BT and Phorm secretly tracked 18,000 customers in 2006

Spied on, profiled, and targeted for credit cards

A county in the south east of England

Phorm was calling its technology "PageSense" in 2006. The early iteration inserted JavaScript tags into every page users accessed in order to retrieve targeted advertising. This explains a series of strange postings containing JavaScript code, that appeared in web forums at the time.

The current version, being promoted to BT, Virgin Media, and Carphone Warehouse customers as "Webwise", does not use JavaScript in this way. BT's report identified that it makes consumers more likely to be aware that they are being profiled as they browse.

At the time of this newly-revealed first trial, Stratis Scleparis was the chief technology officer of BT Retail. He hopped across to occupy the same position at Phorm in January 2007. BT has not addressed our question over whether it is comfortable with the role Scleparis has played in the deal.

Before the controversy over Phorm began, City analysts estimated BT stands to trouser £85m annually in extra revenues.

However, an email written by Virgin Media director of corporate affairs Paul Richmond suggests the cable operator could yet pull out of its own deal with Phorm. He wrote: "We understand our legal position here [is that] we effectively have a MOU [memorandum of understanding]. We will work with this technology through trials and by sharing our understandings with the other large ISPs."

He goes on to suggest Virgin Media could back out of the plan if its brand is tarnished. "If at any stage we believe we cannot make this work for both our customers and our shareholders we will not proceed. We value our brand and our reputation enormously. Nobody knows the optimum way to implement this technology. We will trial this and find out," Richmond wrote. A Virgin Media spokesman said it has not performed any trials yet.

BT is set to conduct yet another experiment with Phorm technology, in the open this time, on 10,000 customers. Phorm itself emphasises that it is firing "a revolution in online privacy" and that consent is a key part of its proposition.

In a recent interview, CEO Kent Ertugrul told The Register: "It [the system] has got an on/off switch. There's a place consumers can go and say 'off'. This centralises control of the user's privacy in their hands. If we had anything to hide we wouldn't invite you in here."

We asked Phorm on Monday how it squares such claims with the fact that it participated in tracking and profiling 18,000 BT customers without their consent. 'Does Phorm believe its actions were ethical and if so, why?', we asked. Rather than answer the question, the company chose to send us this retort**:

We think it is unethical of the Register to seek to undermine a technology that enhances online privacy - Phorm's system ensures that ads are served with no data storage - something that will benefit readers of the Register and other websites.

In the interests of balance, we would like the Register to reflect the improved privacy environment Phorm provides over the other major online ad targeting companies detailed in the attached table.

You can view a JPEG of the Powerpoint slide Phorm is referring to here, with two important caveats: in the context of the secret trial we describe here, there was no opt-out. In the broader context of the final national deployment, a comparison with search engines is disingenuous.

Further in the interests of balance, here's this reporter's opinion of why such attempts to market ISP-level advertising targeting to web users as a privacy benefit are unethical and designed to deceive.

We'll let you judge what this all means for Liberal Democrat MP Don Foster's questions over BT's integrity and ISP trust. We've asked the UK's national telco for an interview with an executive who can account for its actions in relation to Phorm. ®

*As we've reported, that second experiment with customer data took place in July 2007 and was immediately denied by BT.

**Rest assured, this is not an April Fool.

Sponsored: Driving business with continuous operational intelligence