Why a SoftBank Brokered Ola-Uber Merger Would Be Bad News for You

By Gopal Sathe | Updated: 30 March 2018 16:09 IST

Highlights

So far, Uber and Ola have been locked in competition in India
SoftBank is a common investor in both companies
Reports are that it wants the two to merge in India

After a blistering rise, Uber's international ambitions finally seem to be faltering. And after China and South East Asia, it's possible that the consolidation path will be followed in India as well. If that actually happens though, India's ride sharing market will basically become a one-horse race, and that's not something that will be good for the consumers.

The first step came in 2016, when Uber made a deal with its Chinese rival Didi Chuxing. The duo fought hard for the huge Chinese market, and although Uber would ultimately exit China, the deal gave it a 20 percent share in the combined firm, which was then valued at $35 billion.

In 2017, Uber exited Russia and Easter Europe after reaching a similar deal with Yandex, giving Uber 36.6 percent of the entity formed by the two companies. Then, last year, Uber received funding from SoftBank. The Japanese company had also invested in Grab, Uber's rival in South-East Asian countries, and since then, there was a lot of speculation that Uber would pull out of those markets, in a deal brokered by SoftBank.

That speculation turned into reality this week, as Uber sold its South East Asian business to Grab. The Singapore-based firm - which set up a R&D centre in Bengaluru last year, with a focus on payments - will take over ride sharing and food delivery from Uber, in a deal which leaves the American company with a 27.5 percent stake in the business.

Now, there are rumours that Uber and India’s Ola are in talks, brokered once again by SoftBank. When he visited India last month, Uber CEO Dara Khosrowshahi had not ruled out a possibility of a merger. At the time, responding to a question about whether Uber would still be in India in five years, he had replied, "I think five years hence we'll still be in the Indian market. Who knows if it's through a merger."

Although neither Uber nor SoftBank commented on the potential merger, Ola hasn't ruled it out. Ola's spokesman said the company "is always actively looking for opportunities for expansion of its footprint," adding that Ola has the backing of its investors, including SoftBank.

However, although deals like these might make a lot of sense for the companies involved, they're rarely good for the customers. After Ola acquired TaxiForSure in 2015, the Indian market has essentially been a two-horse race. Were the Uber-Ola deal to work out, we'd witness a monopoly-like situation here.

Right now, if Uber isn't paying drivers enough, they have the option of jumping ship and moving to the other platform. It works the other way as well.

The same is true for customers as well - although charges are higher than they used to be, they're still very low and that's been one of the big drivers for the growth of these on-demand taxi services. Neither company can risk raising the prices too high, or it might see users moving to the other service. However, once there's only one option around, that won't be the case.

This isn't just idle worry either - the path has already been traced out in China. According to a report, China’s official Xinhua News Agency has slammed car-hailing service Didi Chuxing for “capricious” price rises, suggesting its acquisition of former competitor Uber China’s business has resulted in a monopoly of the market, as well as making its charges more opaque.

The Chinese official news agency claimed the company’s unscrupulous price rises were made after its US$35 billion acquisition of Uber’s China operations in August 2016, that made Didi the largest player in the domestic market.

Another report from 2016 had pointed out that Uber fares in China soared after the Didi deal, with the cost of rides nearly doubling in Beijing. That's a good indicator of what might come to be if Uber and Ola also reach a similar deal in India, as there will be no competition in the market to keep prices under check.

If a deal like this does happen, both drivers and passengers are likely to see a change in the rates they're getting from the company, and not for the better. What's more, the opaque surge system will make it harder for any of us to know how our fares are being reached. That's why we're still hoping that India remains a competitive market, and these rumours are merely rumours.

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