"JoeBob ISP will pay a certain dollar amount per MB of traffic
sent. It's connected to two ISPs, so it will likely have two
different prices. BGP magic can be done to favor the cheaper link,
in that case. The crux of the matter is that JoeBob ISP is getting
routes from another ISP, and it can do what it wishes with them.
Some traffic can be sent to either tier 1 ISPs, and some can be
"Peering agreements aren't just for the ISP-to-ISP BGP sessions,
they are also used to negotiate company to company traffic flows.
Even the small ISP can sometimes hop onto a local exchange, and
peer with other companies, schools or ISPs in the area. An exchange
is a network connection point, and every city has at least one. All
the major players in an area will connect to the exchange, and
maintain their own routers within. If they decide to peer with a
friend, they can simply have the exchange operators patch some
fiber through to their friend's rack, and viola, free packets.
There's normally a port charge to connect to exchanges, and I
didn't mention anything about how you'd get traffic from your site
to the exchange. That takes fiber (money) too."