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UK.gov promises legal explanation for secret trials this month

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After its share price slumped to a new low, Phorm today sought to allay investor fears about the ISP-level adware business by repeating assurances that a critical third trial with BT will go ahead.

Yesterday Phorm closed at £5.80, an all time low. The announcement seems to be having the desired effect; at time of writing Phorm's stock is up more than 16 per cent at £7.12. Its February peak at £35.04 remains a distant dream for stockholders, however.

Phorm's latest slide followed newspaper stories in the US in the past few days that voiced serious doubts over whether its business will ever gain public or regulatory acceptance. Yesterday Bob Dykes, the founder of Phorm rival NebuAd, quit as its CEO.

In soothing the markets today, Phorm said "significant and accelerating" progress has been made on a test targeting advertising based on the browsing habits of 10,000 BT broadband customers.

The trial was originally scheduled for mid-March and has repeatedly slipped. BT's chief press officer Adam Liversage today repeated its line that the third trial - the first with customer consent - will start "soon". Sources have told The Reg that at least part of the hold-up has been caused by technical problems.

In response to the outcry over our revealing its two secret trials, BT said in April it would re-engineer the planned deployment so traffic to and from customers who do not want their web use profiled for marketing purposes would not come into contact with the Phorm system. The original blueprint meant that a opt-out cookie would tell the technology to simply ignore refuseniks' browsing as it passed through.

It's thought the change has proved tricky. Phorm did not immediately respond to a request for comment on the alleged technical problems, but Liversage said: "We have been working on some things with Phorm."

Elements within BT have also resisted the group's close association with Phorm on grounds it is damaging to the Global Services division's security brand.

No significant progress has been made in Phorm's dealings with the UK's other two largest ISPs. Its statement today continued: "Phorm expects that Virgin Media and TalkTalk will commence consumer trials in due course. Following successful completion of these trials and an appropriate planning period, it is currently expected that Phorm's platform will be rolled-out across these networks."

Speaking to The Reg, Virgin Media maintained its position that no decision has been made on whether to deploy the system. It conducted a lab test some months ago during negotiations with Phorm, but has not moved beyond planning since.

A TalkTalk spokesman said that its position also remains unchanged. "We do still intend to introduce this system but we're not committed to a particular date," he said. "The key thing for us is that it will be an opt-in proposition."

Given that Phorm's statement to the stock market contains no new information, TalkTalk suggested it had been made to reassure the market. Phorm's last financials showed it lost $32.2m (£16.2m) in 2007 and had $16.6m (£8.4m) cash in the bank. In mid-March this year it raised a further $65m (£32m) by issuing new shares at £20 each.

Meanwhile, European moves to investigate BT's secret trials continue. The Reg spoke to the Department for Business, Enterprise and Regulatory Reform (BERR) yesterday. It is handling a cross-government response to the European Commission's request for answers on why no action has been taken over the trials of Phorm's technology in 2006 and 2007, which the EU has said were illegal under its privacy regulations.

A spokeswoman said that after BERR missed its deadline at the end of July, as reported here, an extension had been granted and a response would be sent this month. She said it had not been decided whether the text of the UK's letter to Commissioner Viviane Reding's office will be made available. "It's not normal practice", she said, adding that some form of public announcement will be made. ®

There's a full round-up of our reporting on the Phorm affair here.

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