costs and maximise vehicle utilisation.

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