Exclusive BT’s servers were secretly passing data on subscribers to its "new" advertising partner as long ago as last summer, though the companies refused to acknowledge any relationship at the time.

BT - the UK's number one internet provider - finally revealed the plan earlier this month along with Virgin Media and Talk Talk, which occupy the number two and three spots behind it. This means Phorm, the company that will run the targeting system, will have access in all to more than 10 million streams of web browsing data.

Phorm's Open Internet Exchange is an online broker that matches advertisers with publishers, much like Google or Yahoo!. The difference is that rather than target your interests using data you volunteer via web searches and by using free email services, Phorm is paying your ISP to hand over data on your browsing habits direct. The technology has roots in spyware, but the company insists it is setting a new "gold standard" in privacy online and emphasises that ISP customers will be able to opt-out.

Phorm and its trio of ISP partners are hoping to sell consumers on the idea by bundling some shiny anti-phishing bells and whistles with the package. However, BT's reluctance to acknowledge what appears to have been a pilot of the Phorm system indicates how nervous executives are - or were - about their new revenue scheme.

'You have malware'

In June 2007, Reg reader Stephen noticed his Firefox 2.0.0.4 installations making suspicious unauthorised connections to the domain dns.sysip.net every time he visted any website. Naturally worried his machines had contracted some kind of digital infection, Stephen performed a series of exhaustive malware scans, which all came back clean.

He wasn't the only BT subscriber to notice that his browser was making the mysterious contacts around July last year, as this thread archived at Thinkbroadband.com shows.

"I spent all weekend wiping my disks clean and reinstalling from backups (four PCs seemed to be affected). I spent a further two days researching and installing all kinds of anti-virus, anti-spyware and anti-rootkit utilities. But even after all that I still have this problem!" Stephen told us at the time.

Having failed to trace the source of the dodgy redirect in his own network, he contacted BT to suggest one of their DNS servers may have been hijacked. BT dismissed the idea, yet the browser requests were still making an unauthorised stop off at dns.sysip.net.

Worried that his business' financial data might be being monitored, Stephen continued to investigate. A Whois search for dns.sysip.net revealed the domain was registered by Ahmet Can, an employee of a new online advertising company called 121Media. The address is now registered through a third party private domaining agency. 121Media rebranded itself as - you guessed it - Phorm in May 2007.

This is, you'll be unsurprised to learn, is indeed the same Phorm that BT, Virgin Media and Carphone Warehouse recently revealed they had agreed to sell their customer's browsing habits to, despite the questions over its links to spyware. For helping Phorm target advertising, the ISPs are set to bag a cut of click revenues.

The company's proposed business model was in the public domain last summer, and being able to put two and two together, Stephen asked Phorm and BT what they were doing with dns.sysip.net and his browsing data. This is where the story got weird.