Because as soon as a new player wants to connect a town with fiber (or the town decides to lay fiber on it's own) suddenly the big telcos are very interested in also laying fiber in that town, ruining any chance of profitability. There are even cases of telcos suing towns that tried to lay their own fiber.[0]

I know this is an unpopular view in the United States, so please do not downvote me for stating my opinion, but I believe that phone/internet service should not have been privatized in the first place.

0: http://arstechnica.com/old/content/2008/09/telco-to-town-wer...

It's a small drop in the bucket, but at least a start somewhere. Google: http://en.wikipedia.org/wiki/Google_Fiber

Can you fathom how much it will cost to dig up the streets, lay fiber and fill them back in? Will cities even allow that, due to the impediment to the traffic?

It's been managed before for fiber deployments in northern Europe. I remember seeing a perspective on Ars Technica from Amsterdam, with a photo of a sidewalk tiles neatly removed and replaced without damage: http://arstechnica.com/tech-policy/news/2010/03/how-amsterda...

So, it can be done.

In the UK there've been some pilot deployments of fibre using sewers ( e.g.http://news.bbc.co.uk/1/hi/technology/7202396.stm ).

Avoids the need to dig up roads and keeps the cost of deployment low