Capitalism works when government regulation works correctly alongside it.
Until the internet providers are treated as dumb pipes (the FCC is giving the idea thought), that is, until they are common utilities, these issues will grow worse.
Which is to say, pure capitalism without any government intervention might work just fine - it would never be introduced because governments love to get involved, mostly due to cronyism and lobbyists who can sneak new wording into legislation to protect their interests. If the companies who cannot adjust to the new markets also cannot seek out new government regulation or laws that will help them (and likely hurt their competition), pure capitalism could work.
As it is, we are so far from pure unregulated capitalism that it's simply impossible. That said, as long as regulations keep up and are entirely fair to all corporations (which may demand a company actually has to innovate or check their prices to compete or end up failing), then a regulated capitalist market can be maintained and we all benefit.
If regulations fail to keep up with the changing face of the world (new technology, new markets, etc), then we'll all suffer and the lucky corporations on the right side of the regulations are the winners... which is pretty much where we are at today.