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Grab-Uber deal tests Southeast Asian antitrust watchdogs

Merger of ride-hailing companies outsmarts regional competition authorities

Applicants fill out forms to join Grab at its Hanoi office in 2017. The Grab-Uber merger deal was the first of its kind for Vietnam’s regulator since the country's competition law came into effect in 2005.   © AP Photo/Tran Van Minh

MANILA -- Southeast Asia's antitrust regulators have entered an uncharted territory with the Grab-Uber merger, an unprecedented deal that has tested competition authorities' mettle and exposed loopholes in enforcement.

The Vietnam Competition Authority on April 13 became the latest regulator to probe the transaction, nearly three weeks after the deal was announced. Grab, a ride-hailing service founded in Malaysia and based in Singapore, said on March 26 that it was acquiring the Southeast Asian businesses of its U.S. rival. In exchange, Uber gets a 27.5% stake in Grab.

The belated review in Vietnam comes as Grab has insisted that its market share will remain less than 30% even after the tie-up with Uber, which means they are not required to notify regulators in that country.

Under the Vietnamese government's competition rules, mergers that lead to 30% or more market share must be flagged by the companies, while deals that result in more than 50% are prohibited except in some special cases, an official at the competition authority explained.

The official said Grab failed to prove its claim, prompting the regulator to launch a review, a process that could take 30 days.

On April 9, shortly before the competition authority decided to scrutinize the deal, Uber and Grab's integration had already been completed in Vietnam, along with other markets such as Indonesia, Malaysia and Thailand.

In the Philippines, both companies swiftly proceeded with the integration. Grab immediately staged an event to transfer Uber drivers to its platform. By March 28, hundreds of drivers had signed up with Grab.

It took a week before Grab went to the Philippine Competition Commission to argue before officials that the deal did not meet the transaction threshold of 2 billion pesos ($38.3 million), which would require notification. Grab and Uber have not publicly stated the value of the deal.

The Philippine Competition Commission initiated a review on April 3, arguing that the two companies' 93% combined share in the Philippine ride-hailing market, which involves more than 50,000 cars, poses a threat to competition.

On April 7, competition commission ordered both companies to freeze the deal and preserve their pre-merger setup. That meant Uber had to continue its service until the review is concluded -- only to outsmart the commission after a week. Uber told its riders on April 15 that it would shut its operations the following day and directed them to sign up with Grab.

The Philippine Land Transportation Franchising and Regulatory Board on April 11 issued a cease and desist order to Uber, whose license as "transportation network company" had lapsed. The land transport regulator prior to that had backed Uber's closure in the Philippines, arguing that the company's insufficient manpower and resources could no longer ensure passenger safety.

Unsurprisingly, Uber used the Philippine transport regulator's order as its argument when it was asked by the competition commission to explain its non-compliance. "In this case, there are conflicting orders," PCC Commissioner Stella Quimbo told Nikkei Asian Review on April 12. "Ideally, LTFRB and PCC should be coordinating."

Inconsistent regulations allowed Uber to defy the antitrust watchdog. The situation showed cracks in the three-year old Philippine Competition Act, one of the youngest such regulations in the region. The law's passage in 2015 ended 20 years of lobbying by big businesses that have historically dominated the county's industries. 

Since its formation in early 2016, the commission has clashed with powerful conglomerates, including such cases as PLDT and Globe Telecom's telecom duopoly and SM Investments' proposed acquisition of the Goldilocks bakeshop chain, which later collapsed amid regulators' stringent post-merger conditions.   

Meanwhile, Uber and Grab appear to be enjoying a smooth ride with authorities in Singapore, which is considered to have the most advanced antitrust regulations in Southeast Asia. Still, the Competition and Consumer Commission of Singapore on April 13 issued antimonopoly measures for Grab in order to maintain an open market. The commission has also allowed Uber to exit the city-state on May 7.

The measures include a restriction on subjecting drivers with exclusivity contracts, barring Grab from taking over historical trip data from Uber and keeping pre-merger pricing. The Singapore commission, which did not give a timetable on when it will conclude its review, said the interim measures would continue until it completes the investigation, which could extend beyond May 7.

While this represents the first time the Singapore commission has imposed such measures on merger companies, it is not the first time for Uber, which had to deal with antitrust regulators in Russia when it merged with the ride-hailing unit of Yandex in 2017, and in China when it merged with local rival Didi Chuxing in 2016.

Lim Kell Jay, head of Grab Singapore, said: "We're proud to headquarter in Singapore, where the country's free-market economy and policies enable businesses to compete and innovate vigorously to solve customer needs."

The regulators' findings will be closely watched by both consumers, whose lives have become increasingly dependent on app-based services, and by other authorities, such as the Competition Commission of India amid reports that a merger between Uber and Bangalore-based rival Ola is being brokered by Japan's SoftBank Group, their common shareholder.

Post-merger conditions, which might indicate incentives for future competitors and a burden for the incumbents, could shape the future of the Southeast Asian ride-hailing market of more than 600 million people.

"This is a case related to very new sharing-economy technology," the Vietnam Competition Authority's official acknowledged. Grab and Uber's deal was the first of its kind for the regulator since the country's competition law came into effect in 2005.

The authority, under Vietnam's Ministry of Industry and Trade, covers two main sectors -- competition and consumer protection. Its investigations cover competition agreements, abuses of market power and the control of market domination. The authority's reports and recommendations are sent to the country's Competition Council or the relevant authorities for handling.

The Grab-Uber deal is one of the few cases the authority has handled since it was established in 2003. Previously, the authority  investigated Thailand-based Berli Jucker's acquisition of the Metro supermarket chain in 2016 and leading mobile retailer Mobile World Group's acquisition of a local rival last year. The authority for the most part receives complaint letters, such as about the quality of products or services, and then works with relevant authorities and organizations to handle the matters in order to protect consumers' interests.

The merger, was unique for other regulators, too, in many ways. The integration has seen the rise of Grab as a dominant and regional player by absorbing Uber. It was also the first transaction to draw attention from multiple competition watchdogs in the region and has prodded the regulators to collaborate and corroborate information.

"We are closely coordinating with the Competition and Consumer Commission of Singapore," Quimbo of the Philippine commission told Nikkei.

The Vietnam Competition Authority official confirmed to Nikkei that the country's regulators have consulted their counterparts in Southeast Asia but declined to identify them.

Meanwhile, regulators appear to be learning their lessons. The Philippine commission plans to forge partnerships with other regulators in the country, such as the Energy Regulatory Commission, the National Telecommunications Commission and the Department of Justice, Quimbo said. That would allow the commission to work closely the other regulators while a review is ongoing and avoid the recent confusion with the Land Transportation Franchising and Regulatory Board.

In Vietnam, the commission authority officer told Nikkei that the country will wait until it finishes the investigation. From there, regulators will determine if the competition law needs amending.

Howard Hunter, professor of law at Singapore Management University, pointed out that one regulatory challenge as seen through the Grab-Uber case is the absence of a mandatory pre-notification procedure for merger companies. He said that authorities currently take a voluntary approach due to constraints on staff and budget.

"But, without pre-notification, a commission may be caught flat-footed and have to react after a transaction has been completed," Hunter said.

As Southeast Asia gives birth to its own startups and becomes a battleground for giants like Amazon and Alibaba Group Holding, industry consolidation and transactions similar to the Grab-Uber merger are almost certain to arise.

Nikkei staff writer Kentaro Iwamoto in Singapore contributed to this report.

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