By Bernie Cahiles-Magkilat
The Philippine Competition Commission (PCC) has ordered Grab to refund ₱5.05 million in overcharges to riders out of the ₱23.45 million in total fines imposed on the public hailing transport network company (TNC) for breaches in its pricing commitments.
Grab has 60 days or by January next year to refund riders via the individual GrabPay accounts of Grab riders. The refund can be used to pay for future Grab rides.
PCC Chairman Arsenio M. Balisacan said the refund order was issued on November 12, 2019 following the effectivity last November 1, 2019 the agreement between the anti-trust agency and Grab to extend the initial undertaking for another year for service quality and price-related commitments and four years for the non-exclusivity commitment.
To break down the ₱23.45-million total penalty includes a fine of ₱11.3 million imposed for the first quarter, ₱7.1 million for the 2nd quarter, and ₱5.05 million for the 3rd quarter of its initial undertaking.
To kick off the refund system, both parties agreed that the disgorgement mechanism shall be applied on the 3rd quarter fine, with Grab being ordered to refund ₱5.05 million to affected riders for the exorbitant fares.
PCC Commissioner Amabelle Asuncion explained that the ₱5.05-million refund would cover every breach of the 22.5 percentage points allowable average cap during the third quarter review. As a general rule, Grab has to refund consumers of excess charges for each comparable trip for each rider before the acquisition of Uber by Grab and post-acquisition fare rates.
The disgorgement mechanism is a major amendment to the initial undertaking. It also ensures transparency so that consumers know how Grab arrived at computing their fares. The system-wide average fare cap is in place to limit Grab’s ability to unreasonably increase fares beyond pre-transaction levels.
PCC has also made the penalties stricter by imposing up to ₱2 million in fines per breach. This is on top of the refund to consumers should they breach the 22.5 percentage cap in fares vs the comparable period before the merger.
“The PCC stands to guard against any breach of the Extended Undertaking through an appointed impartial third-party trustee to independently monitor Grab on its commitments,” said Balisacan.
The PCC defended its way of disciplining Grab noting that without the extension of the initial undertaking, they would have no way to monitor Grab.
“I would rather see this as a positive. The fact that we are able to monitor and able to impose fines for deviations show that the undertaking was effective,” said PCC Commissioner Johannes R. Bernabe. But he also said that what is deemed ineffective is the fact that there has been no new viable TNC competitors to have come to the market yet. This justified, he said, the need for both parties to agree to extend the initial one-year undertaking.
“Even Grab has recognized there have been competition concerns so they themselves have to extend their voluntary commitments,” said Bernabe.
For non-exclusivity commitments, drivers will have the power of choice to operate with any TNCs and will not be tied to Grab by way of any agreement, policy or incentive. Grab is also obligated to assist drivers when applying for permits and licenses, even when operating under competitors.
The four-year extension on the non-exclusivity commitments was meant to give enough time for a viable TNC competitor to enter the local market.
For service quality commitments, Grab must improve passenger experience by setting standards for completion rates for drivers and by removing the “see destination” feature of discriminating ones.
It could be recalled that in March 2018, Grab bought its rival Uber in the whole Southeast Asia. For the Philippine market, PCC’s Mergers & Acquisitions Office issued a Statement of Concerns finding the transaction to likely result in substantial lessening of competition in the ride-hailing market.
Immediately after this buyout, the findings by the PCC turned into very real commute challenges, as the feared price increases and service deterioration began to manifest.
As a way to guard against abuse of market power and encourage new players to enter and grow in the ride-hailing market, the PCC subjected the merger to conditions in clearing the transaction on August 10 last year. Grab’s commitments were for a period of 1 year, during which the PCC monitored Grab’s compliance.
A year after these commitments were put in place, there continues to be a lack of competitive constraints on Grab and competition concerns still subsist. Such concerns include (1) Grab’s prevailing market dominance, (2) Grab’s ability to unilaterally increase prices profitably, (3) existence of significant barriers to entry, and (4) inadequacy of Grab’s service quality to the detriment of the riding public.
Thus, the need to re-negotiate these commitments and install new mechanisms—to effectively address the persistent impact of a virtual monopoly on a sector imbued with public interest.
“While Grab’s commitments signal its willingness to behave within a competitive space and in accordance with the competition law, the PCC will keep a watchful eye on potential violations,” Balisacan concluded.