In a 3-2 vote, under Republican Commissioner Chairman Ajit Pai, the Federal Communications Commission (FCC) ended the 2015 Open Internet Order. The Open Internet Order or “net neutrality,” as it is now commonly referred to, regulated the way internet service providers (ISPs) treated content. It prohibited providers from charging higher fees for certain websites and bundling services. Net Neutrality required ISPs to treat all content equally and blocked providing ‘fast lanes” for favored sites. The implications that this repeal has on the real estate industry are larger than most would expect.
Big Business vs Small Business
We can think of Real Estate is essentially a collection of small businesses given that the majority of brokerages are actually just small businesses. The individual agents are either independent contractors or small businesses themselves, having to constantly grow their personal brand. Prior to the repeal, Internet content was equal. Now, The FCC, which has given oversight over internet regulations to the Federal Trade Commission has stated, “they are returning to the traditional light-touch framework that was in place until 2015.” So what does the FCC’s ‘light touch’ mean for these small businesses? In the short term- probably not a lot. However, long term implications could have lasting effects.
Worst Case Scenario
Bigger firms will cut deals with ISPs to make sure their internet speeds are not throttled on their sites. Putting the power back in the hands of the ISPs could make costs rise, giving the small business an inherit disadvantage. The repeal of net neutrality could make it much more expensive for small real estate companies to operate with the potential for broadband providers to raise costs. For tech driven real estate brands like Redfin, whose business is run online, this poses a serious threat.
The Threat to Tech
With the rise of tech in real estate, many real estate brands are pouring finances into internet software as a service to consumers. Multiple tech driven real estate brands like Compass, Redfin, and Zillow know that over half of real estate technology is pure internet software. If Internet Service Providers begin to throttle speeds, they are going to go after the big companies first, like Netflix and YouTube, but eventually they will move onto smaller brands. It comes down to connectivity and how it has become one of the most vital components for digital consumers. If your business is built in the online world, connectivity is the most important aspect and the repeal of net neutrality poses concerns to your business. Redfin’s Chief Economist stated, “Removing the framework that prevents internet service providers like Comcast, Verizon, and AT&T from slowing down and blocking websites, or charging apps and sites extra fees to reach an audience, is in direct conflict with our mission to make housing data more transparent and easily accessible to consumers.”
How Real Estate Feels About the Repeal
There is a common consensus amongst the top names in the industry regarding the repeal of the Open Internet Order. The National Association of Realtors (NAR) has been extremely vocal in their 1.3-million-member stance on the repeal. NAR President Elizabeth Mendenhall said, “FCC’s rollback of the Open Internet Order will mean higher costs and slower service for millions of American consumers and businesses. Realtors have strong concerns about what that might mean for the way consumers search for homes online and real estate is transacted.”
It’s an Unlevel Playing Field
The general feeling is that the repeal is creating an unlevel playing field for consumers and business owners. If the ISPs can essentially dictate a website’s functionality, then it will literally come down to the consumer’s choice of which website is functioning better. So many sites are near identical or offer the same services/products, but it is how each individual site markets themselves that differentiates them from the pack. Now, it’s whichever site can afford to pay these Internet Service Providers to give them optimal internet speed. John Gilbert, Chief Operating Officer at Rudin Management Company explained, “Net Neutrality has enhanced the creation of new companies offering digital solutions to real life problems. Removing this foundational concept risks creating winners and losers based on a playing field that tilts against creative thought. This is an issue that deserves legislative debate.”
What to Expect
In the short term, everyone can take a breath. There probably won’t be any overnight decisions made that have lasting repercussions on society as we know it. Although, there is a period where the repeal will go through the court system to determine if they were wrong in the first place, and there is potential for chaos to ensue during that time. Net Neutrality created an equal opportunity for big businesses and small businesses alike to have the same internet speeds. If the court does decide that the government can follow through with the repeal, the power is being put back into the hands of the Internet Service Providers who could throttle internet speeds, making it extremely difficult to compete with big businesses.
To sum it up, this change effects all of us, to some degree. For real estate, which is mostly comprised of small businesses, the long term repercussions could be severe.