Why net neutrality rules have angered some small Internet providers

Giant Internet service providers are roaring mad about new net neutrality rules and the reclassification of broadband as a common carrier service. Reaction among small ISPs is more diverse, but some of them say they will be saddled with legal costs so high that it will prevent them from upgrading equipment that provides Internet service to small towns and rural areas.

Six members of the Wireless Internet Service Providers Association made these claims in declarations that accompanied a petition seeking to overturn the Federal Communications Commission decision. The declarations appear to be coordinated as they all contain similar language, but each ISP also has unique circumstances. We spoke with two of the providers after FCC Commissioner Ajit Pai, a Republican who opposes the new rules, highlighted their concerns in a written statement last week.

As stated by Pai, “KWISP Internet serves 475 customers in rural northern Illinois. As a result of the regulatory uncertainty and costs created by the FCC’s decision, KWISP plans to delay network upgrades that would have upgraded customers from 3Mbps to 20Mbps service, new tower construction that would have brought service to unserved areas, and capacity upgrades that would reduce congestion for existing customers—not to mention the jobs needed to make all of that happen. KWISP worries that even a frivolous lawsuit brought under the Order could force ownership to ‘close the business.’”

KWISP President Kenneth Hohhof told Ars that his two-person company makes revenue of $250,000 to $300,000 per year, and he estimates that he’ll have to pay $20,000 in legal costs because he intends to hire a lawyer to review his business practices. Hohhof admits that he “pulled that [number] out of the air,” but given the hourly rates charged by telecom lawyers, he expects the bill to be substantial for such a small company.

“Everything on our website, our customer-facing agreements, our network management practices, offering services like VoIP services, all of that for the first time we will have to pay a telecom lawyer to review to see if we are exposing ourselves to either a complaint to the FCC that could result in fines or, as we understand it, we will now be exposed to civil damages,” he said.

Another wireless ISP Pai described is SCS Broadband in rural Virginia, which serves 800 customers and “has already stopped investing in new rural areas because of the FCC’s decision, and it won’t resume until it can ‘determine if the additional cost in legal fees warrant such investments,’” Pai said. “And investors have already told SCS Broadband that ‘projects that were viable investments under the regime that existed before the Order will no longer provide the necessary returns to justify the investment.’”

Wireless ISPs of this type are different from cellular network operators; instead of serving data to smartphones, they deliver Internet service to antennas on homes and businesses, mainly in areas where there is no wireline access.

SCS CEO Clay Stewart told Ars that potential investors have questioned whether it’s worth giving him funding because of the FCC’s new rules. But even before the FCC's common carrier decision, he complained to local authorities that he "will bring to a stop our investing" if the county builds out its own fiber network.

Stewart also claimed that he will have to hire lawyers before making changes to the services he offers. The last time he hired a telecom lawyer, it cost $480 an hour, he told Ars.

“We've got a government entity taking over our products,” he said.

Other small ISPs support the FCC

"If you're behaving in your customers' best interests and operating above the board, I don't think you have anything to be concerned about."

We talked to a third small Internet service provider which did not sign on to the industry effort to block the FCC’s new rules. Joshua Montgomery, who runs Wicked Broadband in Lawrence, KS, said he supports common carrier regulation for Internet service. He would have gone further than the FCC did, by imposing “unbundling” requirements that boost competition by forcing providers to sell access to their network infrastructure to other Internet providers.

“Internet service should be provided as a public utility, and communities that don't do that in the next 10 or 20 years are going to severely regret it, as they continue to be pummeled and pumped dry of money by companies like Comcast,” Montgomery said.

Montgomery lent some credence to concerns about investment. Finding investors for broadband networks was already difficult, but it might get a bit harder now because it adds another layer of due diligence for investors, he said. Montgomery said that "this FCC thing is going to be great for lawyers," but he doesn’t have any plans to hire a lawyer because of the new rules himself.

“If you're behaving in your customers' best interests and operating above the board, I don't think you have anything to be concerned about,” he said. “If you're advertising a $19 rate and then jacking people's bills up to $125 with fees and other things after six months and claiming some kind of long-term deal, yeah you're probably going to have trouble. [The FCC] made it very clear that their goal is to encourage competition, and I don't think they have their eyes on small players.”

The NTCA, another trade association that represents rural broadband providers, offers tepid support for the FCC, saying that "Title II can provide a useful framework and does not need to be an impediment to investment in and ongoing operation of broadband networks."

Confusion reigns, to lawyers’ benefit

The FCC’s net neutrality rules forbid blocking and throttling of lawful Internet content, except in cases of reasonable network management, and outlaw “paid prioritization” deals in which Web services (such as an online video provider) pay ISPs for priority access to consumers.

The decision to reclassify broadband providers also subjects them to further regulations from Title II of the Communications Act, the same statute that regulates telephone common carriers. But the FCC declined to enforce many of the Title II rules. It also gave small providers a temporary exemption from enhanced transparency requirements that force operators to provide more information about the plans they offer and their network performance. The FCC will decide by December 15, 2015 whether to make the exemption for providers with 100,000 or fewer subscribers permanent.

Beyond that, the Title II classification requires providers to be “just and reasonable” in their rates and practices and to adhere to a vague general conduct standard designed to prevent practices harmful to consumers and Web services. Consumers and companies who believe they are wronged by an ISP could complain to the FCC.

The specific concerns raised by Hohhof and Stewart may or may not be real dangers. But at the very least, their worries show that the FCC could do a better job of communicating the real-world impact of the new rules, particularly if small companies pay lawyers for services that aren’t necessary.

The text of the FCC’s order does seem to indicate that Hohhof’s concerns are unfounded.

For example, Hohhof wondered if he is no longer allowed to disconnect customers who haven’t paid their bills since broadband is now considered a “utility” or if customers could file complaints if he can’t provide service to a particular home due to wireless signals being blocked by trees and hills.

I pointed out that the new rules do not include a universal service requirement like the ones historically applied to telephone service, but Hohhof said, “The thing to understand is that won't necessarily stop someone from filing a lawsuit. If we were AT&T or Comcast, we would just send our lawyers after them. For a small company, simply the cost of defending against a lawsuit is a huge expense, particularly if it was [filed by] another company, let’s say some Silicon Valley startup.”

Hohhof is paying off two leases for about $60,000 worth of equipment, and he said it will be hard to justify new borrowing under Title II.

Hohhof said he has no problem adhering to the basic net neutrality prohibitions on blocking, throttling, and paid prioritization, but he said, “We will need to pay lawyers to go through our customer agreements… can we require that disputes first be settled by arbitration or that we have 30 days to resolve it outside of court? We're going to have to spend a bunch of money on lawyers to determine that to try to minimize our exposure. Maybe all these things are in our imagination, but that’s what we'll have to pay lawyers to tell us.”

The text of the FCC’s order does seem to indicate that Hohhof’s concerns are unfounded. On page 118, it says, “Under the rules adopted today, parties are still free to engage in mediation and outside arbitration to settle their open Internet disputes, but alternative dispute resolution will not be required.”

Hohhof also said he's worried about the network management he does when bad weather affects his wireless network. When there's interference that reduces bandwidth, his company "prioritize[s] real-time traffic on the network so that voice and gaming would get priority."

If the intent is to ensure good service for as many people as possible during extreme weather events, that would seem to be a clear-cut case of reasonable network management, which would be allowed. The FCC also only banned "paid prioritization," not unpaid prioritization. But Hohhof said he needs a lawyer to review the practice.