When Netflix installs their cache servers at ISP data centers, they purchase transit from those data centers and pay for it at the 95th percentile like any other data center (or CDN) customer of that ISP. Netflix pays for the traffic they put onto the network.

The ISP has a big incentive to have Netflix increase their quality wherever there is strong competition for Broadband Internet. The more competition, the more incentive.

Here is an excellent article on transit: http://blog.streamingmedia.com/2014/02/transit-works-costs-i...