Although Uber is a darling of investors, having recently raised a staggering $1.2 billion in venture capital in a round that values the ride-sharing service at $17 billion, it may face a major roadblock: regulation. Cities and states across the U.S. are considering requiring the company and competitors like Lyft and Sidecar to follow the same rules taxis and limo services do. That could potentially thin profits and make it hard for Uber to justify its valuation.
The ride-sharing services use apps to connect people needing rides with ordinary drivers, who for a fee will take them where they want to go. The companies then get a cut of the fare. They also set the fare, which can increase during times of peak demand.
"The idea that the vehicles owned by these third-party carriers automatically are deemed to be owned by Uber whenever a driver makes himself or herself available to receive transportation requests through Uber is unfounded," the company said. "The third-party carriers no doubt will be surprised to learn that they no longer own their vehicles whenever one of their drivers indicates availability to receive transportation requests from Uber."
Ride-sharing services, or transportation networking companies as they are also called, say they provide a "disruptive" service. They claim that helps consumers by spurring competition, lowering prices and providing services in underserved areas.
Taxi companies -- dubbed "Big Taxi" by Uber -- and limo services across the nation are fighting back by demanding that TNCs comply with the same regulations and requirements as any other commercial carrier.
Last year California became the first state to regulate TNCs. The state's Public Utilities Commission this week proposed significantly expanding the insurance requirements already in place for the companies. Under the proposed rules, participating drivers would need $1 million in commercial insurance coverage as soon as they launch a smartphone ride-dispatching mobile application, not just when a ride order is accepted.
Not all states are cracking down. A law signed last week in Colorado officially authorizes TNCs and directs regulators to review taxi and limo rules. It also allows drivers to have a lower level of insurance coverage when logged onto mobile apps.
But the ride-sharing services' problems aren't limited to the U.S. Taxi drivers across Europe staged protests Wednesday that caused traffic jams in London, Berlin, Madrid, Milan and many other cities. So while the ride-sharing services are increasingly popular with the public, they appear to face significant legal hurdles if they are to meet the expectations of investors.