#3 Smaller ISP's are unlikely to have peering points at places like MAE East, etc and far more likely to have to purchase their bandwidth from a larger backbone provider. This means that the "cost" for bandwidth is far, far more for a local ISP. It also means they have to oversubscribe more than a larger provider to pay the bills. EVERYONE oversubscribes bandwidth sold vs. what they have, it is just different levels.The economics don't work for smaller internet providers in reselling bandwidth if the oversubscribing rate isn't above a certain percentage.
Many small ISPs have access to local exchanges/hotels. Core bandwidth is not likely to be a limiting factor these days.. lack of small ISP investment in bandwidth management in core speaks for itself.
When you get shitty performance from your local WISP it isn't core network that is oversubscribed. It's typically last mile RF link. Ditto for cable plant of small Cable based providers.
Advancements in queue for Wireless technology are nothing short of amazing.. ditto on next gen PON. Personally I see a bright future for small ISPs. Keeping regulations down to common sense be nice/fair/transparent and getting rid of ridiculous reporting requirements is something I fully support on the low end at least.