The biggest U.S. Internet service providers, which include the largest phone and cable companies, will roll out updates to their network over the next two months that promise to make some peer-to-peer traffic faster and more efficient, we have learned.

The results won't be immediate for consumers or ISPs, but the updates could make P2P downloads faster or video streams better over time. And just as important, the updates could someday save service providers money on bandwidth and capex -- which their investors would welcome. The upgrades could also potentially rejuvate the peer-to-peer content delivery industry, which -- despite high expectations -- hasn't been able to win much business from big media clients.

The software, dubbed 'P4P', is a product of an industry association whose members include the two largest U.S. phone companies, AT&T (T) and Verizon (VZ); the largest U.S. cable company, Comcast (CMCSA); content delivery networks ('CDNs') like NYC-based Pando, BitTorrent, and Grid Networks; and tech companies like Cisco (CSCO) and VeriSign (VRSN).

What does P4P do? It makes peer-to-peer transfers -- a huge chunk of all the bandwidth used on the Internet -- more efficient by sending more traffic, when possible, across the ISP's internal network -- as opposed to across the broader Internet. It can also prioritize P2P traffic from networks with which ISPs have so-called symbiotic "peering" relationships, which could save them money.

Big ISPs, such as AT&T, Verizon, and Comcast, have been testing the P4P technology for the last year or so and will start rolling it out nationwide in the next 60 days, we understand. The move is especially symbolic for Comcast, which got heat earlier this year from the FCC for disrupting some of its subscribers' P2P transfers, and has since switched to a network management system that doesn't single out P2P.

What might the updates mean for consumers and ISPs?

In the most recent P4P tests, announced yesterday, download speed increased an average 59% over traditional P2P, and up to 150% for the fastest class of users. Efficiency improved, too: The percentage of data delivered interally within each ISP -- best-case scenario -- increased from 14% for normal P2P to as much as 89% for P4P delivery.

P4P won't immediately work with the BitTorrent transfers that music and movie pirates prefer. But it might someday if both ISPs and BitTorrent software makers support the technology. (Hard to tell if this will happen: ISPs understandably don't want to be perceived as helping pirates in any way. But at the same time, they're under pressure to make their networks as efficient as possible. And pirates, of course, want speed.)

Instead, we understand, P4P will initially favor more "legitimate" companies who have participated in the testing process so far. That's potentially good news for P2P companies like Pando, who have had a tough time competing with content delivery giants like Akamai Technologies (AKAM) and Limelight Networks (LLNW).

P2P's pitch has long been "we're cheaper!" but Akamai, Limelight, and smaller competitors have lowered prices so much in the last few years that big media companies haven't had much reason to look at P2P as an alternative. Media companies have also been skeptical about P2P because of several shortcomings, such as the need to download a third-party plugin, sketchy DRM and security features, and the lack of proven reliability.

But consumers have recently shown they're happy to install third-party software when beneficial to them -- millions downloaded Microsoft's (MSFT) Silverlight plugin to watch the Olympics online, for example.

And Pando CEO Robert Levitan says his company has made some much-needed changes, too, like security and reliability improvements, including the ability to connect to Akamai, Limelight, or any CDN to fill in the gaps when a P2P network isn't providing enough bandwidth.

Levitan also says the downturn has gotten media companies to pay more attention to pricing than they did even a few months ago. He says Pando has recently seen "a huge influx of inquiries," and that some media companies who didn't care about CDN pricing six months ago now say it's their "number one issue."

Disclosure: Our parent company shares investors and office space with Panther Express, a content delivery network.

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