1) In telecom [telegraph, telex, telephone] "sender pays" has been the rules on settlements. Just like a sender pays to put a stamp on a letter. Even when a customer of a CLEC 1 initiates a call to another CLEC 2 through an ILEC, CLEC 1 pays ILEC, ILEC pays CLEC 2. This is why there were many of these free teleconference systems, they are run by CLECs trying to get settlements by having more people call them long distance.
2) There was a brief period of the Internet where "no one paid" for the Internet because of government support, and the result was a typical tragedy of the commons - horrible congestion (the 56K NSFNet). Eventually the NSFNet had to classify traffic into high-priority terminal sessions and lower priority traffic like FTP.
3) The CIX came along to interconnect large commercial networks. These networks were generally exchanging equal amounts of traffic. Once you bought into CIX, you peered without settlements.
No-Pay peering with others that exchange equal amount of traffic with you in both directions makes technological sense due to symmetric bandwidth capacities of interfaces.
For example, a network service provider's 100 Mbps FDDI connection at the MAE-EAST provides 100 Mbps in both directions. It doesn't make sense to peer with someone who sending you 100 Mbps and only receiving 1 Mbps of your traffic.
Peering and/or settlement agreements between networks have evolved over time to balance the real-world business situation. For example, you might not want to charge as much to a customer that runs a huge, dependable software archive that your other customers benefit from. Similarly, today's cable providers probably should make Netflix pay less, but Netflix should still pay something.
I feel this is something the market should work out.
In the meantime, we need to figure out how to enhance competition in the local ISP market. A Federal law to make local monopoly franchises granted by government illegal would be a good start...
