Kakao Mobility fined $20 million over unfair taxi-hailing service

Kakao Mobility Corp., South Korea’s largest taxi-hailing app operator, has been fined 25.7 billion won ($20.3 million) for discriminating against taxi drivers not subscribed to its paid membership.

The Fair Trade Commission (FTC), Korea’s antitrust regulator, on Tuesday imposed fines on the subsidiary of tech giant Kakao Corp. and issued a corrective order to remedy the illegal practice.

The regulator said Kakao Mobility, which runs the country’s most popular taxi-hailing app, Kakao T, rigged the app’s algorithm to allow franchised cab drivers under the Kakao T Blue brand to receive more calls from taxi users compared to non-franchise taxis, irrespective of the distance between the caller and the taxi.

The preferential treatment contributed to the rapid growth in the number of taxi drivers subscribed to the company’s ride-hailing platform, the FTC said.

The antitrust body said its investigation into Kakao Mobility from March 20, 2019 to mid-April 2020 also found that it manipulated its system to exclude member taxi drivers from less profitable, shorter-distance ride calls.

KAKAO SAYS FTC DECISION ‘REGRETTABLE’

Kakao Mobility said the FTC’s decision, which ignores the convenience of the passengers, is “regrettable.”

“Our principle is to best serve consumers, not to best serve our member taxi drivers,” said a Kakao official.

The company earlier said its taxi allocation services are based on artificial intelligence-powered analyses of expected arrival time, taxi drivers' acceptance rates of riding calls, their driving patterns and demand and supply conditions, as well as real-time traffic conditions and customers' reviews.

In the process, the chances of matching the riding requests with non-member taxi drivers could be lowered, it said.

The FTC probe began after trade groups of Korea's taxi drivers in 2020 accused Kakao Mobility of conducting unfair business practices. In a petition presented to the FTC, they argued that when assigning taxi calls, Kakao gave preference to taxi drivers subscribed to its paid membership over non-member taxis near the starting point of the taxi calls.

DOMINANT PLAYER

According to the FTC, Kakao Mobility controlled 74% of the country's taxi-hailing service market with 11.36 million active monthly users at the end of 2021, up from 14.2% at the end of 2019.

UT, the No. 2 such service provider, had 516,109 monthly users at end-2021.

Earlier this month, industry sources said VCNC and Jin Mobility, the operators of Korea’s two premium ride-hailing apps – TADA and i.M – are considering a merger to challenge Kakao Mobility’s market dominance.

In addition to the taxi-hailing platform, Kakao Mobility also runs other transportation-related businesses such as chauffeur services, bicycle and car rentals, and navigation.

Industry watchers said the FTC’s ruling could limit consumers’ options in a country where carpooling services such as TADA and Uber are basically banned.

“Ironically, Kakao Mobility would not have reached such a dominant position if alternatives such as Uber were allowed in the Korean market,” said Kwon Nam-hoon, an economics professor at Konkuk University.

Write to So-Hyeon Kim and Sang-eun Lucia Lee at alpha@hankyung.com

In-Soo Nam edited this article.