Charter Communications this morning backed off plans to deploy an advertising system that had stirred privacy fears about the way user data was intercepted and anger over an inability to truly opt out of the program. The cable provider said back in May that it was working with NebuAd, a startup in Redwood City, Calif., to use deep-packet inspection technology to target advertisements based on users’ web surfing habits.

Now it’s backpedaling, with spokeswoman Anita Lamont saying the cable company had never set a firm date to trial the service. More importantly, according to Lamont, Charter has taken a step back from deploying the technology in order to address user concerns about privacy. Whether this is a big blow for NebuAd remains to be seen. Charter hasn’t definitively bailed on NebuAd just yet, and the startup also counts WOW, EmbarQ, CenturyTel and Broadstripe among its clientèle. For more on NebuAd, see our interview with CEO Bob Dykes.

Charter is still interested in offering its users some type of “enhanced service” involving advertising, according to Lamont, which means that while NebuAd may be shown the door, ISPs are still seeking ways to take advantage of their user base to goose revenue. NebuAd released a statement that said, “Charter stated that they are still committed to providing an online advertising to its subscribers that enhances their Internet experience. NebuAd is working closely with all of its ISP partners to customize services and develop feature enhancements to meet their specific business needs — and ultimately deliver the best Internet experience possible to consumers.”

So, while congressional intervention and public outcry may have stopped Charter’s efforts with NebuAd so far, it or other ISPs will continue to eye those bits passing through their pipes as an marketing goldmine.