SEOUL (Reuters) - South Korea’s ride-hailing service Tada, a smash hit since its launch just over a year ago, was cleared of transport law violations in court on Wednesday, a rare victory in a market that has been particularly unkind to ride-hailing companies.
Since starting up in late 2018, Tada has won 1.7 million users as it capitalized on growing demand and the funding muscle of its Japanese backer SoftBank Group Corp.
But the ride-hailing firm still faces the threat of increasing regulations that has spooked investors, as well as violent protest from a powerful taxi lobby ahead of an April general election.
South Korea restricts ride-hailing to only licensed taxis and bans the use of private cars for the purpose. Tada has been exploiting a rule that allows the rental of chauffer-driven 11-seaters to operate its ride-hailing services, angering the taxi lobby and regulators.
Ruling that Tada followed current law, Seoul Central District Court judge Park Sang-koo said: “Although ride-sharing has been going through labor pains and accepted in various ways throughout the world...in South Korea, it is difficult to reach a social consensus as the Uber incident and others have shown.”
Some taxi drivers among the 200 people attending the court hearing burst out in anger upon hearing the verdict. Shouts of “how can they be innocent!” rang through the court room.
Prosecutors had sought one-year jail terms for executives of Tada and its parent firm, arguing Tada was a de facto unlicensed taxi service.
“A new time has come for those who dream of innovation,” Lee Jae-woong, entrepreneur and head of Tada’s parent company Socar, wrote on Facebook after the verdict.
In South Korea, a global IT powerhouse with the world’s highest smartphone penetration, Uber’s ride-hailing business was curtailed in 2015, two years after its launch, with legislation banning the use of ride-hailing services by private cars following fierce protests from the taxi lobby. Uber now offers limited services.
Globally, ride-hailing services have been on a bumpy ride with regulators. A U.S. judge has refused to stop a California labor law that makes it harder for so-called gig economy workers to be classified as independent contractors rather than employees from taking effect this month.
Tada, meaning “ride” in Korean, has been an early hit among riders who, according to a private survey, were fed up with poor taxi service. Some drivers refuse customers during rush hours.
Besides SoftBank Ventures, private equity and venture capital firms have backed the company to the tune of about 161 billion won ($135.3 million) since 2018.
But after a lawmaker proposed to revise laws in October allowing Tada to only operate vehicles hailed for six hours or more, discussions with SoftBank for $500 million in funding fell through, a source with knowledge of the matter said.
“The bill was not expected at all, it wasn’t even in our worst-case scenario,” Lee told Reuters, declining to divulge specifics of talks with investors.
Investors could be put off as “South Korea can be seen as a country where unexpected regulation can suddenly make a business impossible to operate,” he said.
Tada’s parent Socar and SoftBank declined to confirm any details on the funding plan by Vision Fund. The bill is still pending in parliament.
Tada faces ongoing discussions with the taxi lobby and regulators calling for the company to come up with a plan to co-exist with taxis. Prosecutors may appeal.
A 76-year-old taxi driver surnamed Ahn died after setting fire to himself while protesting against Tada in May.
Two other taxi drivers had self-immolated and died after Kakao Mobility, a unit of South Korea’s largest chat app operator Kakao, began testing a car-sharing service in late 2018. Kakao Mobility halted its carpool service test in January 2019.
Reporting by Joyce Lee and Hyunjoo Jin; Additional reporting by Sam Nussey in Tokyo; Editing by Jack Kim, Shri Navaratnam and Jacqueline Wong
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