Somebody has to pay the money to upgrade the equipment and bandwidth available at these exchange points. The very reasonable argument in this article is that the ISPs should pay that cost, which seems reasonable given that their customers are demanding it. It sounds like the ISPs are playing a game of chicken, trying to see if their peers like Level3 will throw money in to pay for the ISP to upgrade its equipment and bandwidth. That's certainly something the ISPs can try to do; on the other hand, what are their customers going to do,
not use Netflix and YouTube? If a pile of customers of one ISP start reporting that they're all having a poor experience with high-bandwidth video, and there are a pile of well-publicized press releases blaming the ISP, customers will start complaining to the ISP, and they'll have to upgrade their infrastructure eventually. (And in areas where they have competition, there's an incentive to upgrade before the competitors, to avoid losing customers; while there isn't such competition in every locale, there are enough locales with more than one ISP choice to make those customers painful to lose.)
But what does any of that have to do with mandated peering requirements at the NSFnet exchanges? Who would enforce that, and why, when any two major networks can set up peering at any number of meet-me rooms? Requiring that an ISP peer as much traffic as is available or not peer any at all seems ridiculous; some ISPs will suck more than others, but that's the problem of them and their customers, not a problem for the entire Internet.
Meanwhile, I'm surprised there aren't more startups and VCs looking to bet that "new ISP that doesn't suck" is a viable business model. People are chomping at the bit for Google Fiber, which seems unlikely to grow to a national level without developing competitors. This is a space with very few competitors, and there hasn't been serious competition in that space since DSL stopped being a viable option.