Broadband News

BT today revealed it is not going to roll out Phorm, prompting the interest based advertising company to counter the assumption that this spells the end of its involvement in the UK market.

Certainly City investors would appear to think its days are numbered in London. By lunch time today, following BT’s decision, Phorm shares had nearly halved in value during morning trading.

BT’s decision

In a statement issued today, BT reaffirmed its belief that “interest based advertising category offers major benefits for consumers and publishers alike”.

Nevertheless the company is deciding not to roll out Phorm and claims that this is not because of the public’s reaction to being tracked online (albeit anonymously on an opt-in basis).

Instead the statement continues. “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 resource commitments, we don't have immediate plans to deploy Webwise today.”

The statement ended with a promise it would monitor Phorm’s progress with other ISPs and so the door was not being completely closed.

However, given that BT was the only ISP in the UK that had moved beyond showing an interest in the technology to trialling it, it would be very hard to imagine that any other ISP would chose to take their interest further. Off the record observations from BT executives to national newspapers today reveal the board were very concerned about the privacy concerns wrapped up with testing and deploying Phorm. Hence, it is virtually inconceivable a rival UK ISP will risk losing customers that BT clearly felt it could ill afford to lose.

Response from Phorm

Phorm had responded to previous SamKnows enquiries about BT’s seeming reluctance to roll out the technology by claiming that the ISP needed time to go through test results from the end of 2008 to base its decision on. With today’s decision now made, the behavioural advertising platform is claiming that its days in the UK are not over. It confirmed recent reports in SamKnows that if it is to survive in the UK it will need to focus on its Webwise Discover software. This allows publishers to discover the interests of people on their sites so they can serve the most apt links to keep those viewers browsing for as long as possible.

“Phorm’s activities remain ongoing and we look forward to creating the conditions necessary for UK ISPs to move to deployment,” a statement reads.

“In parallel, we continue to focus considerable effort on faster moving overseas opportunities. In so doing we have already minimised our dependency on the deployment by any single ISP or in any particular market. In addition to making excellent progress in South Korea, we are engaged in more than 15 markets worldwide including advanced negotiations with several major ISPs.

“These discussions have been greatly accelerated by the launch of Webwise Discover and its clear benefit to consumers, which has been viewed as a key step forward by all of our partners, including those in the UK. We remain very confident in our ability to deliver on the promise of this substantial opportunity.”

Glimmer of hope from publishers?

Hence the future now seems clear. Phorm will try to roll out its technology in the UK via publishers, rather than at ISP level and hope this softens attitudes to its platform sufficiently for an ISP to one day roll it out.

However, the hint about overseas activities seems to spell out a future of Phorm concentrating on emerging markets abroad, rather than the UK. Having all but given up on the American market recently, it would appear it will continue to put a brave face on today’s BT announcement and try to gain some traction with UK publishers whilst it focuses efforts abroad where the privacy debate is not so fierce.

How long can it last?

Huge question marks have been raised against Phorm’s finances. The AIM-listed company raised £32m last year before again raising a further £15m last month (with investment prospectuses which painted a very rosy picture of a BT roll out happening in the second half of this year, followed by the other major names rolling out the technology across 2010 and 2011). At the time Phorm claimed the new funds were not needed because of a high ‘burn rate’ but were to help prepare for a busy time in its growth. However, investors will now be scratching their heads at where the return is going to come from, particularly as its main interest, from BT, has led to a ‘no’ today, leaving it with just a Korean ISP running trials.

Last month the company unveiled figures which showed it was ‘burning’ $1.8m per month, giving it, according to FT calculations, about 10 months until it runs out of cash. The company is spending millions on research and development, legal bills and a very well respected, and expensive, board.