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The FCC says net neutrality destroys small ISPs. So has it?

Net neutrality is meant to prevent internet giants like Comcast, Verizon, and AT&T from wielding their huge networks as weapons to suppress competition from web companies like Netflix, Dropbox, and even sources of news. While those large ISPs account for the vast majority of US internet subscribers, there are thousands of other internet providers out there that don’t have that kind of power. And though they’re small, they’ve played an outsized role in the net neutrality debate.

In April, 22 small cable providers signed a letter to the Federal Communications Commission asking for the end of net neutrality, writing that the policy imposed “onerous burdens” on their businesses. FCC chairman Ajit Pai has latched onto this. Since he was named chairman in January, he’s been touting the damage net neutrality could do to regional and “mom and pop” internet providers, and he cited this letter as proof when announcing plans to reverse net neutrality and its classification of internet providers under a legal statute known as Title II.

“Heavy-handed regulations are especially tough on new entrants and small businesses that don’t have the armies of lawyers and compliance officers that large, well-established companies do,” Pai said just one day later. “So if we want to encourage smaller competitors to enter into the broadband marketplace or expand, we must end Title II.”

These ISPs are by and large quite small. They include regional cable and telephone companies, municipal broadband providers, and fixed wireless internet companies that deliver service to the home. On the larger side of things are urban internet providers like Sonic, which serves around 100,000 subscribers throughout California. On the smaller side are the wireless providers, which get particularly tiny. One company, Grand County Internet Services, which operates in Colorado about 60 miles outside Denver, is run by two people — a father–daughter team — and has just 1,000 customers.

Quite a few of these smaller internet providers have taken issue with the FCC’s net neutrality rules. This is not because of the rules’ core tenets — no blocking websites, no throttling internet speeds, no demanding payments for access — which many small providers say they support. Instead, they’re concerned about being forced to spend tens of thousands of dollars proving to the FCC that they’re actually following the rules.

The Verge called eight smaller internet providers to find out whether they’d been impacted by net neutrality, and the answers were mixed. Multiple respondents, when asked if Title II was hurting them, gave an unqualified “no.” Mark Jen, the chief technical officer of a small internet provider in California named Common, which was founded last year by a group of former Square employees, said that complying with net neutrality doesn’t require any work.

“The default configuration of all of the [networking] equipment is to [follow net neutrality],” Jen says. “While net neutrality sounds like rules and regulations, it’s actually just saying everybody has to run stuff in the default mode, which is as fast as possible and great for everybody.”

Rudy Rucker, co-founder of another small wireless internet provider in California, named Monkeybrains, said his company hadn’t encountered any difficulties either. “Maybe there’s something I’m missing,” he said, “but it’s not bogging us down.”

On the other hand, Elizabeth Bowles, who runs the five-person ISP division of Aristotle, which provides internet access to several thousand people in Central Arkansas, has been an outspoken critic. “I don’t believe that small businesses were the target of the Open Internet Order,” says Bowles. “I believe that it was a byproduct casualty of the Open Internet Order that the FCC didn’t adequately take into account.”

Bowles, who also chairs the legislative committee for the Wireless Internet Service Providers Association and has testified before Congress on its behalf, believes Rucker and the other small ISPs that aren’t concerned with net neutrality are missing something. “There is a lack of education among a lot of the small [wireless internet service providers], and they believe that if they meet the bright-line rules, then they’ve met the requirements,” Bowles says, referring to the no blocking, throttling, and paid prioritization rules. “And they haven’t.”

Bowles points to a series of reporting requirements that force internet providers to disclose network performance, data caps, and other network statistics to the FCC. While doing that might seem as simple as clicking a few buttons on a computer, Bowles says that wireless ISPs estimated a cost of $40,000 per year to deal with these reports. Those costs would come from engineers, writers, and outside counsel, as well as software costs, according to congressional testimony she gave last year.

But right after the Open Internet Order was passed, the FCC temporarily removed those reporting requirements from internet providers with fewer than 100,000 subscribers. And at the beginning of this year, the exemption was expanded to providers with fewer than 250,000 subscribers and prolonged for five more years. With the requirements lifted, Bowles says that those estimated costs largely disappear. Though she points out the reporting exemption is “still temporary.”

Nathan Stooke, the CEO of Wisper, a wireless internet provider in southern Illinois, has other concerns with the net neutrality rules. When they were created, the FCC opened up the ability for anyone to file a complaint with the commission about possible rule violations — and internet providers can be required to respond to them.

“We have to use reasonable efforts to get a customer serviced” under Title II, Stooke says. “Well, whose definition of ‘reasonable?’ … One of our customers now has been a customer for 13 years, and we can’t get her good, reliable service. With our fixed wireless, the trees have grown up between the power she gets services from and her house. And she said, ‘Well, I read on the FCC website, under Title II, you’re required to give me service.’ Well, okay, yes, but I physically can’t.”

Stooke, whose company has 72 employees and serves about 13,000 subscribers, says the complaint line isn’t necessary for small providers — he’ll hear the complaints straight from his customers. “I go to church with my customers. I go to the grocery store and see my customers,” he says. “They let me know when I’m not doing a very good job and not providing a good service.”

