The Federal Communications Commission’s (FCC) vote to end Obama-era net neutrality protections could change the way consumers use the internet, and that may have a lasting effect on a real estate industry.
Today’s 3-2 vote under Republican Commissioner Chairman Ajit Pai — which fell along party lines — ends the 2015 Open Internet Order, which regulated the way internet service providers (ISPs) treated content. It required ISPs to treat all content equally and blocked the favoring of providing “fast lanes” for favored sites.
The FCC, in a statement, said they are “returning to the traditional light-touch framework that was in place until 2015.”
As part of the vote, oversight over internet regulations will shift from the FCC to the Federal Trade Commission. While the FCC is split with two Democrats and three Republicans — part of the organization’s bylaws allows for no more than three members of any political party — the FTC is made up of one Republican and one Democrat. Terrell Sweeney, the Democrat serving as a commissioner on the FTC, has already argued that her organization will not be able to save an open Internet.
What’s at stake for small businesses?
In the near term, Russ Cofano, a Washington state-based veteran of the real estate industry for over 25 years — most recently the president of eXp World Holdings, operator of real estate brokerage eXp Realty until this past summer — doesn’t believe much will change, but there’s mid- and long-term repercussions to consider.
“Real estate essentially is a business run by small business operators,” Cofano said. “The majority of real estate brokers are small businesses, individual agents are independent contractors and small businesses.”
He added: “The concern, among folks that are fighting against this repeal is that when you pit big business — that being broadband providers — against small business, big business wins in terms of usability, cost or both.”
At the very least, Cofano explained, repealing net neutrality could make it more expensive for smaller real estate operations to compete, but at the very worst, it could put people at a competitive disadvantage when working with consumers.
While it’s too early to see the shape of things to come, theoretically larger firms could work out deals to ensure speeds aren’t throttled on their sites, versus some of their smaller competitors. Berkshire Hathaway HomeServices, for example, could be at an advantage because it belongs to a multinational conglomerate that owns a small stake — less than one percent — in Verizon.
“It’s conceivable that could happen, but the repeal of the net neutrality rules are eliminating FCC regulation, but not antitrust,” Cofano explained.
“Would it be an antitrust violation to provide preference for big companies versus small companies?” Cofano added. “The answer is: we don’t know yet, but it’s scary. And lots of harm can happen while things go through the court system to determine if they were wrong in the first place.”
Threats to real estate tech
The repeal of net neutrality could also pose a threat to the thriving proptech industry. Roelof Opperman, an associate with Fifth Wall Ventures — a VC firm with companies like Opendoor, WiredScore, States Title and VTS in its portfolio — thinks it will impact startups with a direct-to-consumer business model, especially.
“Half of real estate technology is pure internet software as a service, delivered to consumers,” Opperman explained, using companies like Compass and Zillow as an example.
“Anytime there’s less regulation, and a telecommunications behemoth could throttle [speeds] based on what you’re paying them, that’s an issue,” he added. “It definitely hits innovation on the consumer end.”
A byproduct of the new lack of regulations could be that alternative internet networks become much more common, and access to those internet networks could become a new selling point for residential and commercial buildings.
“A lot of buildings are thinking about connectivity in a big way,” Opperman said. “Connectivity is basically the number one thing when people look for when moving into a new building or office.”
He added, “So I think it creates a really big opportunity for non-conventional networks such as dark fibre to brand themselves as ‘hey, we don’t do this.’” Dark fibre is a term referring to the extra cables and bandwidth that are laid down for broadband internet, which building owners may use to set up their own private, ultra-fast networks.
Like Cofano, Opperman admitted that there’s still a lot of unknown.
“We’ve just given all these massive telecommunications companies this power, and we’re not sure how they’re going to wield it,” he said.
Opperman thinks, if ISPs start to throttle speeds, they’ll go after bigger companies like YouTube and Netflix first, but eventually that will trickle down to small companies, which will obviously have an adverse impact in terms of cost and the services they provide to consumers.
“If you had two sites that were exactly the same or slightly differentiated, and one was much slower than the other, then why would you go to the other?” Opperman said.
The vote that ‘stacked the deck’
One of the companies backed by Fifth Wall Ventures is WiredScore, a startup that provides commercial real estate tenants with information about their building’s connectivity. The company’s CEO Arie Barendrecht believes the repeal of net neutrality will impact businesses like his own.
“We are a startup so we understand the hard work that goes into building a business,” he said. “Today’s ruling is a big loss for a lot of small businesses and an impediment to the growing innovation economy. The repeal of net neutrality just stacked the deck against smaller companies in favor of big business.”
John Gilbert, the chief operating officer and executive vice president at Rudin Management Company and also the co-chair of the Real Estate Board of New York’s (REBNY) Tech Committee also believes the repeal will have a negative impact on the growing proptech industry.
“Net neutrality has enhanced the creation of new companies offering digital solutions to real life problems,” he said. “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.”
Racquel Russell, senior director, government relations and public affairs at Zillow — one of the nation’s largest online listing services, with $7.5 billion market cap — echoed Gilbert’s sentiments.
“The FCC’s changes to net neutrality create an unlevel playing field for consumers and small-business owners, including many of our real estate partners,” she said. “An open internet empowers consumers with information, helps small businesses grow and spurs innovation.”
The National Association of Realtors (NAR) has also been staunchly opposed to the repeal, on behalf of their 1.3 million members.
“The internet as we know it today is a fair and open platform that puts everyone on a level playing field,” said NAR President Elizabeth Mendenhall in a statement. “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.”
Mendenhall pointed specifically to the small businesses that will be impacted by the repeal.
“The last thing small businesses need today is additional costs and competitive disadvantages that put them on the defensive,” she added. “This isn’t just an issue for Silicon Valley or large telecommunications shops. This is a main street concern that affects businesses and consumers across the country.”