Your idea of a government-run ISP will only produce yet-another-bankrupt government organization like the USPS, or Amtrak, or SSI, or Medicare, or.....
Last thing I want is a government-run ISP. I want an effective independent regulator with sufficient checks and balances to hold private (corp) and public (gov) interests accountable while promoting consumer friendly competition.
The fundamental problem with competition in the telecoms market lies in the local loop/last mile - the physical infrastructure. It's uneconomical and certainly impractical to expect every player to dig their own trenches, build ducts and pull cable. So some form of infrastructure sharing is required. In some countries this is achieved through structural separation - only good if the mature local loop is of reasonably decent quality. But what about ultimately replacing the aging copper with something shiny and fast like optic fibre? Who's going to pony up the money in the interests of free and fair competition?
BTW, the Sherman Act isn't a good example of fair play enforced by top-down regulations. Antitrust remedies are reactive in nature, only once anti-competitive behaviour has been proven is the corporation sanctioned. By this time it's too late, Joe Consumer has already been screwed.