Uber Technologies Inc.’s biggest market in Europe is at risk after regulators revoked the ride-hailing service’s license to operate in London for the second time in less than three years, expressing safety concerns.
The London transportation regulator said Uber failed to adequately verify drivers’ identities and safeguard the service for passengers. At least 14,000 trips involved drivers who weren’t who they said they were. One driver found exploiting Uber’s app had already had a private hire license revoked by the regulator after it discovered the person had received a caution for distributing indecent images of children, said a spokesman for the government agency, Transport for London.
Uber said it’ll appeal the decision and will be able to continue operating in London during that process, which could take years. Jamie Heywood, head of the company’s U.K. business, said Uber discovered a flaw in its app in May that allowed 43 people to make unauthorized trips and immediately informed regulators. Uber has since fixed the issue, he said.
“The gap was closed,” Heywood said in an interview Monday on Bloomberg Television. “We stopped drivers implicated from taking new trips, then did full audits of all drivers in London.”
London officials said that’s not good enough. Uber was still implementing safeguards to eliminate the flaw in its app as recently as October, and the regulator said it isn’t certain that incidents like this can be prevented in the future.
Uber had been operating on a two-month license that runs out on Monday, the latest extension while TfL reviewed changes the firm was making to the way it operates. Chief Executive Officer Dara Khosrowshahi had been on a charm offensive in London, flying out to the capital in 2017 after the initial ban to meet with city regulators and personally negotiate a deal. He said at the time he wanted to “make things right.”
On Monday, he was more blunt, calling the decision “just wrong” on his Twitter page shortly after it was made public. Uber shares were down about 1.5% in New York trading Monday afternoon.
We understand we’re held to a high bar, as we should be. But this TfL decision is just wrong. Over the last 2 years we have fundamentally changed how we operate in London. We have come very far — and we will keep going, for the millions of drivers and riders who rely on us.
— dara khosrowshahi (@dkhos) November 25, 2019
Still, the company’s unlikely to disappear from London’s streets any time soon. When Uber was initially deemed not “fit and proper” to operate in September 2017, a trial didn’t take place until the next June, during which Uber was allowed to continue to accept ride requests.
“One of the more significant risks” for Uber comes from dangers to its licenses in major markets like New York and London, Loop Capital analyst Jeffrey Kauffman said in a note on Monday as he cut his price target for the company to $41 a share from $48. “In the long run, we expect that Uber will be operating in London, although we cannot rule out the possibility of periods of uncertainty.”
Uber’s rapid growth in London, where it says it has 3.5 million regular users, was seen as a success story for the company’s expansion outside the U.S. since it started service in 2012. But the city has since become a battleground with the world’s largest startup clashing with local regulators and the iconic black cab industry. The regulator’s refusal to sign off on Uber’s operations throws doubt over whether the company, which has 45,000 licensed London drivers, has any significant future in Britain.
Many drivers “will now face the distress of facing not only unemployment but also crippling debt as they struggle to meet car lease payments,” said James Farrar, chair of the United Private Hire Drivers branch of the IWGB union. “The terrible price of Transport for London’s inability to run a stable regulatory regime and Uber’s refusal to play by the rules will be paid for by the most vulnerable workforce in London.”
In its original decision against Uber two years ago, the TfL said the company failed to do adequate background checks on drivers and report serious criminal offenses. It also took issue with Uber software called “Greyball” that blocked government officials attempts to catch lawbreaking drivers. London Mayor Sadiq Khan defended the regulator’s decision at the time.
“Transport for London’s decision to revoke Uber’s license may weigh on the company’s profitability outlook in 2021, in our view. London is a more mature ride-sharing market, with the potential to drive positive Ebitda margin.”
Mandeep Singh, Senior Analyst, Bloomberg Intelligence
Khosrowshahi, then just weeks into the job, made a number of changes to win over regulators and the public, ultimately securing a temporary operating permit.
TfL said Monday that Uber has made “a number of positive changes and improvements to its culture, leadership and systems” since the June 2018 decision to allow it to keep operating. “However, TfL has identified a pattern of failures by the company including several breaches that placed passengers and their safety at risk.” Uber has 21 days to appeal and can continue to operate while a magistrates’ court considers the decision.
London’s ride-sharing market has changed significantly since 2017, becoming more competitive as the city awarded licenses to similar services, such as Ola, ViaVan and Bolt. In that time, Uber’s reputation has taken a further beating in Europe. It has faced a series of lawsuits across the continent, including a U.K. employments rights case over how its drivers are treated, which it lost.