The Internet started as a collection of small academic networks. Eventually, commercial providers joined in. Through a system of peering [1], we got global reachability: everybody could talk to everybody. In practice we generally had network neutrality [2], where everybody's packets were treated fairly. This happened because there were many internet service providers, and any one of them thinking about being a greedy dick would have to consider that they were substantially outnumbered. And they'd also have to worry about customers switching to competitors.
But now the US internet market has collapsed to a small number of players. Most people have little or no choice. And the remaining players are either a) very large, or b) commercially irrelevant. So the incentives are different. Comcast sees a lot of money being made by Netflix and resents it. So they are basically threatening to make Netflix's service worse unless they get paid more. And they want to be able to do that to anybody who makes a lot of money over the Internet.
That was previously prevented by the FCC, but no longer, because the head of it used to work for the cable companies. Comcast's remaining competitors aren't going to complain; the big ones see a great opportunity for a similar shakedown racket. Consumers can't do anything, because they often can't switch, and if they could it's generally to some other giant.
So basically, the old system did work fine, it is breaking down. What almost everybody wants is to formalize the old approach, network neutrality. But Comcast, et al, have an enormous amount of money and long experience at manipulating governments, and they currently appear to be winning.