British Telecom is putting off plans to partner with a web surveillance company called Phorm that spies on broadband subscribers to deliver more targeted ads, the Guardian reports.

Phorm installs traffic inspection devices inside an ISPs networks to track what users do online in order to create marketing profiles of them. Those dossiers are then used to tailor ads that show up on partner's websites. Phorm pays ISPs a small sum per user, a tantalizing offer for companies whose key business metric is average revenue per user.

But Phorm's technology is considered creepy by many and already Wikipedia and Amazon have told the company not to keep tabs on what users do on their sites.

A similar venture in the U.S. known as NebuAd was driven out of business last year after Congressman Ed Markey (D-Mass.) made ISPs reveal their secret tests of the system, which made the company radioactive to other ISPs.

But privacy concerns in the U.K. have not had quite the same effect. BT got busted running a secret test on thousands of its customers, but still hasn't forsworn the technology. Meanwhile, Virgin and TalkTalk, the other two largest British ISPs, remain interested.

The battered Phorm is not quitting yet, according to the Guardian.

A spokesman for Phorm said BT's decision was not the end of the world, not least because it has been expanding overseas and is now in talks with potential ISP partners in 15 other countries. This year the company announced a trial of its technology with KT, South Korea's largest ISP, and another overseas deal is expected to be announced shortly. "It is not a great surprise to us, to be honest. It has been a long process and we have never had a definitive date on a launch," said a spokesman. "Phorm is not just dependent on a UK model with one ISP."

via BT drops Phorm targeted ad service after customers cry foul over privacy | Business | The Guardian.

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