• by Wendy Davis  @wendyndavis, August 21, 2009

A consumer protection agency in the UK said this week that it plans to conduct a new study of online advertising, including behavioral targeting.

"The study will look at the application of consumer law to advertising and pricing, with a particular focus on the internet," the UK Office of Fair Trading said in an announcement posted on its Web site. "It will evaluate which online and offline pricing and advertising practices have potential to be most detrimental to consumers, and may also look at the use of personal information in advertising and pricing -- in particular, where information from a consumer's online activity is used to target the internet advertising he or she receives."

While the investigation could potentially affect a range of ad companies, some press coverage surrounding the announcement has focused on the controversial company Phorm. Thursday, the Guardianreported that the ad company's stock fell 20% immediately after the announcement.

Phorm is not currently working with any Internet service providers in the UK, but previously conducted three tests of its service with telecom BT Group.

Like the now-defunct NebuAd, Phorm partners with Internet service providers to glean information about people's Web activity and then serve them targeted ads. The company says all targeting is anonymous, but privacy advocates object to the technology, which uses deep-packet inspection to garner data about broadband subscribers.

Earlier this year, Web founder Tim Berners-Lee told the UK Houses of Parliament that he opposed such technology.

BT previously conducted three tests of Phorm's system, including two secret tests in 2006 and 2007. UK authorities declined to take action against Phorm or BT. Last year, the British communications agency Ofcom touted behavioral targeting as a way to increase Internet service providers' revenue.

But European regulators said in April they had commenced legal action regarding the UK's response to the tests. "The Commission has concerns that there are structural problems in the way the UK has implemented EU rules ensuring the confidentiality of communications," the authorities stated at the time.