Thank you for your question and using DAU's AAP service.  I have broken your question into two parts: part one addresses considering your internet service a utility under the guidance of FAR Part 41, as supplemented; Part two addresses modifying your existing utility contract to add the internet service.  My answers are predicated on your utility contract, being a contract for a utility as defined by FAR Part 41 and was awarded following the guidance and procedures of FAR Part 41, as supplemented.

"Can the internet service be considered a utility":

From DFARS 239.7401: "Telecommunications” means the transmission, emission, or reception of signals, signs, writing, images, sounds, or intelligence of any nature, by wire, cable, satellite, fiber optics, laser, radio, or any other electronic, electric, electromagnetic, or acoustically coupled means;  “Telecommunications services” means the services acquired, whether by lease or contract, to meet the Government's telecommunications needs. The term includes the telecommunications facilities and equipment necessary to provide such services.

The above definitions would seem to include internet service, regardless of source, making your acquisition subject to FAR Part 39/DFARS 239/AFFARS 5339.  This would seem to preclude procuring internet service as a utility subject to the procedures at FAR Part 41 as supplemented. 

Further, FAR 41.102(b)(3) specifically excludes cable television and telecommunication services from applicability under FAR Part 41.  AFFARS 5341.102(b)(3), implements the applicability of FAR Part 41 to allow applicability of this FAR Part to CATV services, however, when reviewing AFFARS PGI 5341.102, the CATV Resource Guide, this guidance applies only to cable television services.  Therefore, FAR Part 41 would not be applicable to your internet service requirement. 

One additional consideration is, are these services available commercially - e.g.: offered to private citizens or businesses in your local municipality?  If so, they could be considered a commercial item as defined at FAR 2.101 and be obtained following the procedures at FAR Part 12 coupled with FAR Part 13, 14, or 15; FAR Part 13 would typically be used to make a purchase of this nature by issuing a purchase order, however, I cannot commit definitely without knowing the particulars such as dollar value and overall anticipated contract period. 

Part 2: "and be added onto the utility contract for the city":

The internet service not being subject to FAR Part 41 as outlined above, would make it ill-advised to add this service to your existing utility contract.  Utility contracts fill a specific purpose and have unique authorities governing contract characteristics, such as length.  Further, adding this requirement to your existing utility raises a scope question; there is likely not a viable argument to be made for this requirement to pass the scope test, which would necessitate a J&A.  If the desire to include internet service on the existing utility contract is to leverage a longer contract length, DFARS 239.7405 allows telecommunications contracts up to 10 years, subject to the requirements of DFARS PGI 239.7405.  If expediency is the driving force, a FAR Part 13 acquisition would be a relatively quick path to award, depending on dollar value.

Regardless of the course selected, I would highly recommend you document your decision in a very detailed MFR, if not D&F.  Thank you again for using the DAU AAP feature and if you have further questions, please send them our way.