In an event that is making top headlines across news publications and social media outlets, the Federal Communications Commission has recently voted to dismantle rules regulating the businesses that connect consumers to the internet. The agency abandoned the “net neutrality” regulations that prohibited broadband providers from blocking websites or charging for higher-quality service or content. While the ruling has shaken the tech world as ISPs and high-bandwidth sites are directly affected, the tremors are certain to be felt across numerous businesses and industries. The real estate sector has generally sought to keep streaming and internet service providers choice in consumers’ court. The National Association of Realtors has frequently voiced their support of net neutrality rules – and here’s why.
What is net neutrality?
First, let’s break down the concept of net neutrality. The basic principle is that access to all websites and web services should be equal and that anyone can start their own website or service and make it accessible to anyone with internet access, just like any other website or service.
Let’s say that you run a factory that builds steel beams for houses. You have steel imported by rail through the single rail line that goes through Boston. Railroads are very expensive to construct, and the ones that we have were built a long time ago (and only because the government helped by providing large subsidies and seizing right-of-ways through eminent domain). This means that there won’t be any new railways coming into the city any time soon and the railroad company in Boston essentially has a monopoly on railroad traffic for the foreseeable future.
Now, there exist five steel refineries in the city from which you can purchase steel, and they all compete on price and quality. The largest of these companies used to be the best in the business, but dropped off in quality and is starting to lose business to its four direct competitors. However, it has more money in the bank that the other four, and creates a plan. Rather than invest to make a higher quality steel or a less expensive product, the company instead pays a kickback to the railroad company for an “exclusive contract” that requires the railroad to charge other steel companies double to carry their steel and won’t allow them to ship steel on the railroad’s express trains. This makes it practically impossible for the other four companies to compete, and so they stop shipping steel to Boston. Once this occurs, the large company is free to increase the price of its lower-quality steel.
Years ago, the government recognized that these types of deals would stifle the free market and made a rule to prevent it. Railroads were deemed a “common carrier”—meaning that they cannot discriminate between customers and have to charge everyone the same for carrying freight. This ensure that the market for steel in Boston stays competitive and free instead of being taken over by a monopoly.
The concept of net neutrality establishes ISPs as common carriers for internet data. Think of the railroads as the internet infrastructure that was laid down years ago with government subsidies. It’s now exorbitantly expensive for a new ISP to lay new lines. This means that most cities only have one or two ISPs to choose from, and there won’t be any competitors in the near future. Comcast, the nations’ largest ISP, owns the Xfinity cable service brand and video service. Comcast would rather you watch their streaming service and its subsequent advertisements over Netflix. With net neutrality rules out of the way, Comcast could legally add a surcharge to Netflix data to discourage people from using it, or throttle Netflix transfer speeds. Small businesses want to retain net neutrality rules as it helps keep the internet a competitive marketplace where the best product wins. This is where the real estate sector may be affected.
NAR vs FCC
In July, the National Association of Realtors penned a letter to the FCC urging Chairman Ajit Pai to reconsider his motion to repeal the Open Internet Order, accusing the agency of stacking the deck against smaller companies in favor of corporations. NAR President Elizabeth Mendenhall reflected: “Technology is an increasingly important part of the way our membership delivers its services, whether through streaming video, drone technology or other applications. We remain concerned that a rollback of net-neutrality rules could lead to blocking, throttling, or discriminating against Internet traffic, or even ‘paid prioritization’ arrangements that put small mom-and-pop businesses at a disadvantage in the marketplace. We will continue working with the FCC to share these concerns and ensure a fair and open internet where everyone can succeed.” Mendenhall vows that NAR will fight to have net neutrality rules reinstated. “The last thing small businesses need today is additional costs and competitive disadvantages that put them on the defensive,” Mendenhall reflects. “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. We intend to make our voice heard on this important issue”.
Redfin has also condemned the FCC decision, contending that it would penalize independent brokers by raising fees, blocking content and slowing down service. Web-based services such as Redfin and even small, personal websites run by real estate agents rely on free and open access to information about homes for sale. Removing this framework would be in direct conflict with our goals to make housing data more transparent and accessible to consumers.
Where Do We Go from Here?
The FCC voted to repeal its own net neutrality rules last week, and the repeal will take effect 60 days after it is published in the Federal Register. However, Congress may overturn agency actions by invoking the Congressional Review Act, as it did earlier this year to eliminate consumer broadband privacy protections. The Senate’s Republican majority will shift to 51-49 after Alabama Democrat Doug Jones is sworn in. In addition, Senator Susan Collins (R-Maine) has openly opposed the net neutrality repeal, with several other Republican senators remaining skeptical. Under the terms of the CRA, a vote on a newly-adopted agency rule can be brought through a petition of 30 senators. Once that petition is submitted, any member may bring it to a vote on the floor, with a majority needed to pass, and a limit of 10 hours of debate – making it filibuster-proof. Once the bill is passed through the Senate, it will have to go back to the House of Representatives, and be signed into law by the President. However, given President Trump’s record for overturning Obama-era regulations, the push my be a tough sell.