Uber's biggest obstacle? Regulation

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.

While this might sound like a car-hire service, ride-sharing players say that's not the case. Last week, in a filing with the Maryland Public Service Commission, Uber defined its businesses as a web-based service that simply facilitates transactions between riders and independent drivers. It also said it isn't a dispatch service, noting that it is up to drivers which rides they choose to take.


"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.

That argument is finding sympathy from many state and local governments. Officials in Buffalo, New York, and Kansas City, Missouri, contend Lyft is illegal because its drivers are unlicensed and lack the appropriate training. Drivers have been ticketed by police in many cities, and in Boston and Miami they have been the targets of undercover operations by police. Pennsylvania has levied fines against the ride-sharing firms, while last week Virginia ordered the services to stop operating in the state.


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.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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