• Move seen as a victory by online privacy campaigners
• Shares fall by 40% on latest setback for developer
Shares in Phorm, the Aim-listed technology firm, have plunged after it emerged that BT has quietly pulled plans to roll out its controversial advertising system, which tracks the internet habits of customers and has been attacked as online snooping by privacy campaigners.
BT was a key player in the development of Phorm’s Webwise system, which uses information about which sites an internet user visits to target them with relevant advertising on subsequent pages. News that BT has in effect mothballed the technology sent shares in Phorm down 40% by lunchtime today.
“The news is disappointing,” said James Wheatcroft, analyst at Evolution Securities. “The UK has been persistently difficult for Phorm and this remains the case. However, we retain our positive recommendation based on overseas development and deployment, in particular Korea. The fundamental Phorm proposition remains highly attractive.”
Privacy campaigners, however, have been celebrating. On the blog of Alexander Hanff, one of Phorm’s most vociferous critics, he wrote: “I read the news and 18 months’ worth of emotion ran down my cheeks. I was unable to hold back the tears of joy and even now 10 minutes later they continue to fall.”
Jim Killock, the executive director of Open Rights Group, which has campaigned hard against Phorm, said: “Open Rights Group welcomes BT’s decision and hopes other UK ISPs, particularly Virgin Media and TalkTalk, will follow their lead. This is the right decision for BT and other online providers who respect privacy. Phorm will remain a threat to our fundamental rights while they offer services that intercept communications without the consent of all parties.”
BT carried out secret tests of the technology in 2006 and 2007, which are now the basis of a European commission investigation into the UK government’s failure to protect its citizens online. Last year, BT carried out a proper consumer trial of Phorm’s technology. The results have been keenly awaited, not just by management at Phorm – whose chairman is the former chancellor Norman Lamont – but by its other two potential partners, Virgin Media and TalkTalk.
BT has decided not to proceed with rolling out Webwise to its 4.8 million broadband customers, dealing a heavy blow to Phorm. The company said the decision was down to its need to conserve resources as it looks to invest £1.5bn in putting a next-generation super-fast broadband network within reach of 10m homes by 2012. Privately, however, BT bosses have been increasingly concerned about consumer resistance to advertising based on monitoring users’ online behaviour and specifically about the backlash against Phorm.
“We continue to believe the interest-based advertising category offers major benefits for consumers and publishers alike,” said a spokesman for BT. “However, given our public commitment to developing next-generation broadband and television services in the UK, we have decided to weigh up the balance of resources devoted to other opportunities.
“Given these commitments, we don’t have immediate plans to deploy Webwise. However, the interest-based advertising market is extremely dynamic and we intend to monitor Phorm’s progress …before finalising our plans.”
The news will throw the spotlight on Virgin Media and TalkTalk, which recently snapped up the rival internet service provider Tiscali. Between them, BT, Virgin Media and TalkTalk control about three-quarters of the UK broadband market.
Virgin Media is understood to remain interested in the concept of behavioural targeted advertising, not least for use with its video-on-demand service. It is in talks with a number of potential technical partners but is understood to have cooled on the idea of using Phorm’s technology.
TalkTalk has said it is keeping an eye on Webwise but any implementation would have to be done solely on an opt-in basis – customers would not be automatically connected to the service – and the company has no timescale for deployment.
A spokesman for Phorm said BT’s decision was not the end of the world, not least because it has been expanding overseas and was 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.”
But it is the latest in a series of setbacks for Phorm. Amazon recently opted out of Webwise, saying it did not want traffic to its websites monitored by ISPs that sign up to use the technology. Google and Bebo are also considering opting out, potentially depriving Phorm of crucial information about internet users’ tastes.
The UK government is understood to have opted its domain names – such as www.direct.gov.uk – out of Webwise amid concerns about privacy. Although ISPs, media companies and even some politicians see Phorm as a way for UK companies to claw back some share of the internet advertising market from the clutches of Google, Sir Tim Berners-Lee, the web’s creator, has criticised it as unjustifiable online snooping.
The web needs a highway code
Following the BT/Phorm saga, the government must clear up confusion over consumer protection and monitoring software
BT’s announcement that it is dropping its involvement with Phorm “for the moment” is unsurprising. The telecoms giant has a high level of trust among consumers, and pushing forward with the controversial web monitoring and profiling system would have been a very dangerous move for the company. It might have destroyed BT customers’ trust in the company had they felt that their web traffic was being intercepted in a way they did not understand. Even with reassurance that there would be an “opt-in” system, Phorm’s plans did not take account of public worry of just what this would mean in reality.
The government’s role in the affair has been dubious. It has never taken responsibility for ensuring that all players were clear about what protection consumers could expect from the law under the Regulation of Investigatory Powers Act and whether it was enforceable over interceptions of the BT/Phorm kind. Despite constant questioning, the government would only say that “it was a matter for the courts” to decide. The Home Office may have its own use for deep packet inspection for intercepting web traffic, but it is mistaken if it thinks ambiguity in the commercial sector would help the technology develop unhindered.
One of the main opponents of the Phorm-type of monitoring is the web’s inventor, Tim Berners-Lee, who branded it as “snooping”. He has been appointed as a special adviser to the government. Leaving the government is Lord Carter, the erstwhile communications minister who was a Phorm enthusiast. The Information Commissioner’s Office remains in its Alice-in-Wonderland position of backing Phorm’s technology, provided it complies with data protection laws – which, of course, is the unresolved issue. Another player is Ed Richards, chief executive of Ofcom. The telecoms watchdog has a regulatory role but also an interest in ensuring some resolution to the parlous position that the media has found itself in regarding advertising.
One of the primary roles for the government is to create certainty for citizens and for business. In this sorry saga it has created uncertainty and it was left to the EU to take a line on the original trials, which were ruled illegal. The government knows that there is now an information superhighway where everyone is busy trying to put up billboards. When roads became very busy with cars, a highway code and a planning system was developed to prevent dangerous situations. What is needed now is a similar clear plan for the web highway.