Uber’s ride in India could get bumpier as Ola and TaxiForSure get set to merge

Taxi app Ola has signed a term sheet to buy TaxiForSure, according to reports in Indian media. This consolidation will make it a straight fight in India between Uber and its chief Indian competitor.

The Ola buy-out of TaxiForSure, thought to be worth about US$200 million in a mix of cash and stock, will be announced in a few weeks, The Times of India reports.

This comes at a time when Uber is on the back foot following the arrest of one of its drivers in Delhi for rape last month. Uber was immediately banned in several cities, starting from the Indian capital. Ever since then, it has been negotiating with regulators to be allowed back on the roads. Last week, it gave in to the Delhi transport department by applying for a Radio Taxi Licence, after initially insisting that such rules cannot apply to on-demand taxi apps.

But now the transport department has sent letters to Uber, Ola, and TaxiForSure, pointing out deficiencies in their applications for radio taxi licences. The trickiest parts of complying with the licensing rules for Uber involve providing registered office addresses wherever it operates, along with details of call centers for customer relations. Uber mostly operates online, without a substantial physical presence in cities around the world. So India will be a test case to see if it will change its spots, so to speak.

Becoming a radio taxi operator in India means that Uber will be in the business of public transport, with all the regulatory checks that entails. That will be a fundamental change for Uber, and could affect it in other markets like China where regulators are trying to figure out how to regulate taxi apps.

Ola too has come under regulatory pressure following the rape incident, but it’s an Indian company with much more of a physical presence on the ground. In fact, in Bangalore, Ola had a fleet of cars registered with the transport department, before the entry of Uber in August 2013 made it pivot and focus more on the aggregator model.

The international player’s entry proved to be just the right spur for Tiger Global-backed Ola to buck up. It launched a luxury service, roped in Matrix Partners in a US$20 million funding round in November 2013, and then Sequoia Capital and Steadview Capital for US$41.5 million in July. Its biggest funding boost came two months ago when Japan’s SoftBank pumped in US$210 million along with Olacab’s existing investors Tiger Global, Matrix Partners India, and Steadview Capital. With more than a quarter of a billion dollars in total funding, Olacabs became one of India’s hottest tech startups and the leading taxi app in the country.

The Indian taxi space was simmering last year as Uber, Olacabs, and TaxiForSure were driving into one Indian city after another at breakneck speed, introducing new categories to bag all segments of travellers – luxury to economy. For instance, Uber, after its big US$1.2 billion funding in June, launched its affordable UberX with compact sedans to go after the mass market in India. It also launched an even cheaper India-only service called UberGo.

And then came the sudden crash in December with authorities cracking down on the tech-enabled services.

But the current regulatory scrutiny may turn out to be a blessing in disguise for Ola, because it is better positioned to work things out with the local authorities as it has a full-fledged team and offices on the ground. Besides, it is because of the new challenges facing taxi apps that TaxiForSure is forced to find an exit. The cost of complying with the new rules – such as installing GPS-enabled tracking devices in all radio cabs – makes it that much harder for the smaller players to survive. This will leave just the global player Uber and the local rival Ola on the table, waiting to see what cards the regulators deal next.

See: After a year of amazing highs and terrible lows, will 2015 bring taxi apps a license to ride in India?