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Last Updated: Tuesday, 2 October 2007, 08:43 GMT 09:43 UK
BSkyB criticised over ITV stake
Sky remote control
BSkyB's purchase of a stake in ITV was controversial from the start
BSkyB's purchase of a 17.9% stake in ITV restricts competition, a provisional ruling by the regulator probing the deal has concluded.

The Competition Commission said the share, bought for 940m in 2006, would allow BSkyB to influence ITV strategy.

But it said it did not believe the stake brought competition concerns in areas such as advertising or TV news.

The commission will now consult on what could be done, including possibly forcing the sale of the stake.

Influential position

The purchase made by satellite network BSkyB's "operates against the public interest" the watchdog said.

BSkyB would therefore have both the ability and incentive to take advantage of opportunities to weaken ITV
Competition Commission

"The acquisition has made BSkyB ITV's largest shareholder by some margin," it added.

"Whilst our provisional view is that this would not necessarily affect day-to-day operations, BSkyB would be able to influence ITV's key strategic decisions, particularly relating to investment, whether in content, capacity or new technology.

"As a pay-TV operator, BSkyB faces competition from the free-to-air TV offer, of which ITV is an important part.

"BSkyB would therefore have both the ability and incentive to take advantage of opportunities to weaken ITV or prevent it from taking actions that would threaten BSkyB's interests," the Competition Commission said in its findings.

A final decision on what action should be taken will be made by the secretary of state for business, John Hutton.

Besides forcing BSkyB to sell its stake, analysts say other possible solutions include allowing it to keep the holding but be barred from having any voting rights.

'Major step'

A BSkyB spokesman said they noted the findings and possible remedies and that the firm would "continue to engage with the Commission during the remainder of this process".

BBC business editor Robert Peston
It's quite big stuff from the Commission and it's a slap to BSkyB
Robert Peston,
BBC business editor

When BSkyB bought the stake in November 2006, rival Virgin Media - which runs a cable network - was planning to merge with ITV.

A Virgin Media spokesperson said the Competition Commission's findings were "a major step towards addressing the problems caused by Sky's stake in ITV".

Virgin Media called for "strong remedies" that would ensure BSkyB would "not be permitted to remain in a position where there is any question whatsoever about its ability to influence ITV".

Critics argued that BSkyB's move was aimed at preventing such an outcome, but BSkyB said it was investing in an undervalued company with significant growth potential.

Sky should not be permitted to remain in a position where there is any question whatsoever about its ability to influence ITV
Virgin Media

Ministers referred BSkyB's stake to the Competition Commission in May, after the Office of Fair Trading said the situation cast doubt on ITV's independence.

Speaking to the BBC, Competition Commission chairman Peter Freeman said its concern was about "the effect of this shareholding on the market going forward".

In reaction to the ruling, Virgin Media said the findings were "a major step towards addressing the problems caused by Sky's stake in ITV".

"Sky should not be permitted to remain in a position where there is any question whatsoever about its ability to influence ITV," Virgin Media added.



SEE ALSO
News focus over BSkyB-ITV probe
09 Jul 07 |  Business
Watchdog to probe BSkyB ITV stake
24 May 07 |  Business
BSkyB's ITV move 'needs probing'
27 Apr 07 |  Business
Ofcom to probe BSkyB stake in ITV
26 Feb 07 |  Business

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