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SoftBank aims to steer Japan's taxis into age of Uber

Backing entry of China's Didi, tech titan pushes for evolution from within industry

China's monolithic ride-hailing service Didi Chuxing will partner with a Japanese taxi company for on-demand cab services in Tokyo.   © Reuters

PALO ALTO, U.S. -- SoftBank Group, backing Chinese ride-hailing monolith Didi Chuxing's entry into Japan, aims to press the country forward on such services as Japanese get more chances to taste the modern convenience of on-demand rides.

Didi will soon launch an app-based taxi service here with technological support from taxi provider Daiichi Koutsu Sangyo. SoftBank holds a stake in Didi, and its ties to Daiichi Koutsu run deep.

Japan generally bans car-hailing services that use privately owned autos, which it views as unlicensed taxis, so companies like Didi or Uber Technologies of the U.S. have a limited scope to operate here. But the taxi industry may be approaching a turning point.

Island of the Uber-less

A map provided by Uber shows Japan awash in green dots -- each representing a new user opening the company's app for the first time. Most do so in vain. In Japan, Uber only operates in small parts of Kyoto Prefecture and the northern island of Hokkaido, along with hired-car services in certain areas of the Tokyo metropolis. The vast majority of the country falls outside the company's service area.

With Japan budging little on relaxing regulations, Uber is changing up its infamously disruptive style, aiming instead to make nice with taxi businesses. The company is partnering with the taxi industry and providing technological support as traditional outfits struggle to get up to speed in the age of on-demand service. Should SoftBank invest in Uber as it is seeking to, that strategy will accelerate.

As an information technology company, SoftBank is working to bring overseas IT services to Japan in what could be called a "time machine" management strategy. By importing Didi's tech, it aims to prompt Japan's taxi businesses to evolve for the on-demand age.

Then, the theory goes, foreign tourists will flow toward those businesses -- Chinese visitors via Didi, and those from other regions, including the West and Southeast Asia, via Uber. SoftBank aims to expand demand for ride-hailing services while also capturing demand for the communications systems that make them work.

Returns from communications

SoftBank appears to be considering a framework in which it shoulders the burden of providing taxi companies with tools like tablets and smartphones, then recoups its investment by way of communications. The company has grown thanks to a similar strategy of providing free equipment for asymmetric digital subscriber lines, then raking in returns from data transfer fees. But partnering with taxi businesses has some limitations, and it's unclear to what extent car-hailing services will catch on in the early stages.

Unlike Japanese taxis, U.S. ride-hailing apps do not charge for calling a ride. Lately, most provide fare estimates when users book rides, and prices generally match the quotes, making the route a driver takes no longer a concern. The app quickly and precisely calculates the fee, as well as how long the driver will take to arrive, by processing high volumes of data, including road conditions.

Of course, the tech does not always favor consumers. Prices rise and fall with demand, often doubling or tripling during bad weather or around major events. But customers can choose between competing services in such instances, and there are even apps that show where prices are higher so users can walk to a cheaper spot to catch a ride.

Labor regulator

Didi's entry will likely reignite the debate over ride-hailing services in Japan. But the taxi industry is a major employer in cities outside metropolitan areas, and it acts as a sort of pressure valve for the labor market. Disputes over how to treat, and whether it is necessary to protect, drivers at car-hailing services are unlikely to be solved easily.

In the U.S., such services are competing furiously on price. With rival Lyft eating into its market share, Uber is biting back, including by selling limited $12-per-month passes in certain cities, such as San Francisco. These passes let users ride fairly long distances alone for a flat $6.99, or share a ride for $3.49. Venture capitalist cash is effectively discounting transportation fees.

Drivers' lot

Uber is making some effort to improve the treatment of drivers, including opening a 24-hour hotline, but veteran drivers continue to leave due to poor pay. Yet new ones keep pouring in thanks to the company's strong brand recognition. With endless substitutes available and the company planning to switch to self-driving cars eventually anyway, the treatment is unlikely to improve significantly.

There are plenty of legally gray areas in Uber's labor environment as well. Drivers are considered off the clock when they have the company app open but are waiting for customers. If that downtime was considered part of working hours, drivers' pay would in many cases fall below U.S. state minimum wage laws.

Drivers occasionally get invited to join groups bringing lawsuits against Uber, according to one former driver for the company. But Uber "settles right away," and claimants get only "a small amount of money. It doesn't lead to any real improvement," the ex-driver said. Ironing out how to guarantee good treatment of drivers will likely bog down discussions of whether to allow such services into Japan.

One of the biggest advantages of ride-hailing services is a mechanism for adjusting supply and demand by changing price. When it rains, prices instantly rise to meet demand, and cars quickly converge on the area. But for traditional taxi companies with limited driver rosters, it would be difficult to quickly scale up supply with new technology alone.

One thing is certain: once customers get a taste of car-hailing apps, it is hard to go back.

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