The British government has asked the media regulator to consider whether undertakings provided by News Corp to secure a buy out of BSkyB are still credible in light of a phone hacking scandal.
News Corp had promised to spin off the influential Sky News channel as an independent company to guarantee its editorial freedom, although the U.S. firm would have retained its 39 percent stake in the news provider.
The news, coupled with a report in the Independent newspaper that government lawyers were drawing up plans to block Rupert Murdoch's bid for the rest of BSkyB he does not already own, sent shares in the British satellite company down 6.5 percent.
The Department of Culture, Media and Sport will write to Ofcom on Monday morning to ask whether Ofcom's original submissions around the deal should change following the phone hacking scandal that has damaged Rupert Murdoch's company.
The letter is expected to ask Ofcom if the undertakings given by News Corp over Sky News are still acceptable in light of the hacking scandal, which resulted in Murdoch closing the tabloid at the center of the problem.
It will also ask if that closure affects media plurality, or the number of media voices, in Britain, and to inform the government of any opinion it takes on whether News Corp is a 'fit and proper' holder of a broadcast license.
Citi analyst Thomas Singlehurst said a potential BSkyB/News Corp merger no longer looked as certain as thought a week ago.
At the same time, the actions taken to date by News Corp suggest that its ambition to own 100 percent of BSkyB is undimmed, he said. Barring the most dramatic of outcomes from the criminal investigations, we still see it as a matter of 'when' not 'if'.
Chief Secretary to the Treasury Danny Alexander said the Department of Culture, Media and Sport was writing to Ofcom because it needed the most up to date information as it made its final decision on News Corp's planned $14 billion buyout of the 61 percent of BSkyB it does not already own.
Given the vast weight of responses that has come into the consultation the culture secretary is going to have to take a considerable amount of time to consider all those things, he told Sky News.
It is right in the light of that and all the developing issues (that) Ofcom have the opportunity to come forward with fresh advice.
Given that the legal responsibility for many of these things rests with Ofcom as the regulator, it is important that in making any decision that the culture secretary has the full and most up to date range of information before him in carrying out that function.
(Created by Kate Holton; Editing by Jon Boyle)