BT, which has conducted three separate tests of Phorm's service, isn't completely ruling out the company, but says it will monitor other ISPs' experience with Phorm before making any final decisions.
BT's decision to delay a rollout might not prove fatal to ISP-based behavioral targeting, but it certainly shows that such forms of targeting will face significant hurdles in Europe as well as the U.S.
Phorm said that it still hopes to launch in the U.K. and other countries. "We look forward to creating the conditions necessary for UK ISPs to move to deployment," the company said in a statement. Phorm also said it's made "excellent progress" in South Korea, where tests have been under way since May, and is in talks with other ISPs in other markets.
In the U.S., Phorm rival NebuAd was forced out of business last year, after Congress began investigating whether the platform infringed on Web users' privacy.
Phorm, like NebuAd, gleans information about Web users' activities through their Internet service providers and then uses that data to serve targeted ads. Privacy advocates view the platform as threatening because broadband providers have access to all Web activity -- including queries at search engines and visits to noncommercial sites. Older behavioral ad companies only gather information from specific sites within a network. Phorm says that it doesn't store people's personal data or browsing histories. Some industry observers had speculated that ISP-based targeting would move forward in the U.K. because regulatory authorities there endorsed the platform, provided that the company obtained users' consent.
But privacy advocates and other critics in the U.K. mounted a strong campaign against Phorm. This spring, Privacy International condemned the company as "dangerous and potentially unlawful."
Additionally, major Web companies like Wikipedia and Amazon said they would not allow Phorm to scan their Web sites.
Last year, BT and Phorm conducted an open test of the system, but only for consumers who opted in. But in 2006 and 2007, BT and Phorm conducted controversial secret tests of the system. Consumers weren't notified about those tests, much less given the opportunity to consent to the platform.
The British authorities didn't take action against the companies, but E.U. officials commenced legal proceedings.