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Phorm, Norman Lamont, and the Broadband Stakeholder Group

Fibre investment forum denies conflict of interest

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Analysis Norman Lamont is no stranger to unpopularity, so he should feel right at home on Phorm's board.

He has presided over an economic disaster and defended the "honour" of a mass murdering dictator (General Augusto Pinochet, despot fans). Both episodes cast the controversy surrounding the Brave New World of ISP adware as relative kids' stuff. For a central figure of the Major government, a Downing Street petition with 19,000 signatures calling for action over Phorm and BT's secret trials must seem run of the mill.

Phorm didn't share details of the strategic dispute between Kent Ertugrul and four other directors that led to their mass departure today and opened the door to Lamont. It signalled it doesn't intend to, either. "There are no further details in relation to the above appointments which require disclosure under paragraph (g) of Schedule 2 to the [Alternative Investment Market] Rules," its market announcement said this morning.

Whatever prompted the split, the pressure on CEO Kent Ertugrul now is immense. Phorm's last set of financial results showed it lost £13.8m in the first six months of 2008. With only £24.9m in the bank and a third trial with BT still ongoing, time isn't on its side.

Further fundraising in the current economic environment is likely to be difficult. The services of former Chancellors of the Exchequer do not come cheap either, however questionable their record.

While the appointment of a public figure such as Lamont is bound to attract immediate attention, the most interesting of Phorm's new guard is Kip Meek. He is non-executive chairman of the Broadband Stakeholder Group (BSG), an industry coalition that is playing a central role in the debate over the next generation of internet infrastructure in the UK. It describes itself as "the UK government's leading advisory group on broadband", which "provides a neutral forum for organisations across the converging broadband value-chain to discuss and resolve key policy, regulatory and commercial issues".

The furore over Phorm's secret testing and the government's failure to muster more than a shrug in response would to many observers seem a key regulatory issue. How Meek, a former Ofcom board member, hopes to square his directorship of Phorm with the BSG's pledge to provide a "neutral forum" to discuss such issues is unclear. The BSG's sponsors include Phorm partners BT and Carphone Warehouse, but also Google, the company whose online advertising stranglehold it aims to break. Google has so far declined to comment on Phorm's plans to intercept its users' web searches, but has its own political and regulatory friends were it ever to become a viable competitive threat.

We rang the BSG for comment on Meek's apparent conflict, and received this statement: "The Broadband Stakeholder Group confirms that its chair, Kip Meek is to join Phorm's board as a non-executive director. This appointment was discussed in advance with some of the BSG members potentially most affected by Phorm's business model and technology. Targeted advertising, while raising a number of relevant issues, is not central to the BSG work programme."

As a key player in discussions over fibre deployments, Meek's position at Phorm will in some eyes add credibility to one of its favourite public relations refrains: that incremental revenues from targeted advertising will help fund fibre networks. Their argument is punctured by the BSG's own economic estimates however, which say a national fibre network could cost up to £28.8bn. According to analysts who did their sums before Phorm became mired in controversy, BT - the firm that would very likely be central to any significant new fibre investment - stands to gain just £85m annually from monitoring its customers' web browsing. That's less than a third of one per cent of the BSG's top estimate.

In truth, any contribution to a new infrastructure that Phorm could make is currently a fairy tale. The inescapable fact for its new directors is that they have joined a firm whose own actions have tarnished its brand beyond the help of any polish that public relations consultants can apply. Legal scrutiny of its behaviour from the Crown Prosecution Service and European Commission continues. It is spending its cash fast and needs revenue faster. Its CEO disagreed so strongly with his fellow directors on how to proceed that they left.

While we will probably never know what exactly made four members of Phorm's board up and leave, we do know this: its future has never been less certain. ®

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