Small ISPs Looking to FCC for Net Neutrality Exemptions

Dec 25, 2023

By Ted Hearn, Editor of Policyband

Washington, D.C., Dec. 25, 2023 – Small broadband Internet Service Providers (ISPs) are beginning to make their case for exemptions from Net Neutrality regulations coming soon from the Democratic-controlled Federal Communications Commission.

These companies have raised a number of concerns about the competitive harms they associate with Net Neutrality – including difficulty in shouldering compliance costs, competing against bigger firms better able to cope with a spike in regulatory costs, and convincing regulation-wary bankers to continue to make loans on reasonable terms.

Net Neutrality, also called Title II common carrier regulation, generally refers to a nationwide ban that would prevent all ISPs from blocking or throttling content or accepting payments to create so-called Internet fast lanes.

Broadband ISPs, especially smaller ones, fear the FCC’s abandonment of light-touch regulation will result in costly, burdensome and intrusive oversight, including rate regulation – though Democratic FCC Chair Jessica Rosenworcel has disavowed any interest in capping consumers’ broadband bills. Another fear is the FCC’s proposed “general conduct” rule, a catch-all enforcement provision aimed at bad actors but which ISPs have called vague, standardless, and a potential source of fines and other penalties.

In a Dec. 14 FCC filing, ImOn Communications CEO Patrice Carroll urged the FCC to understand the disproportionate impact Net Neutrality would have on small ISPs. ImOn, based in Cedar Rapids, Iowa, has 43,000 broadband subscribers, 230 employees, and no regulatory compliance staff.

“ImOn does not believe that further regulation of broadband service is needed. Because it would increase compliance costs and the overall uncertainty of our business, the proposed [Net Neutrality regulations] will make it more costly to provide service and lead to lower investment,” Carroll said.

The FCC is likely next year to impose Net Neutrality on the companies that own the wireline and wireless Internet networks serving more than 100 million residential and business subscribers. When a Democratic-controlled FCC first adopted Net Neutrality rules eight years ago, it went with a one-size-fits all approach, offering no breaks for small entities. In 2018, those rules were repealed under Republican FCC Chairman Ajit Pai.

Nevertheless, ImOn and other small ISPs are pressing Rosenworcel for help, even though she was part of the Democratic majority that voted for the inflexible Net Neutrality rules in 2015 under Chairman Tom Wheeler.

Sjoberg’s Inc., a small broadband ISP in Thief River Falls, Minn., with about 7,500 broadband customers, says it faces competition from bigger and stronger rivals in each municipality it serves, obviating any need for Net Neutrality.

“Sjoberg’s is unable, as a practical matter, to engage in any of the practices that the [FCC] would regulate should [it] adopt its proposal. If Sjoberg’s were to throttle or block traffic, it would lose customers to its competitors. It is that simple,” CEO Dick Sjoberg said in a declaration filed with the FCC on Dec. 14.

Sjoberg’s, which has a limited budget and 20 employees, says it needs to refinance its debt within two years and is worried that lenders will find Net Neutrality compliance costs a troubling matter.

“The additional cost imposed by the imposition of [Net Neutrality] regulation and the proposed open Internet rules creates uncertainty for the financial health of the company in the eyes of lenders,” Sjoberg’s said.

Shentel, based in Edinburg, Va., provides broadband service over fiber and traditional cable systems to 143,000 subscribers in five Mid-Atlantic states: Virginia, West Virginia, Pennsylvania, Maryland and Delaware. Its new fiber service, called GloFiber, has adopted an overbuild strategy, passing 202,000 locations in markets served mostly by cable broadband incumbents.

Like Sjoberg’s, Shentel said in an FCC filing that is faces significant competition, most recently from fast-growing fixed wireless access (FWA) providers Verizon and T-Mobile.

“Shentel never has and will never block or throttle traffic to or from edge providers. We aim to provide the best possible Internet experience to both our customers and our content providers,” said Chris Kyle, Stentel’s Vice President of Industry Affairs and Regulatory. “Consequently, the proposed regulation of broadband Internet access services serves no meaningful purpose.”

Small ISPs that offer FWA service have asked for a categorical exemption from Net Neutrality. WISPA, a trade association representing hundreds of smaller FWA broadband providers serving more than 9 million consumers in rural areas, said in an FCC filing that the agency should honor its tradition of shielding small providers from the financial strain of regulation that large business owners don’t necessarily feel.

“The [FCC] proposed rules would burden small businesses with new obligations that are outside the scope of what smaller providers can be expected to handle with their limited resources and limited staff, and especially in light of the absence of any identifiable harm they have caused or would cause to Internet openness,” WISPA said.

Conway Corp., a wireline ISP with 23,000 broadband subscribers in Conway, Ark., said it was troubled by the FCC’s plan to adopt a general conduct rule. Under this rule, broadband ISPs might need to get the FCC’s approval prior to introducing new features because failing to do so could result in fines and other penalties if the features are later deemed by the FCC to be noncompliant with the standard.

“This proposed rule is broad and ambiguous and, as a result, will make us think twice about developing new services or functionalities or undertaking legitimate responses to competitors,” Conway’s FCC filing said. “The parties that get hurt when such activities are impeded are subscribers, the very people the [FCC] hopes to benefit.”