"While this is a much better result than any of the previous proposals that the government came up with, it's still really unlikely to do much good," Guy told ABC.
The Internet Industry Association of Australia chief executive Peter Lee said he was "pleased that the government has now moved on" from the filter and had narrowed its focus to illegal child abuse.
The Australian Electoral Lobby said the government's agreement with ISPs fell short of its cyber safety pledge made during the 2007 election campaign.
"The government's decision not to legislate to the full extent of the commitment is a great disappointment," the Lobby's Managing Director Jim Wallace said.
But the opposition said the government realized it had no hope of getting the filter legislation through Parliament. The Greens party, a key government ally, joined the opposition in condemning the mandatory filter proposal as a serious restriction of free speech.