Can ISPs be profitable without violating “network neutrality”?

At the core of the network neutrality debate we find that ISPs, in particular the last-mile Access Providers (APs), are trying to find new ways to be profitable, despite the fact that their transit traffic has been dramatically increasing, while they continue to charge their customers a flat monthly price. In this paper, we consider a simple model of an AP that serves its users traffic from a number of Content Providers (CPs). The AP can communicate with the CPs through a Transit Provider (TP) or through settlement-free peering. We examine the profitability of the AP under a "baseline" model that is based on current practice, considering the heavy tailed variability in per-user traffic and in the popularity of different CPs. Further, we consider other strategies, such as usage-based pricing for heavy hitters, selective peering with popular CPs, and content caching. Our results indicate that an AP can be profitable without the risk of losing users and without violating "network neutrality", through selective peering with CPs and/or content caching.