Packets delivered to the ISP at an exchange are equally free. Noone is asking for access providers to collect packets in asia and move them to their customer in the US for free. All this is about is that if I pay a transit provider to move my packets from asia to the US, then the access ISP in the US doesn't get to charge me for actually delivering the packet to their customer, or prioritize someone else's packets over mine. There is nothing wrong with ISPs engineering traffic to be delivered to them via the closest exchange possible, they just don't get to abuse their monopoly over their subscriber's line.
> Bits routed to other networks cost money and are a cost center. With last mile speeds increasing but backbone data rates not dropping fast enough it can be a real problem. People who torrent or run bitcoin full nodes are probably costing ISPs large amounts of money.
Which is solved by discriminating between services how?
If outbound traffic is expensive, you have to charge for outbound traffic, not make youtube free (or whatever).
There is nothing wrong with traffic to on-premises hosted servers being free--if everyone can host servers there under the exact same conditions. The problem is an abuse of a monopoly position, not charging based on costs.