Public consultation paper
Proposed consumer interest test
Applicable to taxi licence applications in the Regional
and Country Zones and hire car licence applications in
the Country Zone
Table of Contents
1
Background .................................................................................................................................. 1
2
The proposed consumer interest test........................................................................................... 2
2.1 The scope of the test .................................................................................................................... 2
2.2 Relevance of districts ................................................................................................................... 2
2.3 Form of the proposed test ............................................................................................................ 2
2.3.1
Test data requirements ....................................................................................................... 3
2.4 Application of the test ................................................................................................................... 4
3
Comments on the proposed test .................................................................................................. 5
3
1 Background
Under the Government’s taxi and hire car reforms, new licence issue provisions of the Transport
Legislation Amendment (Foundation Taxi and Hire Car Reforms) Act 2013 will come into effect when
either proclaimed by the Governor in Council or automatically on 30 June 2014. No proclamation has
been made to date.
When the legislated amendments take effect, a new ‘consumer interest test’ will apply for the issue of
taxi licences in Country and Regional Zones.
The consumer interest test (which refers to consumers as ‘users’) is specified in the Act as follows:
…if the licensing authority receives…an application for a taxi-cab licence …and… nominates the
Regional Zone or the Country Zone, the licensing authority, before granting or refusing to grant the
application, must have regard to the interests of existing and future users of taxi-cab services in any
particular district or districts in the Zone within which the service is proposed to be provided.
…the licensing authority may refuse to grant an application…if it considers that to grant it would not
be in the interests of existing and future users as described in that subsection.
A consumer interest test similar to that for taxis is to apply for the issue of hire car licences in the
Country Zone for these vehicles (equal to the Regional and Country Zones for taxis). This test is
specified in the Act as follows:
…the licencing authority may refuse to grant an application…if, after having had regard to the
interests of existing and future users of hire car services in any particular district or districts in the
Country Hire Car Zone within which the service is proposed to be provided, it considers that to grant
the application would not be in the interest of those users.
In addition a hire car applicant must be a ‘fit and proper person’.
The Taxi Services Commission (TSC) will continue to be obliged to take account of the objectives and
principles of the Transport Integration Act 2010 in its licence issue decisions.
In framing the design of the proposed consumer interest test as described in this consultation paper,
the TSC has been mindful of the Government’s overall objectives of taxi and hire car reform – which
is to move the industry away from protection and restrictive regulation to one that is characterised by
greater competition and self-regulation.1 Accordingly, the TSC accepts the premise that new entry to
the taxi and hire car industry should largely be governed by market forces and that such entry can be
expected to deliver benefits to users of these services. Nevertheless, in line with the Government’s
objectives in introducing the test into legislation, the TSC’s proposed test is designed to stop new
licences from being issued in ‘exceptional circumstances’ only.2 It is the TSC’s view that such
exceptional circumstances will include instances where users are not expected to benefit from
additional entry in the form of either lower prices or improved service offerings and entry would make
all operators uneconomical to the detriment of users. It is the TSC’s view that these instances
conform with the Government’s objective of avoiding ‘perverse outcomes’ as a result of greater
competition.3
1 Parliament of Victoria, Minister’s second reading speech, Hansard, 29 May 2013, p. 1776.
2 Ibid. p. 1777.
3 Ibid.
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2 The proposed consumer interest test
2.1 The scope of the test
The TSC believes it is appropriate to consider both the interests of consumers and producers (i.e. taxi
and hire car operators and other suppliers of services) within the scope of the proposed consumer
interest test, despite it being termed a ‘consumer interest’ test. However, the interests of producers
are only to be considered in so far as factors that may negatively affect the interests of producers may
ultimately not be in the interests of consumers.
There are other legislative precedents for taking into account the interest of producers in a consumerbased test, such as the ‘long-term interests of end-users’ test within Commonwealth
telecommunications regulation. In this test, the interest of producers in matters such as the ability to
exploit economies of scale and the incentives for efficient investment is considered to the extent it
may affect the interests of end-users.
In the taxi industry, if as a result of new entry, all service providers find it difficult to maintain their
operations because they cannot derive sufficient economies of scale this could result in higher fares
and/or fewer services in the longer term. This would be an example where a negative impact on the
interests of producers could have a corresponding negative impact on the interests of end-users.
2.2 Relevance of districts
Under the tax and hire car reforms there will be four taxi zones and two hire car zones for which
licences will be issued. The consumer interest test for taxis applies to only two of these taxi zones (i.e.
the Regional and Country zones) and the consumer interest test for hire cars applies in only one of
the hire car zones (i.e. the Country hire car zone).
The section of the legislation specifying the consumer interest test to be applied for taxi and hire car
licences in the applicable taxi and hire car zones makes reference to ‘districts’, although these are not
currently defined in legislation and are not reflected in the price at which taxi and hire car licences are
issued. Further, under the Act ‘districts’ are not used for the purposes of determining the locations
where operators are allowed to operate within the applicable zone- for which their licence is issued.
Nevertheless, the fact that the Act states that the TSC ‘must’ (or ‘may’ for hire cars) have regard to
users or potential users in the districts in which an operator proposes to operate, means the TSC is
empowered to seek information pertaining to the district an operator plans to operate in.
The collection of information from licence applicants on the district(s) in which they propose to operate
could be helpful in assessing whether the interest of existing or future users will be negatively affected
by issuing a licence. This would also be the case even if the licensee decides to move its operations
elsewhere in the relevant zone, because any subsequent licence application assessments would
capture the impact of movements across districts. The use of data relating to districts is considered
further in the design of the proposed test.
