ShareThis

March 22, 2004

An Open Letter to Randy A. Daniels, Secretary of State

New York State Department of State

123 William Street
New York, NY 10038-3804

Dear Secretary Daniels:

The undersigned groups, while hailing from various parts of the country, share a common tie to the State of New York. Each has come to know Ms. LaLa Wang, owner of the real estate portal MLX.com, and of her legal situation with the Department of State.

We write to urge you to:

1. Begin proceedings within the Department that would call for amending or eliminating the Apartment Information Vendor (AIV) law before it claims its next victim; and

2. Reinstate Ms. Wang’s real estate broker’s license so that she and her creative business enterprise can do what they do best—help consumers find affordable and desirable housing in New York City.

MLX.com allows renters and buyers to find matched listings accessible via the web and e-mail and hosts message centers that offer a place to exchange questions and opinions. It provides New York City property seekers with private accounts for managing apartment searches and connecting to landlords, owners, brokers, and MLX.com advisers. The company performs many of the same services as “traditional” real-estate brokerage companies—consultation and negotiation assistance—but it does not show properties.

However, New York State requires all companies that furnish information about location and availability of rental property to obtain an AIV license. As you know, the licensing law is a 1975 statute originally enacted to prevent consumer fraud. Laudable intentions aside, the law’s requirements—hard-copy contracts and escrow agreements, submissions of available listings from landlords in writing before distribution, mandatory refunds on request, and a ban on advertising of specific properties—are incompatible with the 24/7 convenience, control, and lower costs of online, subscription-based information services that consumers demand and expect. The law’s clash with e-commerce has been the bane of existence for Ms. Wang and MLX.com.

We believe that after analysis and dialogue with the real estate community, the Department of State would conclude that the existing AIV rules are no longer applicable. Indeed, dramatic changes have occurred and continue to take place in the way property owners and consumers exchange rental and sale information.

There are real casualties to regulatory indifference toward old and outdated laws. The hardships seem magnified in view of the Department of State’s lax compliance enforcement against currently licensed AIVs. We implore you to retroactively acknowledge that the AIV law cannot be fairly applied to protect consumers in an electronic information-sharing world.

Sincerely,

ShareThis

In most places, real-estate shoppers can access a multiple-listing service. Not in New York, where big brokers keep listings close to the vest. Lala Wang, a New York broker–who’s now a suspended broker–founded MLX.com to bring transparency to the market. Despite sanctions from state regulators, she has kept up the fight, challenging antiquated regulations that curb competition and appealing her case to the U.S. Supreme Court on December 9.

From Lala’s original entry:
Tell us what you do (or what your team or organization does) and the specific challenge you faced.
How can a growing company of only 15 employees both sustain its business and carry on full scale litigation against New York’s Division of Licensing pro se? In 1993, LaLa Wang, a Harvard Business School graduate and former banker, combined database technology with real estate brokerage services to provide apartment hunters with a more efficient and less costly home search. As brick and mortar real estate businesses became skittish about online competitors, the New York Department of State withdrew its support for Wang’s innovative business, and selectively enforced an antiquated Apartment Information Vendor (AIV) statute against MLX. MLX CEO Wang stood fast and declined to take a license which didn’t apply to her business, and would have forced her to break the law – possibly incurring fines of $5 million daily as MLX uploaded 1000 apartment listings to partners such as yahoo – violating the law’s ban on advertising specific apartments. An Administrative Law Judge suspended Wang’s broker’s license for operating an unlicensed Apartment Information Vendor. Never mind that MLX never had a complaint, and for eight years, 2000 brokers have depended upon MLX’s services. During the same period, MLX provided consumers the same access to information and tools as real estate professionals. While the DOS doggedly pursued MLX and Wang, it declined to enforce compliance by licensed AIVs or newspapers such as the www.villagevoice.com. Wang pulled out all stops and fired back with a Constitutional challenge to the AIV law. New York politicians refused to take up a cause putting them at odds with real estate contributions. Only Attorney General Elliot Spitzer asked the DOS to drop its case against MLX and Wang, but the DOS refused. Then, the AG in his capacity represented the DOS against Wang. The Competitive Enterprise Institute summed up, “The case of MLX.com exemplifies how some old laws simply do not fit when applied to new business models. The apartment information vendor law is an antiquated relic with a newfound purpose–protecting the entrenched, deep-pocketed industry that controls the country’s most lucrative real estate market. Ironically, in trying to enforce a consumer protection statute, New York’s state government is hurting consumers by enforcing a law that hinders innovation. ‘New economy’ is not just a trendy buzzword phrase. Today, ‘old economy’ economic regulation shields established industries from having to adapt to new and better ways of doing business.”

