“But co-location space at ISPs, which is more cost-effective than buying pipes,”

This is wrong. If this statement were true, every web host would start their own ISP. It’s really all a question of scale. No, your ISP probably wouldn’t be interested in deploying a CDN for you, but who cares? If you really need your own dedicated CDN, you are most definitely not a Small Webmaster. If you have high bandwidth delivery needs, why not call Akamai? Paying for space on a CDN is almost always cheaper than rolling your own – and by the time it isn’t, your aggregate bandwidth is large enough to make the ISPs listen.

There is no problem here. Why are you so concerned?

Think about it. It’s obvious that Google will be able to place an edge cache at the site of any ISP it wants, probably for free. Why? Because YouTube and its related services consume SO much bandwidth that the ISP would be crazy to say no. The ISP would surely save big on its backbone connection. Terabytes per month on YouTube alone. That’s money in the bank right there. And service would be faster, too.

But would an ISP allow just any content provider to put a cache at its sites, for free or even for money? Doubtful. Caches take up space and power and require access for maintenance. The ISP needs to be strongly motivated, by big bandwidth savings, even to consider it. And only big companies like Google have that to offer. If a small Internet startup were to call your local cable company and ask for “co-location space,” the person there would probably say, “That’s not a product we sell to the public.” That is, if the person who answered the phone at the cable company even knew what it was.

And of course, would-be competitors of Google won’t be able to buy space on Google’s private edge caches.

So, in what way is this neutral? Google can get its servers into places where CoolNewInternetGarageStartup.com can’t, and can make its services more responsive than the startup’s. Therefore, Google is indeed getting preferential access to infrastructure. It’s just that the infrastructure happens to be co-location space instead of pipes. And it has a big advantage there, because co-location is much more difficult to obtain than bandwidth. You can get any Internet carrier to sell you a pipe. But co-location space at ISPs, which is more cost-effective than buying pipes, isn’t necessarily even available to you unless you’re Google. So this is really, really anticompetitive. And how could anyone say it was “neutral?”