Like others have stated, this will never happen simply because half the players that aren't close to the server are still playing the game despite their lag and providing bank for the big man.

In an easier way to understand how stupid it would be from a business perspective:
"Ok half my players don't want the other half who live away from the server to play the fun competitive parts because it ruins it for them, lets banish that other half. Ah, all of a sudden that half have stopped playing my game and generating income for my business."

What some people don't understand is that although it can be frustrating to fight against someone with a poor connection in comparison to your own, they have to deal with it to. They just seem better at kicking your ass because they're more adapted to playing with that delay.