They don’t need to collude. You’re still missing the idea of how the internet is built.
As an example, for many years I lived in a somewhat more rural area. Even so, we had several ISPs to choose from… let’s say five. Under normal circumstances, this would be enough to provide a reasonable choice from which to decide which one to use, based upon features like bandwidth provided and the like. That’s exactly how it should work, right? And Net Neutrality won’t change that(in its simplest form, there are complications there)
However, at the time, all the internet traffic of those ISPs at some point passed through the Maryland onramp. I forget who owned it, but let’s say Level 3 did(though I’m pretty sure they didn’t at the time.) This is a choke point, and it’s not exactly easy for a competitor to lay down new fiber and the like. That requires right of way and government okays and an enormous up-front cost that presents an abnormally high barrier to entry.
So, first off you have this situation, which Net Neutrality is designed to prevent: Level 3 can’t just decide to throttle Google’s connection to 40kb/s because Google doesn’t want to pay $70000/month for the 10Mb/s service. “But wait!” you say, “Isn’t that all about free market?” No, it isn’t, unless Level 3 is Google’s ISP… which isn’t necessarily the case. Nor is it okay if they’re offering MSN.com a 10Mb/s service for $500. They’re pricing out a company from an entire region due to their own preferences, and the customers in that region don’t have any say in the matter, since it’s a choke point. This would probably happen more often than you’d think.
And even if it didn’t happen that often, it would be quite easy to end up with a situation like this:
Should I go with Comcast or Time-Warner or BellSouth?
[ul]
[li]Comcast offers: 8MB down/2 MBup but caps it at 40 GB/month, and their access to Google is limited to 100k, but they have preferential treatment to Yahoo, but Dreamhost servers are inaccessible.[/li]
[li]Time-Warner offers: 6MB/3MB service, no caps, but does not allow Instant Messenger traffic or Facebook and MSN connections are throttled at 10Kb/s[/li]
[li]BellSouth offers: 12 MB/1MB access with a 50 GB/month cap, but Yahoo and Dreamhost are limited to 15 Kb/s and numerous smaller ISP services(personal web pages and the like) are inaccessible.[/li][/ul]
Is a situation like that really what you want? Especially considering how many smaller ISPs are out there hosting various pages. The list of which services are affected by your choice of ISP could easily reach into dozens and dozens of pages.
The reason that the FCC needs to get involved, at times, is because large-carrier ISPs are by their nature artificial markets, just like power generation and the like. They require government intervention to exist in the first place, and as a tradeoff for that they get more regulation than a “natural” market is subject to.