What was your moment of truth?
Wang and MLX’s employees faced the difficult choice of either taking a license which didn’t apply, or taking a principled stand in refusing a sham license that would force Wang to operate illegally. Wang’s commitment to litigating against deep pocketed adversaries – including the state government — is based on unwavering ethics: Wang won’t permit MLX to operate under a sham license. It is this deep commitment to ethics which attracts and motivates MLX’s loyal employees and which accounts for MLX’s high service marks – from both consumers and brokers. Many CEOs face a “moment of truth.” But Wang and MLX have a showdown on a daily basis: On many occasions, the State suggested that MLX simply take the license and not abide by it – the same way two dozen licensed companies conduct business. Instead, Wang and her employees decided to take their fight to the U. S. Supreme Court. Having run out of funds, Wang is filing pro se. Recently, MLX raised the stakes and contacted New York’s Governor’s Office of Regulatory Reform (GORR), which promises, “If you’re getting the runaround or being unnecessarily hounded by one of our state agencies, call our Office of Regulatory Reform. We’ll intervene. We’ll take care of the problem. And we’ll do it fast.” While initially helpful, the GORR representative quickly disappeared, sending a terse message, “Unfortunately, I am prohibited from further involvement based on your recent [Supreme Court appeal].” Every day is another test to stay their course or capitulate.

What were the results?
Never a political animal, Wang’s situation has forced her to become an activist for accountability. MLX ’s petition website (petition.mlx.com) which explains how antiquated regulations are being used to limit e-commerce competition and consumer choice, has garnered more than 8000 online signatures in eight months. And Wang isn’t stopping there. A planned website, www.officialmisconduct.org, is designed to hold officials accountable. Wang’s passionate commitment to free trade and marketplace competition is drawing supporters from public policy and antitrust groups. Even the FTC and DOJ are investigating Wang’s allegations of restraint of trade by real estate special interest groups. If Wang wins her Supreme Court appeal, her next step is an antitrust suit. Wang and MLX have the potential to shake up the real estate market for the betterment of all consumers.

What’s your parting tip?
Seven years later, Wang may be occasionally tired and frustrated, but her resolve is the same: Follow your own moral compass. article [Fast Company]

ShareThis

Lala Wang, founder and CEO of MLX, an online real estate listings service, this week announced her decision to make a final appeal to the United States Supreme Court to resurrect her business of enabling renters, buyers, sellers, landlords, and brokers the access and exchange of property listings, resources, and information on-demand via www.mlx.com.

Wang has spent the last eight years battling New York State regulators over a disputed Apartment Information Vendors (AIV) license required by law for individuals selling apartment rental listings. The AIV statute is an antiquated 1975 law intended to prevent potential fraud in the real estate market, but in its current form, the law penalizes innovative businesses like Wang’s MLX, which offers consumers access to property listings previously available exclusively to brokers.

Wang’s online service provides consumers with more choice through access to a wider spectrum of property listings, lower costs in the form of no-fee apartments, the ability to access property info and tools around-the-clock, instant email updates of new listings, and myriad other benefits for consumers seeking new apartments. “We’re essentially a matching service, so apartment seekers can both search for apartments and also place ‘apartment wanted’ ads allowing brokers and owners to contact them directly,� Wang said.

In a recent interview with host Tai Aguirre of the New York-based investigative radio program “Scams-n-Scandals,� Wang contended that the AIV does not apply to MLX, and that compliance with such a law would force her to conduct business illegally, subjecting MLX to millions of dollars in fines each month.

Wang’s refusal to get an AIV license on grounds that it would make her business illegal or unprofitable has resulted in the suspension of her real estate broker’s license. This, even after former New York Secretary of State Sandy Treadwell observed in 1995 that the AIV law was “onerous and should be amended.� Four years later, Treadwell changed his mind and selectively prosecuted Wang for violating the AIV statute, ignoring the thousands of daily violations committed by licensed AIV vendors.

“The problem with the AIV law is not in trying to provide consumer protection, but in its failure to allow businesses the ability to comply with it,� noted Moshe Tal, an Oklahoma entrepreneur and advisor who supports Wang’s cause. “This conflicting application of the law hampers entrepreneurs’ ability to conduct business by undermining their competitiveness, and is a serious violation of Ms. Wang’s constitutional rights.�

Citizens for Voluntary Trade President Skip Oliva said his organization actively supports Wang’s decision to appeal her case to the Supreme Court: “Far from protecting consumers, the AIV law serves as an unconstitutional barrier to interstate commerce, hampering newer technology-based services that look to compete with established real estate brokers, or even traditional First Amendment forums like newspapers.�

In addition to CVT, Wang has received the support of numerous other public policy groups, including the Competitive Enterprise Institute (CEI) and the Institute for Justice. CEI’s Braden Cox has written about Wang’s plight: “Ironically, in trying to enforce a consumer protection statute, New York’s state government is hurting consumers by enforcing a law that hinders innovation.�

During the “Scams and Scandals� segment, Tai Aguirre queried NYS Chief Council for the Division of Licensing, Bruce Stewart on why Ms. Wang’s real estate broker’s license was revoked without having received any customer complaints. “It looks to me like a clear cut case of selective enforcement and the railroading of an innovator to protect the profits of entrenched special interests� says Aguirre.

