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Click here to read Barry Collins' thoughts on BT's Phorm excuse here

BT tested Phorm's targeted advertising technology with 18,000 of its customers in a secret trial conducted in 2006. Leaked BT documents published last week revealed how "only 15-20 trialists identified the presence of the system and had a negative reaction."

Privacy advocates have claimed the trials breached the Regulation of Investigatory Powers Act 2000, but the ICO says it will be taking no further action.

"In October 2006 and June 2007 BT carried out what they describe as two small scale technical tests," the ICO claims in a statement. "We understand that

Incredibly, the ICO claims that BT kept it in the dark because it feared the trials were overly-complex. "BT did not discuss these trials with the ICO as they were technical in nature. BT publicly asserts that 'no personally identifiable information was processed, stored or disclosed'. It states that a small number of customers were randomly selected and that because the whole process was anonymous, it has no way of knowing which customers were involved in the tests."

The ICO insists that future trials will have to be run on an opt-in basis. "BT plans to initiate a further trial in the near future involving some 10,000 broadband users," the ICO statement continues. "This will involve the full deployment of Phorm's technology. We are assured that they will be completely open with customers and that only those who indicate that they are happy to receive ads based on analysis of the websites they visit will be included."

Speaking to PC Pro this morning, Phorm spokesman Alex Laity said the company was always confident the service was lawful. "We are confident that we are fully compliant with all relevant laws," he said. "We did go to the ICO before launch, we did go to the Home Office before launch, we did do due diligence to make sure what we did is fully compliant with the law."