Eden Recor, who runs Grand County Internet Services, said he had the same concern. “I have had a couple customers in the past years … because of the way the trees were around their houses, we could not get service in there,” he said. “And they reported us to the Better Business Bureau and raised all sorts of havoc.”

Three of the internet providers we spoke with had received complaints, but none that presented such an impasse. Aristotle received one regarding a bandwidth problem. Wisper received two and said the FCC was “very helpful” with one of them. Monkeybrains received a complaint after shutting off service for someone who hadn’t paid their bill in nine months. “The FCC handled the issue very well,” a Monkeybrains representative said in an email. “We provided evidence of their usage and financial delinquency, and the case was closed.”

The FCC estimates that it should only take internet providers 15 minutes to respond to a complaint that gets passed along to them. And not all complaints actually make it through — some just end up with a pat response from the FCC.

Gigi Sohn, who was an advisor to former FCC chairman Tom Wheeler when the net neutrality rules were drafted and passed, said in an email that it seems to her that some wireless internet providers are “spinning themselves up and dreaming up worst case scenarios that will never come to pass.”

“It isn’t going to happen, and if it did, the FCC would dismiss the complaint out of hand,” she writes. “The FCC doesn’t act on every complaint — just those that make a prima facie case that the rules have been broken. So it really isn’t a reasonable concern.”

Internet providers big and small have broadly blamed uncertainties in how the net neutrality rules will be applied, causing them to halt expansions of their businesses. But it’s not clear how much that’s happened. Recor says, “I can’t stop expanding and maintain my customer base.”

The expansion of smaller ISPs has been a sticking point for Pai. He’s repeatedly comes back to this topic, making support for rural broadband a focus of his chairmanship, as it’s these smaller companies that often reach communities that aren’t yet wired up. Part of his argument against net neutrality is that reversing it will make expansion easier for smaller internet providers, who’ll have more time and money to focus on infrastructure. If net neutrality is hurting their expansion, then it’s also hurting a major FCC goal: seeing that all Americans can get online.

During his speech announcing the reversal of Title II, Pai cited part of Bowles’ 2016 congressional testimony, in which she said that Aristotle had “pulled back” on plans to triple its customer base and instead decided to make several smaller deployments instead. But now Bowles says the plan to triple the company’s customer base is moving forward once again. “We put it on pause,” she says. “We didn’t cancel the expansion plans entirely.”

Bowles says the expansion resumed once her company had dealt with some up-front costs to come into compliance with the net neutrality order. The pending demise of Title II had nothing to do with it. In fact, the expansion plans were resumed before the election.

Other ISPs said they haven’t thought twice about continuing to expand. Rucker, at Monkeybrains, says his company has been growing 25 percent each quarter — in subscribers, profit, and employees — for the past five years, before and after net neutrality. “We’re not reluctant to grow and have been building as fast as we can,” he says.

Peggy Dolgenos, the co-founder and co-CEO of an ISP named Cruzio that’s located in Santa Cruz, California, said her company has been rapidly improving its equipment. “We’ve been upgrading our infrastructure as fast as we can,” she says. Her company currently has 35 employees and serves about 9,000 customers. “We’ve been investing like crazy. We’re about to invest in a really big local project to install fiber optic cable in our downtown.” She hopes to start offering the new fiber service sometime this fall.

Many smaller ISPs said they saw net neutrality as an advantage for their business, too. “If you’re looking at what companies will get paid by big providers like Netflix, it’s not smaller ISPs, it’s large ISPs who already have practically a monopoly position,” Dolgenos says. “They’ll just cement their position, and it’ll just crush competition.”

Dane Jasper, CEO of Sonic, says he’s concerned that larger internet providers will use paid traffic agreements and privacy-invasive ad-tracking policies to force smaller providers out of the market. Using that added revenue, he says, “it could be a dominant market player could sell to that subscriber for $5 to $10 a month less because they have these behind-the-scenes revenue sources that fall to them as a result of the overturn of the privacy protections and the re-categorization of Title II for broadband internet access.”

Even Bowles, who says she disagrees with the Title II classification, says there are benefits. One of those is looser deployment rules around attaching telecom equipment to utility poles. “It allows you to go under the trees and makes it a lot easier,” she says.

The FCC is now nearly halfway through the public comment period on its proposal to reverse net neutrality. By most indications, it looks like the commission intends to move ahead with the proposal regardless of the feedback it receives, allaying concerns about possible burdens on small businesses — but opening these smaller ISPs up to more threats from Comcast and the like as well. This is a big part of why just over 40 small ISPs wrote their own letter to the FCC last month requesting that net neutrality stay in place.

Dolgenos, of Cruzio, says she fears the FCC’s deregulatory tendencies will push the ISP industry even closer to monopoly or duopoly. If more small providers are forced out, she says, the big ISPs will try to make more money off their existing customer base instead of continuing to expand. “How are we going to service rural or semi-rural?” Dolgenos asks. “There’s no reason to do it if you have to put a line a mile up a road to reach four houses. It’s just not going to happen.”

Additional reporting by Shannon Liao

Disclosure: Comcast is an investor in Vox Media, The Verge’s parent company.

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