BT (News - Alert) Group has, at least for the moment, abandoned plans to deploy targeted advertising that tailors messages to individuals based on data gleaned by tracking broadband users' Web visits.

That capability raised privacy alarms, and illustrates the complicated issues that must be resolved before truly targeted advertising becomes a significant method for reaching consumers.

BT did not specifically cite privacy concerns as the reason for not proceeding with deployment of the capability later this year, as originally planned. Instead, BT said it wanted to focus time and resources on its next-generation broadband and television efforts.

The explanation is not without merit. BT might simply have weighed the immediate financial return from further investments in broadband access and video against the potential near-term returns from enhanced advertising and decided that additional revenue streams would be larger from effort spent on broadband and TV, rather than highly-targeted advertising.

U.S. cable TV operators, for example, had $86.3 billion in 2008 revenue. Local advertising earned by operators represented just $4.3 billion of that revenue. Total ad revenue in the industry is much larger, about $21.4 billion in 2008, but was earned by the programming networks, not cable operators, according to the National Cable & Telecommunications Association.

On the other hand, privacy concerns and backlash did not help. That isn't to say advertising in general, or targeted advertising in particular, will not contribute to service provider revenues in the future. But there are privacy and other deployment issues to resolve, and it likely is unrealistic to think the financial return will be as significant as end-user payments or even partner fees.