Column: Sonic is a small ISP that competes brilliantly with the big guys — so they’re trying to throttle its business

Dane Jasper says he doesn’t think that big telecommunications companies AT&T and Verizon are deliberately trying to put his company out of business.

“I think they haven’t noticed us,” he said.

Perhaps he’s just being charitable. For years, the big companies have striven to hamstring competition across the telecommunications landscape. And last month, they essentially asked the Federal Communications Commission to finish the job by repealing a rule granting competing phone and internet companies wholesale access to their copper-wire phone infrastructure. The industry petition argues that the rule is an “intrusive” regulation that has outlived its usefulness.

Jasper says the opposite is true — that the access to copper, which is guaranteed by a 1996 law, is what has enabled his small regional internet firm and others like it to continue rolling out high-speed broadband services to their customers, in competition with the big firms.

Jasper, 45, is the co-founder and CEO of Sonic, a private Santa Rosa company that provides more than 100,000 customers in about 125 California communities phone and internet service at a flat rate starting at $40 a month. Don’t let the low price fool you: Sonic is praised for its customer service, delivers internet speeds of up to 1 gigabit to some customers, and receives top marks for its privacy policies.

As a private firm, Sonic doesn’t disclose revenue or earnings. But with steady expansion it now employs nearly 500 people, many of them sharing a bustling workplace with their astonishingly well-behaved dogs in a Santa Rosa office park.

About half of Sonic’s customers receive DSL broadband service over phone lines Sonic rents from AT&T. But the company’s future rests with the fiber it has been laying, starting with five Northern California cities — San Francisco, Berkeley, Albany, Brentwood, and Sebastopol. In those cities phone and internet service now is available to an estimated 182,000 homes or commercial establishments, with further expansion in the cards.

Sonic and other small internet service providers, or ISPs, like it owe their business models to an obscure provision of the 1996 Telecommunications Act. The act required the major phone companies to lease their copper wire infrastructure, on which phone service traveled, to competitors at a regulated price.

This allowed hundreds of competitive companies, known as CLECs, for “competitive local exchange carriers,” to flourish by offering cheap, innovative phone service and expanding into DSL — that is, phone-line-based broadband access. Some, such as Sonic, have used revenue from their phone and DSL customer base to finance expansion into fiber internet service.

The telecom industry’s petition, which was filed in May via USTelecom, its Washington trade group, would end the leasing rule within 2 1/2 years, cutting off that revenue stream. (The trade group has dozens of members among local and national telecom firms, but its four biggest members are AT&T, Verizon, CenturyLink and Frontier Communications.)

The industry’s argument for dropping the leasing rule is that residential CLECs are an insignificant part of the business now and are shrinking at a rapid clip. “There is effectively no remaining … competition in that marketplace,” USTelecom said in its filing.

“That’s flat-out wrong,” Jasper told me. “We’ve got 50,000 California households connected, getting innovative broadband service that in the vast majority of cases is faster than the incumbent offers.” Another 50,000 customers connect through other means, including fiber.

Sonic and other small ISPs have been fighting back in Congress and before the FCC. In a letter to Sens. John Thune, (R-S.D.) and Bill Nelson (D-Fla.), chairman and ranking member of the Senate Committee on Commerce, Science and Transportation, they pointed out that the industry’s petition would stifle fiber deployment, cut off rural communities from the broadband service they provide, and jack up rates. “Our companies build state of the art, Gigabit speed fiber networks,” Jasper and 15 fellow CEOs wrote, “and in many cases, supply the only network access for communities that have been abandoned by incumbent providers.”

In late June, Jasper and his colleagues visited FCC commissioners to argue that competition is not yet nearly robust enough to cut off the CLECs. They got polite hearings from the commissioners or their staffs, but came away with a strong sense of how the deregulatory environment enveloping Washington is oriented toward making the big and rich players bigger and richer.

The big telecom firms are irked at being saddled with a regulation that doesn’t apply to their main broadband competitors, cable firms. But this argument only underscores how lack of regulation and competition has left the U.S. with some of the slowest, least reliable and most expensive broadband service in the developed world.

The phone companies staved off a rule that they share their fiber lines, as well as their copper lines, with competitors by asserting that they simply wouldn’t invest in fiber if they couldn’t keep the infrastructure to themselves. In 2004, the FCC dropped the rule and Edward Whitacre, the chairman of SBC — later to morph into today’s AT&T — declared that an era of “innovation and investment” was dawning. “The shovel is in the ground and we are ready to go,” he said.

Things haven’t worked out that way. AT&T and Verizon have responded to the high upfront cost of installing fiber by limiting deployment to small portions of the country. “Wall Street punished us for investing in FiOS,” a Verizon executive explained to Congress in 2012, referring to that company’s once-ambitious fiber service.

Hands-off regulation of phone companies and cable firms has made real competition in broadband service effectively nonexistent. Half the households in America have only one choice for decent service — their cable operator. Very few have more than two — their local cable company and local phone company.

Yet despite their own problems financing fiber, the big phone companies maintain that the CLECs have had more than enough time to build their own fiber networks, and therefore don’t need to continue receiving wholesale rates on copper.

“We’ve had 18 years of their building their customer base” by piggybacking on telecom company copper, Jonathan Banks, USTelecom’s senior vice president for law and policy, told me. “The rule was supposed to jump-start competition. We’re in the position of saying enough’s enough.”

The dearth of competition among ISPs isn’t just quantitative, but qualitative. Companies such as Sonic compete by trying to offer superior customer service and benefits. Sonic bundles phone and internet service together for $40 a month for the first year of service, and $50 thereafter. Customers get phone service with all the trimmings, such as free caller ID and calling to the U.S., Canada and land lines in 66 other countries, and internet at the fastest speeds the local infrastructure can handle, with no surcharges for higher speeds.

Jasper co-founded Sonic in 1994 with Scott Doty, a colleague at Santa Rosa Junior College. They were tasked with providing rudimentary dial-up access for students and labs. This was the pre-World Wide Web internet, offering email, file-sharing and chat, but they soon discovered that students at a local high school were using fake IDs to gain access to their service for free.

Jasper realized that if the kids were willing to pay $25 for a fake ID to get free internet access, then the access was something they could charge for directly. So they set up a few phone lines in a back room of his mother’s house and sold dial-up access for $12 a month, undercutting CompuServe and America Online.

The philosophy they brought with them — so characteristic of the internet’s formative years, that the network belongs to everyone — dictates Sonic’s privacy and network neutrality policies.

“We don’t have the hubris to presume that we own the internet,” Jasper told me. “I feel privileged to be able to sell people a pipe to all those wonderful applications that brilliant people are deploying.”

Sonic also keeps logs of its subscribers’ internet activities for 14 days, which it feels is long enough to allow law enforcement agencies to conduct legitimate investigation (the industry standard is 18 months). “We have a set of philosophies around privacy protections and neutrality that are grounded in our concerns for the internet ecosystem as a whole.”

That means that Sonic customers are insulated — though not completely immunized — from cross-marketing by commercial websites and the excessively probing eyes of law enforcement.

That’s an approach that could disappear if the internet is ceded entirely to big players with more concern for their bottom lines than for customers’ privacy or access to any content they wish. ISPs such as Sonic serve as a check on big players that don’t care about customers. Is it any wonder the big guys want to stamp them out?

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