Local governments handed them a monopoly.
http://www.wired.com/2013/07/we-need-to-stop-focusing-on-jus...
I disagree that ISPs are a natural monopoly. It's crazy to think that my house could choose between two competing road systems, but my house already has multiple wired communications networks.
And if we all agree that ISP monopolies are real -- then we have a way of dealing with monopolies: break up the companies.
It seems to me that this is the proper solution -- yet for some reason it's never discussed and instead we just keep rearranging the deck chairs on the Titanic.