Phorm, which has been widely criticised for its online behavioural monitoring in the past, came under fire in 2006 when it was discovered that the company was secretly tracking BT customer's browsing history.
The incident is currently being investigated by the European commission. Despite this Phorm has been openly trialling its Webwise targeted ad platform with BT since last year.
Before the results of the consumer trial could be released, BT dropped Phorm from its future business model and said it will instead invest £1.5bn to expand its broadband network across the country.
A BT spokesman 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 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 with other ISPs and with Webwise Discover before finalising our plans."
Phorm's shares plummeted on the AIM by as much as 30% on the announcement. Its shares dropped to 320p from 475p.
-- despite slashing its costs. It still has potential UK clients in Virgin Media and Carphone Warehouse.
, recently acquired 1.45m UK broadband customers from Italian firm Tiscali and is the country's second largest internet provider at 4.25m customers.
TalkTalk said it is also monitoring the success of Phorm's Webwise trial, but gave no concrete plans for a future roll out.
Virgin Media, the UK's third largest broadband provider, has also said that it has no immediate plans to incorporate Phorm into its business model.
A spokesman for Phorm revealed that the company is still in talks with many overseas internet service providers, including South Korea's largest, KT, and the loss of BT as a potential client has not diminished the company's future plans.