In a free market it will fail, yes. Only trouble is that the Telecoms aren't really a competitive market. In each of the 4 places I've lived in my life I've had only one viable highspeed ISP option. Don't like their service? Too bad, I either deal with it or go without internet. Under those conditions I don't see how consumers will have much of a choice but to take it on the chin and pay the fees. I'm actually hoping somebody will comment on this and set me straight.
Actually, I live in an area with Comcast, Charter, and reasonable DSL. Holy moly! Yeah, they'd still get away with it.