Gibbard: It seems like if there's an issue here it's that different parties have different self-interests, and those whose interests aren't being served
aren't passing on the costs to the decision makers. The users' performance interests are served by getting the fastest downloads possible. The ISP's financial interests would be served by their flat rate customers getting their data from somewhere close by. If it becomes enough of a problem that the ISPs are motivated to deal with it, one approach would be to get the customers' financial interests better aligned with their own, with differentiated billing for local and long distance traffic.
That could be seen as a confiscation of a major part of the value customers derive from ISPs. Perth, on the West Coast of Australia, claims to be the world's most
isolated "capitol" city (for some definition of capitol). Next closest is probably Adelaide, at 1300 miles. Jakarta and Sydney are both 2,000 miles away. Getting stuff, including data, in and out is expensive. Like Seattle, Perth has many of its ISPs in the same downtown sky scraper, and a very active exchange point in the building. It is much cheaper for ISPs to hand off local traffic to each other than to hand off long distance traffic to their far away transit providers. Like ISPs in a lot of similar places, the ISPs in Perth charge their customers different rates for cheap local bandwidth than for expensive long distance bandwidth.
When I was in Perth a couple of years ago, I asked my usual questions about what effect this billing arrangement was having on user behavior. I was told about a Perth-only file sharing network. Using the same file sharing networks as the rest of the world was expensive, as they would end up hauling lots of data over the expensive long distance links and users didn't want to pay for that. Instead, they'd put together their own, which only allowed local users and thus guaranteed that uploads and downloads would happen at cheap local rates.
Googling for more information just now, what I found were lots of stories about police raids, so I'm not sure if it's still operational.
Brendan Behan: There is no situation that cannot be made worse by the presence of a policeman. -Steve