BT Dumps Phorm, But ISPs Have No Plans to Dump Ads

phorm-logoBT, the UK’s largest ISP, has decided to cut ties with Phorm, the deep packet inspection company that offered ISPs a way of targeting advertisements based on where their subscribers surfed on the web. When the relationship between the two was first made public last year, a privacy brouhaha ensued that led some other ISPs to distance themselves from the controversial technology, especially in the U.S. The European Commission got involved after folks in the UK discovered that in 2006 and 2007, BT had conducted secret pilots of the Phorm technology that had some customers feeling spied upon. Talk Talk and Virgin Media are still eyeing Phorm’s technology, although neither has seemed as enthusiastic as BT.

BT has said it needs to focus on its fiber buildout and deployments of its triple-play bundle, but the concerns about privacy were likely a contributing factor to its ending its relationship with Phorm (although BT doesn’t seem to mind negative headlines about its service). Plus, there’s another business model around targeted advertising that may look more appealing. Mobile carriers in Europe are playing around with an opt-in model for targeted ads that are directed at the younger set. German carrier E-plus offers text messaging and credits to mobile users who release their personal information and personal preferences to advertisers and agree to receive a certain number of ads each week. Orange, a UK ISP and mobile operator, may also be entering into a partnership to deliver a similar service.

Ad-supported dial-up access is still around, so carriers may be eyeing some kind of opt-in for wired broadband as well, especially if the experience can be less intrusive than a giant ad taking up a third of the browsing screen, as past efforts have. If these efforts succeed, it will be a bittersweet victory for privacy advocates. If ISPs realize that opt-out ad services, in which a customer must elect to opt out of an advertising trial, don’t work, and instead turn to an opt-in model in which the ISP entices users to give up their personal information in exchange for some incentive, consumers would get more control over their data, but advertising would become more insidious.

So while Phorm and rival firm NebuAd are struggling, they may pop up again with a slightly less invasive form of advertising to sell to ISPs. After, ISPs don’t want to let a perfectly good stream of data flowing through their pipes make money for the likes of Google (s goog) when they’re the ones providing the pipe. Consumers may pay for their monthly broadband, but ISPs definitely want to find ways to charge more.