I can kind of understand the municipality issue. If I had invested money in building out a network I would be upset if a local government used it's advantages to undercut me. However, I have seen first hand how these companies operate, they do the absolute minimum and charge a fortune safe in the knowledge that is too expensive for any serious competition, hell they frequently didn't actually build their own networks but buy them from companies bankrupted by building them. So frankly if these odious little thugs are upset by the challenge then all the better. Free market types are always saying that the market will always adjust to ensure the best performance, municipal ISPs ARE the adjustment. If they had invested in a quality service with periodic upgrades and realistic pricing then there would be no public desire for a solution and therefore no political will to provide one.
Free market ideology only really begins to work when there is a sensible level of competition. The idea of PUC's regulating commercial monopolies is ludicrous, the companies just buy off the PUC and do what they want. Whilst capitalism is probably one of the better ideologies out there it does need a level of effective regulation or it just descends into robbery.