I don't think this is a good example of what you're trying to argue. It could easily be said that if water was privately provided, rates could be set such that the economics are feasible (everyone needs water - the demand curve is highly inelastic). Competition could ensure the water is pure and fairly priced. Who would go with Company A's lead-laden water if B's is clean?

I happen to disagree with the argument I just provided, but for reasons different than the quality of service a free market would provide.