Korea's No. 1 taxi-hailing platform Kakao Mobility was indicted on charges of abusing its market-dominant position. The designated driver service industry has also raised allegations of "driver exploitation." With legal risk, a Korea Fair Trade Commission investigation, and other controversies piling up on top of the parent company Kakao's potential sale, concerns are growing that management uncertainty is increasing.
According to the industry on the 29th, prosecutors on the 26th indicted Kakao Mobility and three executives and employees, including CEO Ryu Geung-seon, without detention on charges of violating the Fair Trade Act. From Feb. 2021 to Dec. 2023, they allegedly demanded fees or trade secrets from four small affiliate competitors and blocked drivers who refused from using the Kakao Mobility app.
Drivers whose calls were blocked saw their average monthly income decrease by about 1.01 million won, and one company saw the number of affiliated operating vehicles plummet to about half, ultimately shutting down its business, prosecutors argued. Kakao Mobility is classified as a market-dominant operator with a 95% share of the general app-based ride-hailing market.
However, prosecutors ultimately cleared charges in the case referred by the Korea Fair Trade Commission in 2023 over the taxi dispatch system (the so-called "call funneling") and in the allegation of "accounting standards violations" for inflating revenue. As a result, among the three cases currently investigating, only the "taxi call blocking" allegation remains under investigation.
Regarding this, a Kakao Mobility official said, "We will faithfully prove in the upcoming trial that there was no violation of the law," adding, "The platform partnership contracts were legitimate consultations to prevent deterioration in our service quality and free riding by competitors, and there was no intent or act to restrict competition."
While some of the legal risk that has weighed on Kakao Mobility for years was eased by prosecutors' decision not to indict, conflicts with designated drivers have recently surfaced. According to a ChosunBiz report on Jan. 27, the Korea Fair Trade Commission (FTC) launched an on-site investigation into Kakao Mobility in Dec. last year to examine whether there were unfair transaction practices related to the designated driver service business.
The investigation was prompted by a report from a designated drivers' group. In Oct. last year, the Korea Confederation of Trade Unions (KCTU) Service Federation National Designated Driver Union held a press conference in front of Kakao Mobility's Pangyo headquarters, claiming that Kakao Mobility and its subsidiary CMNP (operator of Call Maner) were exploiting drivers through unfair practices.
According to the union, when Kakao entered the designated driver-hailing platform market in 2016, it said it would set the per-call commission rate in the 10% range, but it is currently charging commissions in the 20% range. The union argues this is excessively high, considering the 2.8% fee borne by taxi drivers and the 5% fee for delivery riders. In response, the Korea Fair Trade Commission (FTC) is said to be looking into Kakao Mobility's fee structure, the operation of its subsidiary, and how it attracts drivers.
The sale of Kakao Mobility equity by the Kakao group is expected to gain traction this year. In the investment banking (IB) industry, Hyundai AutoEver and Baemin are being discussed as potential counterparties, but with no specific buyer or timing decided, the sale issue itself is cited by the company as a factor increasing managerial uncertainty.
Kakao is currently the largest shareholder of Kakao Mobility, holding about 57% equity. Other major shareholders include private equity fund Texas Pacific Group (TPG) at about 29%, Carlyle Group at about 6.2%, and Korea Investment & Securities Co. and ORIX PE at about 5.4%. The portion for sale is said to be about 40%, excluding Kakao's equity. However, Kakao's position is that "we are not pursuing a sale of management control."
Kakao Mobility dismissed concerns that the sale and legal risk could hinder new business initiatives and the recovery of competitiveness. A company official said, "This year, we will focus on expanding next-generation businesses centered on Autonomous Driving and physical artificial intelligence (AI)."