Wang’s Supreme Court appeal will argue the AIV law imposes unconstitutional restrictions on her freedom of speech and her freedom to conduct business. Wang will specifically challenge the refusal of the New York courts to address these constitutional issues. Wang expects to file her petition in early December, and a decision from the Court on whether to take the case will be made early next year.

Later this month, Wang and her supporters will launch a grassroots Website (www.officialmisconduct.com) dedicated to exposing corrupt government behavior and practices, in an effort to institute greater accountability of elected officials.

ShareThis

Business regulation is the bread-and-butter of state government. As fast as individuals can create whole new professions, local regulators can pass a bunch of rules that stunt professional growth. The regulators claim their presence is necessary to protect the “public interest� by “protecting consumers� and “ensuring competition�. In almost any context, however, the stated objectives conflict with the regulators’ real mission—to obtain more power for themselves at the expense of private businessmen.

In 1975, the New York State legislature discovered a problem in the apartment rental market. It seemed a number of unsavory characters were selling customers fraudulent “apartment information� lists. The lists promised information on the location and availability of apartments for rent. In reality, many of the apartments were unavailable or non-existent. Often the people selling the lists did nothing more than copy out-of-date listings from the newspaper classifieds. Accordingly, the state legislature felt the need to act.

The legislature might simply have banned any person from selling fraudulent apartment information. But that would do little for the interests of Albany’s professional regulators. Instead, the legislature decided to judge all persons selling apartment lists—including licensed real estate brokers, people already subject to strict regulatory requirements—guilty of a crime unless they obtained a new professional license. This is a classic regulatory paradigm: No person can be presumed honest without prior government approval. In this case, no person is trustworthy to sell apartment listings unless he or she is a licensed “apartment information vendor�.

The apartment information vendor (AIV) law was enacted for a limited purpose: To prevent the sale of lists of apartments except under strict state guidelines. But when has a regulator ever stuck to the strict language of its authorizing statute? The regulator in charge of AIVs, the New York Department of State, decided three years ago that an AIV, a business model born of the 1970s, must also include 21st century Internet businesses that do far more than sell apartment “lists� for an advance fee. We’ve all seen large websites like Yahoo Real Estate and homestore.com that offer online apartment listings. Conventional real estate brokers throughout the country have developed their own “virtual office� websites to give their customers 24/7 access to information that was once the exclusive province of brokers. This is precisely the type of market-directed innovation that renders traditional regulatory regimes like New York’s AIV law moot. But try telling that to the Department of State, which saw innovation not as a consumer savior, but as an affront to the government’s regulatory prerogative. Accordingly, the Department’s leadership decided to make an example out of the new, Internet-based real estate market.

LaLa Wang became New York’s chief target under the newly reinterpreted AIV law. Wang is the founder of MLX.com, an interactive portal site that allows customers to access a real-time database of real estate listings, as well as a host of other traditional brokerage services, all for a one-time advance fee. In her years as a real estate broker, Wang never faced a single consumer complaint. But her perfect record and satisfied customer base did nothing to dissuade the New York Department of State from trying to shut down her business. The Department claimed Wang’s Internet database was, in fact, an unlicensed AIV. Wang disagreed, arguing that a real-time, interactive web portal was about as far from the static AIV lists of the 1970s as you could get. Her service had none of the consumer fraud pitfalls of those older, largely extinct businesses. But the Department would not waiver, and they suspended her real estate broker’s license until she agreed to rid herself of MLX.com.

Wang appealed her license suspension through the New York courts, all of whom turned her away. Now she’s launched a final appeal to the United States Supreme Court. In a petition filed last week, Wang argued that New York Secretary of State Randy Daniels violated Wang’s federal constitutional rights by suspending her license because of the alleged AIV violation. The petition raises three specific issues:

First, Wang was denied due process under the Fourteenth Amendment, because she was never able to defend herself against the actual charges. The Secretary found Wang “untrustworthy� to hold a real estate broker’s license because she was running an illegal AIV. The Secretary, however, does not have the authority to decide that Wang—or anyone, for that matter—is running an illegal AIV. Any such act is considered a criminal misdemeanor, which means that the state attorney general must prosecute her in criminal court; the Secretary only possesses civil jurisdiction to deny, suspend, or revoke AIV licenses. This means the Secretary pulled a bait-and-switch: He revoked Wang’s broker’s license after improperly finding her guilty of violating another licensing law.

Second, the AIV law itself violates Wang’s First Amendment rights. Since the Secretary never alleged Wang’s business mislead or harmed consumers, it’s presumed MLX.com offered customers nothing more than truthful, non-misleading information about apartments. This means the state’s decision to regulate Wang’s business is subject to the Supreme Court’s tests for regulating “commercial speech�. Under these tests, the state may not restrict commercial speech unless the restraint is narrowly tailored to meet a necessary state objective. New York has never shown how shutting down MLX.com will meet the state’s interests in protecting consumers from fraud.

