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Austin’s Ridesharing Shutdown Highlights Widening Regulation Gap

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Walkouts by Uber and Lyft showcase coming debates over regulations, rules, and the power of new players in local transportation

In the wake of Uber and Lyft’s decisions to suspend operations in the city of Austin this morning, a result of the defeat of a public referendum, Proposition 1, a measure supported by the ridesharing services that would have protected drivers rom stricter background checks, the question remains: what’s next?

Based on early reactions over the weekend, the situation is far from resolved, and may have national implications as more cities across the country grapple with regulating, and even integrating with, these transportation network companies (or TNCs), and Uber and Lyft draw a line in the sand. While it seems odd that these companies would pull out of a booming, high-tech city such as Austin, a potentially lucrative market, their stances portend bigger legislative battles to come.

On Sunday, a prominent Texas State Senator, Charles Schwartner, expressed a desire to create statewide regulations governing ridesharing and plans to introduce legislation next year, stating that, "As a state with a long tradition of supporting the free market, Texas should not accept transparent, union-driven efforts to create new barriers to entry for the sole purpose of stifling innovation and eliminating competition."

According to Rob Puentes, the CEO of the Eno Center for Transportation, these services are moving faster than the city and state regulation meant to oversee their operations. Cities, as is their prerogative, want to set the rules for who and what companies are driving on their roads, but the situation has left a patchwork of standards. As Uber and Lyft potentially turn to the state legislature in Texas to look for a more business-friendly regulatory framework, it highlights a widening gap between technology, operators, and government.

"As the lines between TNC and traditional services become more blurred, we’re going to need more consistent regulation," he says. "Cities are starting to use these tools as mechanisms to provide rides for their citizens, and states may not be moving fast enough for these changes. Because of the work happening at a local level, the cities need to start working with the states. This is where the action is, the action isn’t really on the state level."

The vote to defeat the bill, presented by local politicians as a battle against bullies and billion-dollar startups seeking to evade public regulation, and by the ridesharing services as a measure to ensure the continuation of a useful service that reduces drunk driving and improves public safety, has left the city without the two widely-used ridesharing apps.

Uber and Lyft both protested, claiming that enacting stricter background checks, a measure passed late last year by the city council, would hurt their ability to recruit drivers and threaten current operations and the industry’s "long-term path forward." Lyft said the rules, which require background checks and fingerprinting for drivers, would "make it harder for part-time drivers, the heart of Lyft’s peer-to-peer model, to get on the road and harder for passengers to get a ride."

"Disappointment does not begin to describe how we feel about shutting down operations in Austin. For the past two years, drivers and riders made ridesharing work in this great city," Uber said in a statement. "We hope the City Council will reconsider their ordinance so we can work together to make the streets of Austin a safer place for everyone."

Christian Perea, who helps run The Rideshare Guy blog for Uber and Lyft drivers, says the companies have a long history of this sort of brinksmanship in local markets when it comes to fingerprinting, though he believes they can operate in Austin even with the fingerprinting restrictions, since they do in other markets.

"Fingerprinting affects their ability to recruit drivers by making the signup process more difficult and burdensome," he says. "This reduces the speed in which TNC's can ramp up driver supply and thins the pool of available drivers. It also increases their costs in recruiting drivers since the sales funnel becomes longer."

The lobbying group that supported Uber and Lyft’s position, Ridesharing Works for Austin, spent an unprecedented sum, more than $8 million, on the campaign to repeal a law that required fingerprinting of drivers. Puentes says that if the companies successfully lobby the state to pass more favorable regulations, it would create a situation akin to the debate over discrimination laws in North Carolina, specifically Charlotte: state rules trumping local laws. The fight seems primed to pop up in city after city until more recognized standards are established.

Dr. Kara Kockelman, an engineering professor who studies transportation and technology at the University of Austin, felt like the city underwent an ad blitz around the proposition, and believes the aggressive campaigns by Uber and Lyft may have damaged their case to voters.

"I do think they shouldn’t be telling us how to expect them to behave," she says. "Maybe the TNCs will use Austin as an example, but I think other cities will definitely use Austin as a positive example. We’re not taking a unique stand here with fingerprinting."

Austin Councilmember Ann Kitchen, who was against Proposition 1, echoing a statement made by Mayor Steve Adler, says the city is currently working to help the other TNCs in town be successful, building up a pool of fingerprinted drivers, and even exploring the idea of starting a nonprofit TNC with local technology leaders.

"All TNCs provide a valuable service, and we would welcome them to stay," says Kitchen. "They’re innovative, and I think they could find a way to work within our public safety requirements."

Puentes doesn’t believe ridesharing companies are necessarily anti-regulation (though they are asking for a different set of rules than the taxi industry). Austin joins a number of Texas cities, including Galveston, Corpus Christi, and San Antonio, where the company has pulled out of due to regulatory issues, and the services do operate in Houston with fingerprinting.

As more cities see begin to view these services as part of the future of transportation, Uber and Lyft may be making a stand to send a message to other cities.

"The assumption that TNCs believe that all regulation is bad and that the new firms want no regulation, that’s not true," he says. "They don’t want to be hamstrung, they want the government to provide rules. They’re not allergic to regulation, they just want a standards, especially when it comes to labor laws. They’re working with a new type of employee, so I would imagine anything that may change or challenge that would be an issue."

Uber and Lyft Lose Austin Vote Resoundingly, Despite Spending $8.6M on Campaign [Curbed Austin]

Fixing the American Commute [Curbed]