Basically, the problem is this: Network providers like AT&T don't like to build more network capacity, because it costs them money. So lets say they have a 45MBit T3 line to the internet and on that line they have, I don't know, 200 customers with 1.5MBit DSL lines. So obviously these customers can't each be using the full 1.5MBit at once, because 300MBit > 45MBit. That's okay though, because not all 200 customers will want to be using the full bandwidth of their connection at the same time. As long as the total usage during peak hours is less than 45MBit, AT&T doesn't have to spend money to install a faster pipe to the internet.
However, over time network usage tends to go up. When DSL first came around, it was replacing dialup and everybody was just visiting web pages that had text on them. Now everybody is visiting Youtube and using BitTorrent to distribute
Ron Paul videos and people are using more bandwidth. Now the problem is, if the amount of data its users are transferring exceeds the capacity of its connection to the rest of the internet, they have to drop some packets. When they do that, the endpoints just resend them, but then they take longer to get there. This is especially a problem with interactive stuff like streaming video. In that case the video gets choppy and customers start complaining. The proper course of action is then for AT&T to open its wallet and build a faster pipe to the internet so that customers will have the bandwidth they paid for.
Except that AT&T *hates* to open its wallet. So what they want to do is, instead of expanding capacity to meet demand, they want Youtube to pay them for priority so that their videos won't be choppy. So then Youtube pays AT&T to keep from going out of business, and instead of dropping Youtube packets, AT&T drops some other packets instead. This makes the problem even worse for anyone who isn't paying this AT&T extortion fee, because now even more of their packets are getting dropped. So all the big companies on the internet, who already paid for *their* internet connections, now have to pay every ISP for *your* internet connections, even though *you* already paid for it. Worse, all the little guys who can't afford this toll get most of their traffic dropped -- and that includes all P2P traffic. So now when you want to go download that Ron Paul DVD using BitTorrent, instead of it taking 4 hours to download, it takes 2 months. And that little company that would have been the next Google can never get started because nobody can use their service when 80% of the packets get dropped.
That's exactly the problem. The cable companies and telcos often have exclusive rights to the right of way, and even when they don't, the government has given them hundreds of billions of dollars in subsidies to build their networks. The rest of the market can't compete with that level of government interference. And when you have a government-created monopoly, the government needs to either regulate it or eliminate it. Net neutrality is choosing to regulating it. Sad as it is, that's probably easier than eliminating it -- at least in the medium term. In the longer term, converting more wireless spectrum to internet access and providing easier access to the public right of way may give competitors an incentive to come into the market, but building anything of that sort would require years of roll out, assuming anyone is even interested in competing with telcos that have already received hundreds of billions of taxpayer dollars in subsidies.
