Controversial adversnooping company Phorm used to be named 121Media and has a history with rootkits and spyware. So it wasn't surprising when privacy advocates began opposing the the company's efforts to push behavioral advertising systems in the UK dressed up as anti-phishing solutions. Criticism heated up further when the company conducted several rounds of secret trials of the technology with British incumbent British Telecom -- without informing consumers their browsing was being closely tracked.

For a while, both Phorm and British Telecom figured they could handle the PR crisis. Phorm, for its part, did so by freaking out and accusing all critics of being part of a grand conspiracy. British Telecom's solution for the criticism was to simply ban users from talking about the system in the British Telecom forums.

As you might imagine, neither of these efforts worked, and British Telecom has now scrapped the project completely. That could be a real problem for Phorm, whose balance sheets (pdf) indicate the company made no actual revenue in 2008 outside of interest.

British Telecom was supposed to be Phorm's primary cash cow client, with the deal helping Phorm expand into other markets. While the companies involved have yet to admit as much, Phorm was rumored to be in talks with both AT&T and Qwest for expansion here in the States. However, that's clearly on hold. Phorm, for its part, claims they're still in talks with fifteen different carriers nationally.

British Telecom tells The Guardian that they scrapped the project because they wanted to conserve cash for their next-generation upgrades. Given those next-generation upgrades are largely fiber to the press release that won't be that expensive, it's pretty clear that British Telecom simply didn't like being under fire.