BT puts Phorm plans on hold

BT has shelved plans to implement behavioural ad-serving technology by Phorm that has drawn criticism as a potential risk to customer privacy.

In a statement issued on Monday, the telecommunications giant said it would be suspending its plans to implement Phorm's Webwise service, due to resourcing priorities.

"We continue to believe the interest-based advertising category offers major benefits for consumers and publishers alike," said the BT statement. "However, given our public commitment to developing next-generation broadband and television services in the UK, we have decided to weigh up the balance of resources devoted to other opportunities. Given these resource commitments, we don't have immediate plans to deploy Webwise today."

In 2006 and 2007, BT conducted two trials of the technology, which led to allegations of illegality from customers, peers and privacy campaigners. These two trials took place without BT obtaining the consent of the broadband customers involved. The company completed a third trial in December 2008, but it has refused to discuss the results of this. BT deleted customer forums discussing the technology in November.

The UK government and independent watchdog the Information Commissioner's Office investigated and found no violation of UK data-protection laws in the first two BT trials. However, as a result, the European Commission initiated a legal action against the UK government for failing to comply with European data-protection laws.

The Phorm service relies on deep packet inspection, in which every data packet is opened and examined, to build a profile of the web-surfing habits of users and then to serve targeted advertisements. BT's decision to put Webwise on hold was not connected to customer concerns about the privacy of such a service, a spokesperson for the company told ZDNet UK.

"It's nothing at all to do with [privacy], as we don't think Phorm has any issues there," the spokesperson said on Monday . "I know a lot has been written about [Phorm and privacy], but that's not one of the driving factors."

BT said it had decided to prioritise on its fibre provision and initiatives such as Project Canvas, which aims to provide a common standard for broadband TV. "It's a question of resources, priorities and focus," said the company spokesperson. "We've an awful lot [of resources] on fibre and Project Canvas. We want to park Phorm, to give us an opportunity to see how it gets on with other ISPs."

Phorm said that it was pursuing options with other ISPs in a statement on Monday. The company has been in protracted discussions with both Virgin Media and Carphone Warehouse over implementing the technology.

"As regards our UK deployment, Phorm's activities remain ongoing and we look forward to creating the conditions necessary for UK ISPs to move to deployment," the technology company said in a statement. "In parallel, we continue to focus considerable effort on faster moving overseas opportunities. In so doing, we have already minimised our dependency on the deployment by any single ISP or in any particular market."

A number of organisations, including Amazon and Orange, have already rejected using Phorm Webwise.

Phorm's share price plunged on Monday following news of BT's move. As of Monday afternoon, shares had lost 43 percent of their market value on the FTSE by mid-afternoon on Monday, falling from £4.55 to £2.05 per share. Last year, the company announced operating losses of $49.8m (£30.7m).

While BT has left the door open to using Phorm in the future, privacy campaigners said the move had affected the company's chances of becoming profitable.

"I can't see Phorm recovering from this," said No2DPI campaigner Alex Hanff. "The news today has destroyed them. The share price is down nearly 50 percent. Virgin Media wanted to see what happened with BT, while TalkTalk has said very little over the past 18 months."