This kind of targeting, which is still in the testing phase, is enabled by a telephone company or Internet service provider, using a technology called "deep packet inspection" (DPI) that takes advantage of the fact that at some point, nearly all network traffic today—even voice traffic—is turned into data or "packets."
In DPI, the packet refers to the digital envelopes that carry the individual bits and bytes. Deep inspection refers to the ability of network operators to open those envelopes and see the contents in real time.
In advertising applications, the contents of those data envelopes are scanned, then typically compared against a list of categories to deliver a targeted message. In this sense, network-based targeting works like Web-based advertising. There's one big difference, however: Users can't easily opt out of this kind of tracking in their browser as they can with Web-based approaches. Also, the network can discriminate between different data types (images, video, text), which could be useful in additional targeting.
In addition to targeted advertising, DPI can be used in other operations, including—just as controversially—enabling telephone carriers to limit the amount of peer-to-peer or file downloading traffic they allow over their networks.
But DPI also has some less controversial uses, such as helping telephone companies improve the performance of their VoIP (voice over Internet protocol) calls, keeping viruses off networks and offering higher-grade network performance for those willing to pay a little more for it.
When it comes to the privacy debate, telephone companies point out that any ad targeting—whether based on DPI or cookie analysis—can be intrusive if done improperly, without notification or a request for an opt-in.
"Ad networks and other non-ISPs employ these methodologies at the individual browser or computer level," said Dorothy Attwood, AT&T's chief privacy officer, "and they are as effective as any technique that an ISP might employ at creating specific customer profiles and enabling highly targeted advertising."