10,000 BT customers will soon be invited to take part in a trial of Phorm, a new type of advertising software that tracks users' online surfing habits.

A BT spokesman said Phorm offers consumers two benefits: "Customers will receive more relevant advertising and will get warnings if any of the websites they visits are known to be phishing sites."

BT claims that its own research proves that customers do want more relevant advertising and are happy to have their surfing habits tracked online to enable this.

"We have gone to considerable lengths to ensure our customers privacy is guaranteed," the BT spokeman said.

Virgin and TalkTalk have also signed up to trial the technology. The ISPs and companies who sign up to the scheme take a cut of advertising revenue.

Phorm places a cookie that contains a randomised identifying number on a user's machine. That cookie then tracks websites visited, drawing conclusions about a user's behaviour in order to target more relevant adverts.

Phorm 'collects' search terms used, as well as keywords on web pages, which has concerned some web users.

The company says its tools anonymise the data it collects. Phorm says no profile of the user is ever created, so that no one could "reverse engineer" the information in order to establish identity.

Users can opt out via their ISPs at any stage.

Privacy International (PI) praised the system, saying: "We were impressed with the effort that had been put into minimising the collection of personal information."

PI's director Simon Davies admitted to BBC News that: "The problem is that may not be good enough for consumers. Behavioural advertising is a rather spooky concept for many people."

He added that ISPs should ensure customers had enough information about the scheme in order to have "informed consent" and know about the opt-out option.

Unless ISPs were extremely clear they could run foul of the Regulation of Investigatory Powers Act (RIPA), he warned: "RIPA is pretty clear that the provision for notification for consent, and informed consent, have to be extremely clear".

Davies said Privacy International remained opposed to services which required users to opt out: "If firms say this 'enhances the user experience', if that is true and users want it, then make it opt in."

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