Third, the New York State courts improperly refused to hear Wang’s constitutional challenges in earlier proceedings. The state’s intermediate appellate court found Wang lacked standing to raise any constitutional challenge to the AIV law. But this makes no sense: The only allegation made against Wang was that she broke the AIV law. The state (and the courts) countered that Wang’s license was suspended for being “untrustworthy,� not for violating the AIV law. But that’s just a shell game. Without the AIV violation, there were no grounds to declare her untrustworthy.

Wang now awaits New York’s reply to her Supreme Court petition. The Court will decide whether to accept the case sometime in February 2004. Even if her appeal is unsuccessful, Wang’s case raises important issues that deserve greater attention. Throughout the country, business regulation is crippling small businesses. This is particularly ironic when you consider the initial demand for regulation was motivated by a desire to restrict the growth and economic power of large corporations. But now regulation serves mainly as a tool of restricting competition and innovation. New York wants Wang out of business, presumably so the more established (and politically connected) real estate brokers won’t have to face Wang’s cheaper, more effective online competition. This hardly serves consumer interests, and it certainly violates the principle of individual rights that underlies our nation’s Constitution.

This case must serve as a wake-up call to the people of New York, and every other state where regulation has run amok. When the Secretary of State brings down the force of law on businesswomen like LaLa Wang, he’s doing it in the name of “the people�. Is it any wonder the majority of persecuted businesses settle without a fight? What rational entrepreneur wants to risk his livelihood against the political will of an entire state? As it turns out, LaLa Wang is just that kind of entrepreneur. She’s put her money behind her principles—something you rarely see from Fortune 500 companies these days. The only question now is, will the people of New York stand with her in support of individual rights and economic liberty, or will they stand behind the petty tyrants trying to shut her down?

ShareThis

Lala Wang, founder and CEO of MLX, an online real estate listings service, this week announced her decision to make a final appeal to the United States Supreme Court to resurrect her business of enabling renters, buyers, sellers, landlords, and brokers the access and exchange of property listings, resources, and information on-demand via www.mlx.com.

Wang has spent the last eight years in a tenacious battle with state regulators over a disputed Apartment Information Vendors (AIV) license required by law of individuals selling apartment rental listings. The AIV statute is an antiquated law passed in 1975 with the original intention of preventing potential fraud in the real estate market, and without consideration for Internet-enabled business models as an alternative to traditional real estate services. In its current form, the law penalizes innovative businesses like Wang’s MLX, which offers consumers access to property listings previously available exclusively to brokers.

Wang’s online service provides consumers with more choice through access to a wider spectrum of property listings, lower costs in the form of no fee apartments, the ability to access property info and tools around-the-clock, instant email updates of new listings, and myriad other benefits for consumers seeking new apartments. “We’re essentially a matching service, so apartment seekers can both search for apartments and also place apartment “wanted ads” allowing brokers and owners to contact them directly,” noted Wang.

In a recent interview with host Tai Aguirre of the N.Y. based investigative radio program Scams-n-Scandals, Wang firmly contended that the AIV does not apply to MLX, and that compliance with such a law would force her to conduct business illegally, subjecting MLX to millions of dollars in fines each month. In agreement over Wang’s predicament, Skip Oliva, President of the Citizens for Voluntary Trade which is based in Virginia writes “Far from protecting consumers, the AIV law serves as a practical barrier to entry, especially for newer technology-based services that look to compete with established real estate brokers, or even protected forums like newspapers.”

Further, Wang’s refusal to get an AIV license on grounds that it would make her business illegal or unprofitable has resulted in New York state officials’ suspension of her real estate broker’s license. This, even after former New York Secretary of State Sandy Treadwell observed in 1995 that the AIV law was “onerous and should be amended.” In 1999, and in an about-face on this position, Treadwell changed his mind in support of entrenched real estate interests.

Currently, the state practices “selective enforcement” of the AIV law, as numerous AIV-licensed vendors commit daily transgressions for which they’re not held accountable. “The problem with the AIV law is not in trying to provide consumer protection, but in its failure to allow businesses the ability to comply with it,” noted Moshe Tal, an Oklahoma entrepreneur and advisor who supports Wang’s cause. “This conflicting application of the law hampers entrepreneurs’ ability to conduct business by undermining their competitiveness, and is a serious violation of Ms. Wang’s constitutional rights.”

Undeterred, Wang has pressed ahead in her relentless crusade as a small business owner combating oppressive and anti-competitive government regulations. She’s received the support of numerous public policy groups, including the Competitive Enterprise Institute (CEI) and the Institute for Justice. Braden Cox of CEI remarks “Ironically, in trying to enforce a consumer protection statute, New York’s state government is hurting consumers by enforcing a law that hinders innovation.”