2.3 Form of the proposed test
In line with the relevant legislation and the overall objectives of the Government’s taxi and hire car
reforms, the proposed test will operate on the presumption that a new licence application will be
granted unless there is an anticipated detriment to existing or future users. Furthermore, it is
proposed that the test should not impose excessive administrative burdens on applicants or the
operations of the TSC, so that the data collection and analysis does not prevent the timely release of
licences.
Therefore, the test focuses on the assessment of a new licence application using readily available
data on price, service and operator viability for the Zone and district (where applicable) to which the
licence application relates. The data would either be collected from the licence applicant or obtained
from TSC databases where it is already collected.
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In essence, the test will require the TSC to consider the future if a new taxi licence is issued
compared to the future without the new taxi licence. The latter scenario is assumed to be the market
conditions that prevail prior to the issue of the new licence.
2.3.1
Test data requirements
The proposed data and other information to support the test, their rationale, use or application under
the test and likely sources are detailed in Table 1 below.
Indicator
Rationale
Application
Source
Fares charged by
existing operators
Indicates level of
competition and scope
for entry.
Fare rates for existing
operators in Zone or
district. The higher the
rates of existing
operators compared to
those proposed by
entrant indicates
greater benefit of entry.
TSC price notification
data (taxis) or request
from operators (hire
cars)
Fares proposed by
licence applicant
Indicates likely price
competition and benefit
of entry.
Compare with those of
existing operators in
Zone or district. The
lower the relative fares
of the new entrant the
greater the benefit of
entry.
Licence application
Service differences
proposed by licence
applicant
Indicates additional
competition in quality
and choice arising from
entry.
Indicates whether
quality and choice are
likely to be improved
with entry.
Licence application
Occupancy rate of
existing taxis in district
Indicates ability of
market to support
entry, having regard to
capacity of existing
operators.
Higher occupancy rate
relative to Zone
benchmark indicates
greater prospect of
successful entry and
service improvements
for consumers.
TSC data on request
from NSPs (not
available for smaller
operators).
Number of trips per
taxi/hire car in district
(where occupancy
rates not available)
Indicates ability of
market to support
entry, having regard to
capacity of existing
operators.
Higher trips per
taxi/hire car indicates
greater prospect of
successful entry and
service improvements
for consumers.
TSC data or on request
from operators.
Customer complaints in
relation to existing
operators
Indicates potential for
competition in service
quality.
To signal if low
occupancy or low trips
per vehicle is a result
of poor quality of
service.
TSC data from NSPs
(under development).
Table 1: Consumer interest test data and other information requirements
The above data requirements have been framed to take into account the underlying objectives of the
test, within the constraints of:

Data that is already readily available;
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
Data that is planned to be collected under other taxi reforms; or

Data that is not likely to be too onerous on operators to provide.
A major example of data that is considered unrealistic to obtain is operator profitability and cost data.
As a result, occupancy data (or trip data in lieu of capacity data), which are readily available, are used
to consider the impact on industry viability and possible flow-on consumer detriments.
2.4 Application of the test
To apply the test for a licence application the following operational steps are proposed to determine
whether to grant or reject a licence application.
1. The proposed fares of the licence applicant are compared to existing fares in the Zone or
districts(s) to which the licensee proposes to operate. If the fares of the applicant are:
a. Lower than any of the existing operators, entry would be allowed subject to criterion (2)
below.
b. Higher than all of the existing operators, entry would not be allowed unless the TSC is
satisfied that service improvements will be offered by the new licensee based on the
strength of the details in its application.
2. The occupancy rate of existing taxis in the Zone or district or number of trips per existing taxi/hire
car in the Zone or district (where occupancy rates are not available) are compared to applicable
benchmarks for the Zone or district. If the rate(s) are above the applicable benchmark, the new
licence is permitted. If the rate is below the applicable benchmark then the licence should be
refused unless there is evidence of significant customer complaints against existing operators.
It is proposed that once an applicant has had a licence refused, it will not be permitted to submit
another licence application for the same Zone or district (if specified) for which it has applied for a
period of 12 months. If an applicant is refused a licence in a particular Zone or district, it may
however, apply for one in another Zone or district. This will contribute to ensuring that competition
gravitates to areas that will deliver the greatest benefits to consumers.
The test has been designed to facilitate market entry where it will deliver the benefits of competition in
terms of lower prices and/or improved service offerings. This is the intended purpose of criterion (1) of
the test. However, to guard against market entry that has the prospect of being uneconomical for all
operators and ultimately damaging to consumers, no entry on the basis of lower price offerings is
permitted where the occupancy rates (or number of trips per vehicle if occupancy data is not
available) of existing taxis/hire cars suggests that the demand from customers in a Zone or district
(apart from lower occupancy/trip rates related to customer dissatisfaction with existing services) will
not justify additional capacity. This is the intended purpose of criterion (2) of the test.
The test should facilitate competitive entry in areas where it is needed most i.e. areas with higher
existing prices, unsatisfactory service and high occupancy rates (or low occupancy rates where this is
driven by poor service quality). This will be reinforced by allowing applications to be made in another
Zone or district if a licence application is refused. A qualification, on this however, is that once entry
has been allowed in a nominated district, there is nothing to stop an operator moving to another
district in a Zone. This circumstance would likely be driven by competitive market dynamics and not
be of undue concern, particularly as the outcomes would be captured by the market indicators to be
considered under the test for subsequent licence applications in either the old or new districts.
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3 Comments on the proposed test
The TSC invites comments on any aspect of the proposed consumer interest test as outlined in this
paper.
Any comments should be provided to the TSC by Friday 14 March 2014 preferably by e-mail.
Comments provided will be made publicly available unless it is specified that they be kept confidential.
Comments should be provided to:
Taxi Services Commission
Reform Implementation Project
E-mail: taxireform@taxi.vic.gov.au
Post: GPO Box 1716, Melbourne VIC 3001
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