Ideally, you're right -- if netflix (and internet video in general) drives growth in internet traffic, maybe it isn't fair to require service providers to upgrade their service out of hand.

But then I think that rule primarily applies for a free market. I'd argue that internet providers are not currently participating in a free market and it causes real problems. Without a free market... companies need more supervision.

I'll put it this way: 2 competing providers. Average internet usage keeps rising exponentially. People want faster internet. The providers either lower prices or upgrade infrastructure. Netflix is not forcing them to do anything. But then it's probably reasonable for Netflix to say "Your connection is crappy because of your internet bandwidth, it's not us..." But hey, consumers can choose.

Problem here is... what are their choices? Even just one other company participating in the market that can make a similar offering (eg cable speeds) would change the whole conversation I think. Suddenly they'd be working harder to keep your business (or take you from the competitor) and they'd stop talking about more and more ways of screwing their customer and taking advantage of de facto monopoly status.

The incentives are all messed up and it encourages gouging instead of innovation.