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Dec 16, 2015

Uber ups the ante. So what’s the TTC going to do about it?

December 16, 2015

Uber is courting controversy again in Toronto. It launched a new service called UberHop this week that permits passengers to share a ride between selected downtown locations.

While the city develops new bylaws around Uber as a taxi service for the spring, the company is now forging ahead with plans to disrupt the public transit system as well.

On its face, UberHop seems to be a smart service that should be welcomed. Overburdened transit lines downtown can barely keep up with demand in dense new residential areas like Liberty Village. If some passengers would prefer to pay a small premium ($5, compared with the $3 TTC fare) for a more comfortable trip, why should the city, or anyone else, care? There are actually a number of reasons, primary among them the general viability of the transit system, accessibility and fairness.

The City of Toronto Act gives the TTC the exclusive right to operate a passenger transportation system within the city, subject to exceptions for services such as taxis or tour buses. A key rationale for granting a public monopoly is to ensure that all areas of the city are adequately served by public transit. In a private system, it would be easy to imagine a well-served downtown with no services whatsoever in less-affluent areas or during off-peak periods.

Allowing private operators to effectively skim the busiest and most profitable routes that the TTC operates would open the doors to financial ruin. Of the TTC’s $1.7-billion operating budget, $1.1-billion comes from fares, with the rest primarily funded by the city. If UberHop is allowed to operate in its current state, other private companies will surely step into the breach and also start providing transit service along other busy routes. These services will likely cater to higher-income transit users and erode the TTC’s revenues over time, gradually leading to service cutbacks and a longer-term death spiral.

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So what options does Toronto have? First and foremost, the market signals that led to the creation of UberHop should be sounding loudly at Queen’s Park and on Parliament Hill. Toronto’s transit system receives the lowest fare subsidy per rider of any transit system in North America at only 88 cents – less than half the subsidy of the Chicago system ($1.99), and nearly 50 per cent less than Vancouver ($1.63).

If Ontario and the federal government are serious about their commitments to invest in infrastructure, the needs of the country’s largest transit system, which moves 1.6 million people a day, should be prioritized. Given its only other revenue tool is raising fares, the TTC needs a more robust public subsidy that reflects maintenance, operations and investment in new capital infrastructure and rolling stock.

The other option is to enter into agreements with companies like Uber to deliver partnered, decentralized forms of transit that better reflect usage patterns and demand spikes. If the TTC doesn’t receive more funding from governments and can’t realistically raise fares enough to markedly improve service, it should explore how services like UberHop might be able to offset peak loads on popular routes without cutting into the TTC’s own operating margins.

This option has the benefit of no need for greater public investment, but it would also be tricky to implement in a way that provides appropriate profit incentives for the private sector, while still allowing the TTC to maintain profitability on its busiest routes. However, a carefully managed plan that provides limited private access on certain over-capacity routes could certainly be crafted to benefit both consumers and the transit system as a whole.

Regardless of which option is pursued (or even if both are pursued in conjunction), UberHop has already provided a valuable service to the City of Toronto. It has shone a light on the inadequate revenue tools of a municipal public transit system that is straining to provide services for a growing population.

The city and the TTC must take this signal seriously and look for ways to improve their services, either through enhanced public funding or greater partnerships with private partners. The TTC should also continue to explore how other service improvements and operational efficiencies can be realized by, for example, automating more ticket booths and exploring the feasibility of driverless subway cars.

Uber continues to teach cities around the world harsh lessons on the fickle nature of public expectations and market dynamics, and policy makers must be prepared to act quickly or be left behind as passengers vote with their phones.

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Release Date

December 16, 2015


Globe and Mail


Sunil Johal


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