Application Layer Traffic Optimization (ALTO) is a means for operators to guide the resource provider selection of distributed applications. By localizing traffic with ALTO, Internet Service Providers (ISPs) aim to reduce the amount of costly traffic between Autonomous Systems (ASes) on the Internet. In this paper, we study the potential cost-savings for operators through ALTO-guidance for a specific type of P2P application: P2P Live Streaming. We use datasets that model the Internet’s AS-level routing topology with high accuracy and which estimate the business relationships between connected ASes on the Internet. Based on this data, we investigate different ALTO strategies and quantify the number of costly AS-hops traversed. Our results show that indeed transmission costs can be reduced significantly for P2P Live Streaming with ALTO. However, for this particularly delay-sensitive type of application, ISPs have to be careful not to over-localize traffic: if peers connect to too many peers which are in the same AS but have low upload capacity, chunk loss increases considerably (resulting in poor video quality). In addition, we demonstrate that if ISPs use an ALTO strategy which recommends peers solely based on the transmission costs from the ISP’s perspective, neither the individual ISPs nor the overall system can substantially decrease transport costs.