Why give the credit to capitalism? Suppose the government were to provide quality broadband service -- would that not also force the ISPs to act (e.g. how UPS competes with USPS)?

This is a win for competition, not capitalism. Not all competition is capitalism, and capitalism does not always imply meaningful competition (it does, however, generally fail to serve people best in the absence of competition).

Capitalism my ass, this is another flavor of fine-tuned government and industry collusion.

No government on earth would tolerate any kind of capitalism other than the competitive bidding for multi-year exclusivity agreements (ie: guaranteed ways of sticking it to consumers).