(ugh.. sorry for the repost didn't realize I wasn't logged in, and slashdot won't let me delete my anonymous post)
You're on the right track here... But I disagree with how quickly you resolved that ISPs shouldn't be turned into a utility and by assuming there is indeed competition. Where I think the breakdown is lies in the distinction between the infrastructure components required to delivering internet service (cables, spectrum, fiber, etc.) and the actual service itself.
You can see this quite clearly by simply examining how the different services position themselves in the market. The Cellular carriers (at least in the US) compete solely on their control of a scarce resource... spectrum and towers... they position themselves by marketing "coverage." This, I believe, is a bad monopoly. You'll never see "quality" service... only what's tolerable. This happens because it's cost prohibitive for new players, and in addition, the control of the resource gives them a huge amount of control to prevent new players from entering.
Cable companies position themselves as one-stop-shops that can offer all your media/communication needs. They do this because they own the copper and are actually allowed local monopolies by the government... most people live in an area where they only really have a choice of 1 cable provider. Again, they control a scarce resource and once they have that control, can exert a lot of power in preventing newcomers.
Local ISPs on the other hand are an entirely different animal. They provide internet service on-top of existing telco cables. In other words, they provide service on top of infrastructure without actually controlling the infrastructure. In this realm, you see plenty of competition in a way that's actually beneficial to the users... They position themselves as having better service, customer support, etc. than even the telcos they lease their lines from.
In general, I believe things that are based on a shared resource like these examples... things I call infrastructure, are best suited to be treated like utilities. They should be run by government regulated (not necessarily government run) monopolies whose sole purpose is to distribute the use of these resources fairly... not to necessarily to profit (not beyond operating, maintenance, and upgrade costs anyway). It's the same thing with your electricity and your water... it's not beneficial to society if companies are allowed to control these shared resources in order to maximize profit.
However, I'm only talking about managing the sharing of resources at the lowest level practical. In the case of wires, that means the physical wires. Everything else that's used on those wires (phone, DSL, etc.) should be purchasable by anyone on the free market, and they should be allowed to do whatever they want with it. In this way, we will have true competition of services that will work to the benefit of users and businesses.