After a recent New York state ruling which rejected her appeal challenging the secretary’s decision, Wang is set to take her case to the federal courts on the basis that she is being denied her constitutional right to freedom of speech under the First Amendment.

During the Scams and Scandals radio segment, Aguirre queried NYS Chief Council for the Division of Licensing, Bruce Stewart on why Ms. Lang’s real estate broker’s license was revoked without having received any customer complaints. “It looks to me like a clear cut case of selective enforcement and the railroading of an innovator to protect the profits of entrenched special interests” says host Aguirre.

Later this month, Lala’s many supporters will launch a grassroots Website (www.supportlala.com) dedicated to raising awareness and exposing the corrupt state government behavior against the MLX.com owner.

Contact: Sedef Onder
The Halo Project Inc.
917.570.8934

ShareThis

Entrepreneurs have pushed for deregulation as a way to get a foot in the door of old, entrenched industries. But is cutting through the red tape the solution you’ve been waiting for?

LaLa Wang has fought the law. So far, the law has won. A Harvard Business School graduate, Wang, 40, thought she had a potential breakthrough idea when, in the mid-1990s, she founded Mlx.com, a Web site dedicated to connecting landlords, property owners, real estate brokers and apartment hunters in New York City. With MLX.com, Wang wanted to streamline the real estate market, making it easier for apartment hunters to view many different places, by putting photos online and allowing brokers, owners and landlords to better tailor offerings to potential clients. “I thought we had the model: an open system that would bring everyone together,” Wang says.

Mlx.com has proved popular with consumers, but Wang’s life has only gotten harder. According to Wang, larger, established real estate brokerages in New York City have pushed state regulators to use a 1975 licensing law against her company. The law says all companies that provide real estate listings must first obtain a welter of paperwork about each property–hard copies of contracts, escrow agreements and other papers that would be impossible for an e-commerce firm to obtain about the hundreds or thousands of online listings. (Older listings sources, such as The Village Voice, do not have to obtain this paperwork before posting real estate ads.) State regulators chose to enforce the 1975 law, and when Wang tried to continue operating, the state suspended her real estate license. Fighting to keep her business and overturn the 1975 law, Wang says, “has already cost over $300,000 in legal bills and an enormous amount of stress.”

Deregulation of New York’s real estate industry, Wang believes, could help solve her problems, allowing her to compete with larger brokers. Many other entrepreneurs share Wang’s belief. They are convinced that deregulation of industries ultimately benefits entrepreneurs. Yet despite several examples of deregulation boosting the fortune of entrepreneurs, in some cases deregulation backfires, primarily helping larger companies.
Many free-market advocates argue that, in theory, deregulation–the reduction of statutes and oversight in an industry–usually helps small companies because regulating industries allows monopolies to develop, throwing up barriers to entry for start-ups. “Entrenched companies, which usually have more political power, can be very successful in using laws to prevent any opening in their industry [and] turn into monopolies,” says Braden Cox, technology and policy counsel at the Competitive Enterprise Institute, a free-market think tank in Washington, DC. “When you remove red tape in an industry, you don’t need to be as big to have a chance there, and when businesspeople see that there is opportunity, it encourages more entrepreneurs to enter the field and leads to risk-taking and creativity.”

Wang and many other online real estate companies believe the theory. “If we can get New York to repeal the 1975 law, we can have a real market, where companies like mine can survive,” says Wang. Similarly, small players in other e-commerce industries are pushing for deregulation of a series of statutes used by large companies to prevent competition from Web upstarts. Large wine wholesalers have used their influence to get laws passed that restrict Internet wine sales, while major contact lens companies have allegedly done the same to Web-based contact lens vendors. Indeed, in an October 2002 ruling, the FTC noted, “Regulations may be having significantly anticompetitive effects on e-commerce.” In response, Web sellers have pushed for deregulation of Internet wine and contact lens sales.

The positive impact of deregulation can be seen in trucking, one of the first two industries to be deregulated by the federal government (the other one was aviation). “Before 1980, [when President Carter deregulated the industry], it was very hard to start a trucking company,” says Charles Harrett, president of New Albany, Indiana-based Northern Continental Logistics, a seven-employee firm that he started in 1998, after working for a larger logistics firm. “All existing routes were held by large companies, and you had to prove to the Interstate Commerce Commission (ICC) there was a need for you to enter the industry. To convince the ICC, you’d have to get the support of many companies–have them say they wanted you in the market shipping their goods. Going through this process was time-consuming and expensive.”

Now, Harrett notes, it’s easy for entrepreneurs to get started in the trucking industry. He believes lowered barriers to entry have fostered competition, reduced prices for consumers, and encouraged innovative people to enter the business–people who have introduced satellite technology and other breakthrough technologies to the industry.

