Shares in Phorm, the software developer, today fell 30 per cent after BT shelved plans to use a controversial technology which would enable it to "spy" on millions of broadband customers.

The telecoms giant, which has faced fierce criticism from privacy groups, said it had no "immediate plans" to use a technology which tracks internet users as they browse, enabling closely targeted advertisements to be sent to their screens.

The announcement sent shares in Phorm, which developed the technology, tumbling by more than a third to 310p.

Other groups including Virgin Media, which had also signed an agreement with Phorm, have also gone cold on the company.

The sudden withdrawal of big name clients could trigger doubts about the future of the group, whose non-executive directors include Lord Lamont, the former Chancellor.

Phorm, which listed on Aim in 2004, launched the Open Internet Exchange (OIX), which analyses page visits to build up a user’s profile. It then advertises products and services tailored to that profile.

The service gives internet service providers like BT a potentially valuable new revenue stream from their customers, enabling them to charge up to 100 times as much as for traditional advertising.

BT admitted last year that it had carried out secret trials of the technology on 36,000 of its broadband customers without their knowledge, monitoring every internet page they visited.

The Information Commissioner launched a probe into the affair and privacy campaigners reacted with horror.

The scandal emerged only when some customers became suspicious they were being spied on. Initially they were told, incorrectly, that a software virus was to blame.

BT claimed its decision to shelve any deal with Phorm, for its so-called Webwise service, had been dictated by financial demands.

A spokesman for BT said: "We continue to believe the interest based advertising category offers major benefits for consumers and publishers alike. However, 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 commitment we don't have immediate plans to deploy Webwise today"

In a statement, Phorm said: "As regards our UK deployment Phorm's activities remain ongoing and we look forward to creating the conditions necessary for UK ISPs to move to deployment.

"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.... We are engaged in more than 15 markets worldwide."

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