WASHINGTON (Reuters) - Proposed U.S. government policies could harm competition in the "broadband" Internet market, reducing choices and driving up monthly fees for users who want high-speed access, a consumer group said on Monday.

By easing regulations on incumbent cable television and local phone companies, the Federal Communications Commission will hasten the demise of independent Internet providers who reach users over existing phone and cable lines, the Consumer Federation of America said.

Consumers will suffer, the group said, as cable and local phone giants who currently dominate the broadband market will no longer be driven to lower prices and create innovative products.

The FCC ruled in March that cable providers do not have to share their systems or provide open access for competing Internet services, and the agency is currently reassessing its line-sharing rules for local-phone giants like Verizon Communications VZ.N and SBC Communications Inc SBC.N .

While consumers looking for conventional dial-up Internet service have a plethora of providers to choose from, the broadband market is much more concentrated, said Mark Cooper, research director of the consumer group.

In the dial-up market, there are about 15 different providers for every 100,000 users, while the broadband market features fewer than two providers for the same number of customers, Cooper said.

Dominant cable and local-phone companies have captured only 5 percent of the dial-up market, but they control 95 percent of the broadband market, he said.

The FCC's approach will narrow consumers' choices even further, Cooper said.

"It's bad law and bad public policy. (The FCC) may try, but they can't set this policy, the Congress has to," said Cooper, who has challenged the cable decision in court and plans to sue as well if the FCC moves to deregulate phone services.

The FCC was not immediately available for comment.