1) internet outages happen frequently, especially where this property is located, but it can happen even in big cities. It happens.
2) It's possible the outage would have resolved itself in a few hours, or if the guest had contacted us so we could contact the service provider. If a person is that impatient, they are probably not a reasonable person.
3) no where in the "host reliability standards" document does it say internet is a key feature and a requirement to host guests.
IMO this kind of policy sets a dangerous precedent for guests to demand refunds for any reason, e.g. if Netflix is down.