Kakao Mobility fined $20 million for discriminative algorithm

A Kakao T Blue taxi, booked with a call, waits for its passenger at a taxi lane in Seoul Station on Tuesday afternoon. [YONHAP]

Kakao Mobility has been hit with a 25.7 billion won ($20.3 million) fine for manipulating algorithms to favor taxis owned by a subsidiary and a related company.

The company steered business toward KM Solutions, a subsidiaries that operates Kakao T Blue, and DGT Mobility, in which it has a stake.

The Fair Trade Commission (FTC) fined Kakao Mobility and also issued an order to cease discriminative call allocation and submit progress reports.

"It gave more calls to franchise drivers by prioritizing them and secretly operated an algorithm to exclude them from less profitable requests, such as rides less than 1 kilometer,” the FTC said in a press statement.

Under the algorithm, the favored taxis that were further away from the caller were prioritized over other taxis in the cab allocation. If a Kakao T Blue taxi was 6 minutes from the caller, Kakao Mobility gave the call to the Kakao taxi even if another taxi was closer.

When FTC compared the number of taxi calls in Seoul between May 2020 and September 2021, Kakao-related drivers received up to 266 more calls a month and their profit nearly doubled that of the others.

Kakao T Blue drivers received an average of 352.6 calls in May 2020, but others received 86.6. The differnce climbed to 321 in other areas such as Daegu, Daejeon and Seongnam.

According to the antitrust regulator, this allowed Kakao Mobility to get more drivers, from 1,507 in 2019 to 36,253 in 2021, and expand its presence in the taxi market, with its shares soaring from 14.2 percent to 73.7 percent over the same period.

The FTC said that Kakao Mobility may also seek to increase the commission from requesting and accepting taxi calls by capitalizing on its dominance in the market.

Kakao Mobility did increase passenger call fees in August 2021, but withdrew the hike shortly after it was strongly opposed by private taxi drivers.

In April 2020, Kakao Mobility changed its algorithm to favor drivers with higher call acceptance rates when the accusations of its discriminative call allocation made the headlines.

Kakao argued that changing the algorithm was a consumer-friendly move because this algorithm allowed for faster taxi allocation of passengers, but FTC still ruled against the taxi-hailing service operator because Kakao T Blue taxi drivers had higher chances of receiving calls since calls were automatically accepted in their apps, unlike others who had to manually press the "accept" button on the smartphone.

Kakao Mobility also released a statement on Tuesday saying the FTC's decision was made “without the misunderstanding being properly resolved.” The company added that an algorithm is an important and confidential sales strategy and changes cannot be disclosed.

"We will pursue various measures, including administrative litigation, to have the hard work and dedication put forth by our drivers recognized," Kakao Mobility added.

BY SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]