Algorithm: The proof of compliance A win-win LTFRB/TNV zero sum game

My column on Grab – LTFRB/ TNV solicited quite a response for me to have reason to expound on it. I asked my friend Benny Gonzalez to help out since this is his expertise. The idea is to understand the evolution of the current TNV problems so that the appropriateness of the suggested solution(s) found at the end can be easily appreciated or rejected.

Benny says that regulated and supervised, TNVs (Transport Network Vehicles) can take their legitimate place in the economy as a permanent transport sector rather than just as a novel niche for vehicle owners looking for opportunities to maximize their vehicle down times. This industry has come a long way from its humble beginning in San Francisco as a source of additional income for college students with time to spare in-between classes to the creation of three world unicorns (Uber #1, Lyft #14 and Grab #20) with a total market capitalization of $80 billion without owning a single taxi.

Favored by the riding public for its efficiency, fixed route and pre-agreed pricing before the deal is consummated, the first Grab and Uber TNVs where franchised in the Philippines in 2014 as a business opportunity available to any existing car owner. These early adaptors coming in with their pre-owned vehicles and who worked at leisure became the happiest and most pleasant ride service providers in the world.

Attracted by his next door neighbors’ newfound success, more and more Juans with underutilized cars joined their TNV of choice and proportionately, these part time competition started to become a force to reckon with by the regular taxi industry. Two adverse effects were immediately felt by the regular taxi drivers: their incomes were decreasing and the traffic situation was worsening as the competition on the road increased.

The affected taxi drivers seeing the greater take home pays in this new mode, defensively started exploring the TNV as an investment model beyond being the simple revenue enhancement it was originally intended to be. Again, the early ex-taxi adaptors of this hybrid TNV were met with reasonable success given that what they had traded off was the boundary they used to pay the operator vis-à-vis the 20% off the top share of the TNV systems operator.

On a net of gasoline expense basis, the TNV driver was illusorily making much more provided he was putting in his usual 12 or 24 hours of work a day just like before. Whichever length of time he chose to work in a day, he was now forced to assume the role of a vehicle owner/operator during his resting hours because his TNV earnings no matter how much higher they were from driving a taxi, was never enough to pay for the monthly amortization and the required repairs and maintenance which are now all chargeable to him.

Probably half the time, his preferred driver/partner was an ex-taxi driver who had to pay him a boundary that he so hated and wanted to get away from before and this is how the former taxi culture which needed much rehabilitation crept into the TNV scene surreptitiously and similarly started giving it a bad name.

Given that TNVs repeatedly reaped this bonanza as they admitted more and more vehicles into their system, they also exploited their service package as a viable standalone investment without any attendant cost benefit analysis shared with the potential investor and without any mention of the required time inputs (more likely 16 to 20 hours of driving time), just to breakeven (it is currently happening here in the Philippines and lately in New York).

The foregoing summaries all the unintended consequences besetting the local TNV industry and all its stakeholders which the LTFRB has regulated by the seat of their pants and with back of the envelope computations. Gonzalez said, “while each stakeholder was happy then (not anymore now) without quantifying the risk reward aspects of this investment (no longer just a revenue maximization scheme), it is very important for us all to agree on this historical and evolved framework before the tedious and expensive process of quantifying what really happened to this industry can be made in clear financial terms.”

He further explained that given the hybridization of the local TNV situation, it may cry for a uniquely Philippine or even perhaps an Asean solution. If we now agree that we have four stakeholders namely: the passenger, the driver, the vehicle owner and the TNV systems operator, then the business model represented by the franchise licensed by the LTFRB must be made equitable for each and at the same time rationalized in the context of the other modes of land transportation. In turn, these should all be embodied in the algorithm used for determining pre-agreed fares and for its redistribution as the share of each mentioned stakeholder.

He continued by saying that since the algorithm is analogously the physical meter of the regular taxi, its proprietariness must only be limited to the following aspects: (1) How each TNV wants to formulate and compute the LTFRB approved fare given the specific route circumstance which in every case must be equal to or lower than the LTFRB total fare and in the subtotal of each component;?(2) What values within the LTFRB approved flag down, kilometer charge, travel time charge and surge ceilings each TNV inputs into the algorithm in order to personalize and optimize their individual competitiveness. ?

Gonzalez also believes that the Surge Premium has to be revisited and rationalized so that the components of travel time and kilometerage which are already accounted for are never double counted. Its application must be both time period and location bound where the surge premium is immediately and automatically dropped from the fare computation when the preset conditions no longer exist. LTFRB must make sure that at all times, no TNV algorithm computes anything higher than what it had prescribed under the route circumstances. LTFRB must have and regulate through its own algorithm. ?

The current brouhaha created by the 28 associations of Grab drivers certainly tweaked his curiosity and produced this analysis. These drivers claimed that the direct impact of the disallowance of the P2 travel time charge resulted in a daily reduction of earnings by a whooping P2,500. The computed effect of removing this travel time charge from the Grab algorithm should have only reduced a driver’s daily earnings by P980 to P3,520 and not the claimed drop of P2,500. If their narration is true and not a wild exaggeration of facts, Grab’s algorithm is either wrong in computing passenger fares by P95 less per trip or in charging the drivers an extra P76 for unknown reasons. Either way, the poor drivers may have been sent to bark on the wrong tree (LTFRB)!

This conundrum supplies more reason why LTFRB should have a prescribed algorithm for each mode of land transport it regulates. It should not renege in its primal obligation of ensuring that within the fares it approves under specific route circumstances, each of the stakeholder gets its exact due within the principles of a zero sum game.

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The circus has finally arrived. After a long wait, the Barangay and Sangguniang Kabataan elections will definitely happen on May 14. There will be more than one million candidates to fill up more than forty-two thousand barangays. Sanamagan!

Remember the purest intention of the barangay is very ideal for our set-up. The only problem is the people elected into office because they can make or break our communities.