The Crown Prosecution Service is collecting evidence to establish whether BT illegally tested the Phorm online advertising system without users' consent.
The inquiry focuses on Phorm's Webwise system, which monitors a person's web browsing and search terms in order to serve up related advertisements.
An internal BT document leaked in June showed BT conducted a two-week test involving 18,000 subscribers in September and October 2006 but did not inform those users.
Privacy activists have suggested the trials violated wiretapping laws and posed data security and privacy concerns. BT maintains no laws were broken.
A Crown Prosecution Service (CPS) spokesman said the agency will make a determination whether there are grounds for prosecution at a later date. A BT spokesman declined to comment on the matter.
BT's secret trials could have potentially violated the Data Protection Act, which mandates that personal data can't be processed without consent. The trials could have also conflicted with the Regulation of Investigatory Powers Act of 2000, which makes it illegal to monitor communication between two entities without proper consent.
Digital rights activists have pushed for law enforcers to examine BT's trials. Alexander Hanff submitted extensive documentation on Webwise to the City of London police, but the agency concluded no laws were broken.
Hanff encouraged people on Thursday to write letters to CPS in support of prosecuting BT for illegal interception.
Other government agencies have also examined Webwise. In January, the Home Office declared that targeted ad systems with user consent don't violate the law. The Information Commissioner's Office, which handles data privacy regulations, had said it will continue to monitor deployments of the system.
The ruckus over privacy issues led BT to emphasise that users will be asked whether they want to participate. Webwise uses a cookie - a piece of data stored in the browser - in order to track a user's internet activity.
The cookie contains an anonymous user ID, which is then associated with certain categories, such as 'cameras' or 'computers', which then determine what ads a person may see on web pages that use Phorm to serve ads.
BT started another trial of the system in September and is attempting to get 10,000 users to enroll in it. The company plans to roll out Webwise to its entire broadband customer base, but no schedule has been set.
Two other ISPs, Virgin Media and Carphone Warehouse, are also planning to trial Webwise.