Other truckers agree. “In general, deregulation has been positive for small companies,” says Gary Hanke, 49, president of Pegasus Transportation Inc., a shipping firm in Jeffersonville, Indiana, that has 275 employees and also started after the 1980 deregulation. Like Harrett, Hanke had worked for larger companies before deregulation but couldn’t start his own business until the market opened up. “Today you can easily get a license for a few hundred bucks, so anyone can get into the business and quickly be able to ship to 48 states,” he says.

The White House, many congressional representatives and some state legislators agree with Hanke and Harrett. President Bush has highlighted the need for deregulation in a range of industries, including energy and the military/defense sector, as a means of helping more entrepreneurs. The Bush administration has already begun privatizing and deregulating large segments of the federal government. Treasury Secretary John Snow has said that for the American economy to grow strongly again, “the requirement is for greater flexibility, for deregulation.” And Michael Powell, head of the FCC, has turned out to be one of the most forceful proponents of deregulation in the media, telecommunications and communications industries in decades.

Meanwhile, last year the U.S. House of Representatives Small Business Committee proposed the Small Business Advocacy Improvement Act, which tried to strengthen the SBA’s Office of Advocacy, tasked with highlighting regulations hindering small companies. At press time, the bill was in markup before the Small Business Committee. On the state level, several legislatures have proposed creating state commissions of deregulation to reduce statutes in certain industries.

Yet despite the example of the trucking industry, in some cases, deregulation does not benefit entrepreneurs. At times, the government pays lip service to deregulation while favoring older, more entrenched companies. Deborah Avant, an associate professor of political science at George Washington University in Washington, DC, notes that while the Pentagon has said it’s deregulating the military contracting industry, it continues to offer contracts–without taking a large number of bids–to the same large companies that have traditionally dominated the defense industry.

In other cases, deregulation without enforcement of the statutes kept on the books, or overly rapid deregulation, can wind up actually fostering consolidation and putting power in the hands of the old monopolists. “You can’t have wholesale deregulation without keeping some of the necessary rules in place,” says Harrett. In the radio industry, for example, relaxation of federal rules on the number of stations one company can own, combined with lax enforcement of still-existing regulations designed to guarantee competition in each radio market, has allowed the conglomerate Clear Channel to dominate the airwaves in many markets. As a result, Clear Channel has pushed many small stations out of business.

Similarly, says Chris Edwards, fiscal policy director at the Cato Institute, a Washington, DC, think tank, the incomplete and rapid deregulation of California’s energy industry in the late 1990s did not create a level playing field between older and newer companies. Older firms consolidated power and used their knowledge of the market to manipulate energy prices upward.

Perhaps the worst situation has been in the telecommunications industry, which was supposed to be deregulated by the Telecommunications Act of 1996. Though deregulation led to the founding of a few smaller phone and Internet companies since that act was passed seven years ago, the major local and long-distance companies have actually increased their share of the national and state markets. According to strategy and technology consulting firm Booz Allen Hamilton, based in McLean, Virginia, small, local phone companies earned nearly $15 billion in revenue last year. By comparison, the larger phone companies–the so-called “Baby Bells” that are descendents of the old AT&T national monopoly–earned nearly $120 billion.

Telecom deregulation failed for several reasons. “The deregulation happened so thoroughly and quickly that it wiped out the kinds of regulations we needed to keep–regulations that would prevent Baby Bells from using the advantages they enjoyed to keep their monopoly power,” says William Schuck, a former Ohio state legislator and now executive director of Competition Ohio, a nonprofit group in Columbus that’s focused on telecommunications choice.

For example, Schuck says, though the Baby Bells were required by the 1996 act to allow smaller companies to use their telephone lines and exchanges, the Bells allegedly have provided worse lines and exchanges to those smaller companies, preventing them from winning customers. “You can’t deregulate so quickly; you have to make sure big companies don’t backslide into monopolistic behavior,” Schuck says. “Deregulation should ensure the marketplace works, not that the marketplace gets trampled.”

Even when deregulation succeeds, it can have unexpected side effects for entrepreneurs. In the trucking industry, after the initial round of deregulation in the early 1980s, thousands of new, small logistics companies entered the field. With so many new firms, prices for trucking fell precipitously, wages dropped, companies had trouble retaining drivers (since few of the best truckers were willing to work for lower wages), and thousands of companies went out of business in the mid-1980s. Even today, Hanke says, “margins in the trucking business are only 2 or 3 percent; they’re below what they should be.”
Because of problems with deregulation, some states and cities have recently delayed further deregulation. Atlanta and New Orleans, for example, are reconsidering plans to privatize and deregulate their water and wastewater systems. After its previous fiasco, California’s legislature is considering re-regulating the state’s power industry.

Still, entrepreneurs need to be prepared for further rounds of deregulation. Many entrepreneurial companies do not prepare effectively for deregulation, and once it occurs in their industries, they squander opportunities and allow larger firms to retain some of their monopoly powers. According to Schuck, smaller phone companies in Ohio missed a window of opportunity that opened after the 1996 act was passed, in which they could have informed consumers that they were now players in the market, offering cheaper service.

