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Last Updated: Monday, 26 February 2007, 16:55 GMT
Ofcom to probe BSkyB stake in ITV
Ofcom headquarters
The investigation follows heavy lobbying by MPs.
Media regulator Ofcom has been ordered to investigate BSkyB's controversial purchase of a 17.9% stake in ITV.

The government has asked the watchdog to advise on whether November's share deal was against the public interest.

BSkyB's decision to buy into ITV was seen by some as an attempt to block a bid for the firm from its rival NTL.

The deal was criticised at the time by Sir Richard Branson, whose Virgin Mobile operations have since merged with NTL to create Virgin Media.

'Appropriate move'

Trade and Industry Secretary Alistair Darling's decision to order the investigation follows heavy lobbying by MPs.

"As a general rule, ministers have withdrawn from the regulatory consideration of mergers," he told MPs.

"However... in this case, it is appropriate for me to use the mechanism established by the Communications Act 2003 to ask Ofcom to conduct an initial investigation into the public interest issues that may be raised by this transaction."

Ofcom could potentially refer BSkyB to the Competition Commission.

In a statement on Monday, Sky said it would "continue to engage fully with the DTI, the OFT and Ofcom during the ongoing process".

'Arrogance'

The announcement came after BSkyB warned that its operating profits could be hit by up to 20m ($39.3m) if it failed to reach a key broadcasting deal with Virgin Media.

With three days to go before the deadline, we hope that Virgin Media will focus on getting a deal done rather than on their PR offensive
Jeremy Darroch, BSkyB chief financial officer

Talks between both sides broke down last week after Virgin Media accused BSkyB of "bullying" and "arrogance".

The firms had been negotiating the price Virgin Media should pay to continue showing BSkyB basic channels, including Sky One and Sky News.

The cable TV firm said last week it would drop the Sky Basics TV package, which also includes Sky Travel and Sky Sports News, after BSkyB raised the fees it charged the cable firm.

In a statement on Monday, BSkyB said it was "disappointed" that Virgin Media had walked away from negotiations.

The satellite broadcaster said it had heavily increased investment in its basic channels and was seeking a "fair price which reflects that".

'Weaker ad revenues'

Scene from US TV drama Lost
Lost is among the top programmes being screened on Sky One

BSkyB said its 15m-20m estimated reduction in operating profit for the year to 30 June reflected the possibility of lower carriage fees and weaker advertising revenues.

However, the firm said the figure did not include the potential benefit of Virgin Media customers switching to Sky.

Both companies have until the end of Wednesday to reach a deal before Virgin Media's current broadcasting arrangement with BSkyB runs out.

"With three days to go before the deadline, we hope that Virgin Media will focus on getting a deal done rather than on their PR offensive," said BSkyB chief financial officer Jeremy Darroch.

Sky One includes some popular series, such as 24, Lost and new episodes of The Simpsons.

But Virgin Media has said it is confident it can compete with Sky if it does not show Sky One.


SEE ALSO
Virgin slams BSkyB in TV dispute
23 Feb 07 |  Business
Q&A: Sky and Virgin Media TV row
23 Feb 07 |  Business
NTL renames itself Virgin Media
08 Feb 07 |  Business
Broadband costs dent BSkyB profit
31 Jan 07 |  Business
OFT starts formal BSkyB-ITV probe
12 Jan 07 |  Business

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