quickymart: Free national traffic won't happen - from memory, last time this was done, it screwed national bandwidth so badly it just about came to a halt.
there were a few reasons
1) most people didnt understand local vs national vs international traffic and it was a hard model for joe bloggs to understand. one price regardless of origin was safer, the telco spends less time and resources having to prove that a byte travelled over a specific route
2) there was insufficient backhaul available to exchanges, sometimes because enough wasnt physically supplied, sometimes because the ISP didnt want to pay for more
3) some ISPs did, in fact, run out of bandwidth due to a large % of their users being there only for the 'free' national traffic
4) in the early days of 'open peering', traffic flows were a bit one sided. if a user on telco A was talking to to a user on ISP B, the traffic transited 90% along telco A's links. why should telco A pay for 90% of the circuit if both users are equally sharing traffic?
in any case, no traffic is ever 'free'. there is always a cost associated - its just normally lower for local traffic than national traffic, which is lower than international traffic. there is still a cost to peering in an IX, costs to get the data to and from the IX, costs to get the data between two IX's, costs to manage and maintain the bandwidth and monitoring, costs for the network design. "free" national traffic will probably never return.