I'm still learning this law stuff, but aren't they are private corporations providing what is essentially a non-essential luxury product? Unless someone proves they are doing something illegal, the government doesn't have any grounds to require any buildout at all. Subsidies are actually good for the consumer in the sense that they are how the government can influence things like buildout and quality service. That is, assuming the ISPs don't just take the money and run. Again.
Well, first off, they fall under the FCC's jurisdiction as telecommunications companies of one stripe or another. So there's a certain amount of power to regulate them there.
Second of all, as you so astutely note, giving them federal funds with strings attached means they are sort of required to abide by the terms of those strings, and from what I understand (though I haven't researched this in-depth), they have, in fact, taken government money to do certain things that they have signally failed to do, which means there ought to at least be some sort of penalty until they do. Money might work—say, 10% of their gross income the first year they fail to comply, increasing to 20% the second year, 30% the third, until they either do their damn jobs or simply bleed to death.
Thirdly, there is a strong argument to be made (whether you agree with it or not; I happen to) that internet service is, at this point, no longer a "non-essential luxury product," but a basic service along the lines of telephone and power. As such, it should be regulated much more strictly than it has been to date. Ideally, the company that owns the physical hardware (the lines going to your house, for instance) should either be government-owned, or should at least be forbidden from actually providing any more than the hardware—they should have to lease the lines at one price to all comers in the ISP market, and have no "value-add services" of their own. That would remove the incentive for them to do anything with their money but invest it in better infrastructure.