BT Shelves Phorm Ad-Serving Technology

BT (BT) has shelved plans to implement behavioural ad-serving technology by Phorm (PHOR.L) 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 the pilot. 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 sister site 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 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 (CPW.L) over implementing the technology.

"As regards to 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 (AMZN) and Orange (FTE), 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 per cent 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.

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 per cent. Virgin Media wanted to see what happened with BT, while TalkTalk has said very little over the past 18 months."

Service providers TalkTalk and Virgin Media are continuing to evaluate Phorm's ad-serving technology. The companies have been reviewing the technology for approximately 18 months.

Following BT's announcement on Monday that it has put any plans to implement Phorm's Webwise technology on hold, TalkTalk told sister site ZDNet UK that BT's decision would not affect its evaluation or plans.

"We continue to have an interest," said a TalkTalk spokesperson. "We haven't tested the systems on our network. Should we introduce [Phorm] it would be at our customer's discretion. We are aware of BT's decision but it hasn't affected our plans at all."

Virgin Media also told ZDNet UK that it is still evaluating the technology, which has drawn criticism from BT customers and privacy campaigners for its use of deep packet inspection.

"Over the last 18 months, Virgin Media has conducted a comprehensive technical and legal assessment of Phorm's technology and consumers' attitudes towards interest-based advertising," said a Virgin Media statement. "This review has not involved the deployment of Phorm technology across our network.

"We continue to believe interest-based advertising has potentially important benefits for consumers, internet service providers and website owners. However, given the fast moving nature of the sector, Virgin Media is reviewing potential opportunities with suppliers including Phorm prior to making any commitment to launch any of these technologies."

The statement continued: "We recognise some consumers have significant concerns about the potential implications of interest-based advertising for their privacy. Virgin Media is committed to ensuring that any future deployment complies not only with the relevant legal requirements but – as an absolute minimum – the best practice guidelines contained in the Internet Advertising Bureau's recently published code of practice.

"Virgin Media will communicate openly and transparently with consumers before and after any future deployment of interest-based advertising technologies across its network."

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