The Guardian claimed that BT was a key player in the development of Phorm's Webwise system, which uses information about which sites an internet user visits to target them with relevant advertising on subsequent pages.
A report claimed that its decision was down to its need to conserve resources, as it looks to invest £1.5bn in putting a next-generation super-fast broadband network within reach of ten million homes by 2012.
However, it said that privately, BT bosses have been increasingly concerned about consumer resistance to advertising based on monitoring users' online behaviour and specifically about the backlash against Phorm.
A spokesperson 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 commitments, we don't have immediate plans to deploy Webwise today. However, the interest-based advertising market is extremely dynamic and we intend to monitor Phorm's progress …before finalising our plans.”
A spokesman for Phorm said: “It is not a great surprise to us, to be honest. It has been a long process and we have never had a definitive date on a launch. Phorm is not just dependent on a UK model with one ISP.”
Virgin Media is believed to be interested in the concept but has cooled on the idea of using the Webwise technology, while TalkTalk has said that it is keeping an eye on Webwise but any implementation would have to be done solely on an opt-in basis.