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It is only a non level playing field if the government *loses* money in their own ISP but keeps it afloat anyway. If the government ISP company *makes* money using the same business processes that the industry would (or could or should), how can you talk about a non level playing field?
If the governemnt ISP makes a fair and honest profit, then the ISPs have no right to complain. But of course it makes business sense for them to complain anyway.