Schuck argues that once deregulation happens, small companies need to initially band together to educate consumers that they now have a wider range of choices. Other entrepreneurs believe the key to surviving in a deregulated market is to find niche services to provide, thereby avoiding competing on price in an industry that, once opened up, could be swamped by thousands of new companies.

Entrepreneurs will have opportunities to test these strategies. Though some people have begun to question deregulation, it retains significant support in Washington and in many statehouses. In June, Powell, the head of the FCC, won approval from his commission to enact wide-ranging deregulation of the nation’s media industry, while Secretary of Defense Donald Rumsfeld has pushed for private sectors of the military. “The trend is not going to go away,” Cox says. “Eventually, we will see deregulation across the board in most industries.

ShareThis

E-commerce can in theory make economic transactions more efficient and less costly and increase consumer choice. However, in practice, old-style regulations are blocking these changes. This scenario is playing out now in the New York real estate market.

Real estate Internet portals can easily connect all the players to a real estate transaction—buyers, sellers, renters, landlords, and brokers. One such site, MLX.com, provides New York City property seekers private accounts for managing their apartment search and connecting to landlords, owners, brokers and MLX advisors. Founded by LaLa Wang, a gutsy female entrepreneur, MLX.com empowers renters and buyers to find matched listings that are accessible via the web and instant email services. Internal message centers offer a place to exchange questions and opinions, and to solicit advice. The company performs many of the same services as “traditional� real estate brokerage companies—consultation and negotiation assistance—but it does not show properties. The website is especially welcome in New York City, as it is the only major market in the U.S. without a Multiple Listing Services (MLS), a cooperative database where brokers list properties for sale and split commissions with buyer agents.

But the state of New York requires all companies that furnish information about location and availability of rental property to obtain an “apartment information vendor� license. The licensing law is a 1975 statute originally enacted to prevent consumer fraud. Laudable intentions aside, the law’s requirements—hard copy contracts and escrow agreements, submissions of available listings from landlords in writing before distribution, mandatory refunds on request, and a ban on advertising of specific properties—are incompatible with the 24/7 convenience, consumer control, and lower costs of online, subscription-based information services. The law’s clash with E-commerce has been the bane of existence for Ms. Wang and MLX.com.

In its efforts to force a square peg into a round hole, the New York Department of State revoked LaLa Wang’s real estate broker’s license and is trying to shut down the online service. She has refused to apply for the apartment information vendor license because she maintains that the statute does not apply to her online venture. And now she has taken the issue to the New York Supreme Court with oral arguments scheduled this week.

The case of MLX.com exemplifies how some old laws simply do not fit when applied to new business models. The apartment information vendor law is an antiquated relic that has found a newfound purpose—protecting the entrenched, deep-pocketed industry that controls the country’s most lucrative real estate market. Ironically, in trying to enforce a consumer protection statute, New York’s state government is hurting consumers by enforcing a law that hinders innovation.

“New economy� is not just a trendy buzzword phrase. Today, “old economy� economic regulation shields established industries from having to adapt to new and better ways of doing business.

Under the rationale of protecting consumers, regulators have enacted rules making illegal the online purchase of wine, contact lenses, and even caskets. Texas, at the behest of car dealer trade groups, stopped Ford Motor Co. from marketing used cars on the web—despite the potentially huge savings to consumers. Last year, the Federal Trade Commission hosted a workshop on the anticompetitive efforts of states to restrict Internet competition, and a House subcommittee held a hearing on whether state impediments to E-Commerce were valid consumer protection measures or merely veiled protectionism.

Courts often overturn these types of protectionist laws on constitutional grounds. Let’s hope that Ms. Wang wins her fight with Albany—and sets a precedent against anti-e-commerce legislation in other jurisdictions. Too many regulations have the effect of unfairly protecting existing brick-and-mortar businesses against Internet competitors.

ShareThis

In most large cities, a multiple-listings service (MLS) – a shared electronic database with all the currently available property listings – is the lifeblood of residential brokers. Even rival firms will voluntarily pool information about available homes to match up sellers and buyers more efficiently.

New York City, no surprise, is different. Despite a Herculean attempt over the past year to create an MLS, city brokers continue to horde commission-ripe listings in the country’s most consistently lucrative real-estate market. And while the system may benefit titans like Corcoran and Douglas Elliman, smaller players simply lack the resources to compete.

Enter Web-based listings services, which have attempted to combine the centrally located dynamic accessibility of an MLS with a more open platform. Though these modernized listings services may not have the same clout once predicted, they still rattle the cages of the old offline brokerages because Web listings threaten to remove the broker from the house-hunting process.

One of the more successful plays is MLX.com, a 7-year-old company that offers up to 7,000 aggregated listings to brokers and consumers, and enjoys partnerships with New York Magazine and the New York Observer. Even so, MLX.com has faced a dual struggle convincing people to search for apartments online while fending off numerous attempts by state authorities to shut the service down.

