Or, possible some small providers buy a multi-megabit circuit from a large provider who gives them transit. The small provider then connects at a single NAP and picks up bilateral peering sessions with a bunch of people there. The result is offloading traffic from their "transit link", which stands a good chance of being priced as a "burstable" link. (pay for what you use) That gives the small provider an economic incentive to operate in this manner.
No comment on whether this is a good idea or bad, but I understand the thinking.
davec
Quite a few CIX members operate this way. The interesting question in my mind is whether the "big guys" (defaultless nets, for the purposes of this discussion) think that this represents unfair competition or not.