Municipal governments are subject to the same cost-consistency-performance tradeoffs as a private company. In a situation where a private ISP would not have been able to meet its obligations, the cost to force a government ISP to meet them would not obtain a meaningfully better outcome.
Additionally, there is no constitutional right to municipal utility services.
This argument does not apply if the re is no competition, local telcos have a comfy monopoly / duopoly and collect the same fees without making any further investments
We would expect neither a public nor private monopoly to invest magnanimously in an effective way. Keep in mind ISPs still charge for multiple tiers of service, add-on products, etc. So asking for investment beyond that would be beyond consumer demand. That is something that could be mandated by ordinance, but would be scrutinized just as any disproportionately large budget section would be.
Additionally, there is no constitutional right to municipal utility services.