The New York Department of State claims MLX.com is operating illegally because it has refused to get an Apartment Information Vendor (AIV) license. Under a 1975 law, AIV licenses, are required to keep unscrupulous brokers from duping apartment-hunters by selling lists of supposedly available units that are already rented, or worse, don’t even exist.

MLX.com agrees with the spirit of the law but not its letter, especially the stipulation that brokers refund customers all but $15 of the fee if they don’t like anything they see. That means dissatisfied MLX.com customers could get back as much as $234 of MLX.com’s $249 fee if the online listings aren’t up to snuff. MLX.com’s directors say those kinds of steep refunds will kill their business. The company also takes issue with the requirement that e-listings services provide back-up paper copies of their listings.

CEO LaLa Wang is simultaneously fighting to keep her personal broker’s license, which the state wants to revoke as a result of the conflict. She filed suit this spring in the U.S. District Court for the Southern District of New York, claiming the 26-year-old law creating AIV licenses is unconstitutional and overly harsh to e-businesses. The state wants the case dismissed.

“I think it’s an issue of David and Goliath,” Wang says. “I think that the government has neglected its duties to the detriment of small businesses, and that’s evidenced in the lack of consistent enforcement.”

Specifically, MLX.com alleges that the AIV law is misguided because it doesn’t differentiate between brokers who provide actual lists and those who provide electronic platforms for the exchange of lists. Wang points out that if a newspaper like the Village Voice, a popular apartment-listings provider, isn’t required to have an AIV license, MLX.com shouldn’t either.
In addition to claiming her freedom of speech is on the line, Wang also accuses the state’s attorney general (who is defending the state in this case) of unconstitutionally imposing local regulations on interstate commerce, since out-of-towners frequently use it to look for apartments.

“Given the choice between…criminal prosecution and severe monetary penalties, and…abridgment of their clear First and Fourteenth Amendment free-speech rights,” the brief reads, “Internet companies including MLX.com…will be forced to shut down.”

Wang claims the case is a perfect example of what happens when the state becomes beholden to entrenched, deep-pocketed industries that fear the shakeup e-businesses can cause.

“AIV was supposed to be a consumer-protection law, but MLX is actually giving information to consumers that used to be available only to brokers,” she says. “We are the best thing to happen to the consumer because we brought efficiency to the market.”

The New York attorney general wouldn’t comment on the case, and referred the matter to the NY Department of State, which oversees AIV licensing and is currently a party to a related MLX.com case. A State spokeswoman says, “Our goal is to gain compliance and have them become licensed.” Meanwhile, MLX.com’s struggle is drawing supporters.

“Do I think the law is antiquated? Yes,” says Ralph Barocas, a principal at competitor Rent-Direct.com, which currently has an AIV license. “I think LaLa’s fighting a good battle, and I hope she wins it.”

ShareThis

A revolutionary cost-cutting approach has been introduced here by Principal connections Limited (PCL). PCL eliminates brokerage commissions by custom matching buyers with sellers directly through a computerized database.

“It’s time to break the brokers’ monopoly on the power of technology,� says PCL founder and president, Lan Lan Wang. We don’t need the costly, traditional approach to apartment sales anymore. We have the technology to reduce transaction costs by thousands and even tens of thousands of dollars.�

Noting that brokers have been computerizing listings for many years, Ms. Wang says, “It’s absurd that the advantages are denied by the buyers and sellers who comprise the market, in order to protect the domain of the go-betweens. The traditional 6% brokerage commission eventually will be another casualty of the computer age.�

Ms. Wang, a former banker and an MBA graduate of Harvard Business School, observes that a broker’s commission burdens the buyer as well as the seller, since “the commission is built into the price to whatever extent market conditions will allow.�

She asserts that the brokerage system is especially vulnerable in today’s New York City market because “for many owners who bought in the latter half of the ‘80s, eliminating the commission can make the difference between getting out whole and sustaining a sizable loss.�

In the PCL system, sellers provide detailed information about their apartments, while buyers complete a form on which they specify their requirements. The database then generates “match reports,� which, together with floor plans, enables buyers to “preview� seller’s apartments. Buyers contact the apartment owners directly, making their own arrangements for viewing and conducting their own negotiations.

As part of its full-service approach, PCL views all apartments registered for the database and provides buyers and sellers with personalized, step-by-step assistance, not only in completing the PCL form, but also in other key aspects of consummating a transaction. A referral service also is offered to help buyers find professionals needed to close a transaction. “On a $300,000 sale, a broker typically is paid $18,000,�

Ms. Wang says. “How can that figure be justified, in an age when customized software and appropriate counseling can achieve the same results at a fraction of the current cost? “We have a service that can benefit individuals, owner/developers and institutions alike,� she adds. “It’s logical, its practical, and it works.�

Persons interested in additional information are asked to call Ms. Wang at (212) 249-9654.

ShareThis