Britain's competition and media watchdogs recommended Friday that a full inquiry be held into British Sky Broadcasting's controversial purchase of a significant stake in commercial broadcaster ITV.
The British government had called for the preliminary reports into whether the deal is against the public interest, effectively beginning a test of the influence held over the British media by Rupert Murdoch, BSkyB's chairman and largest stockholder.
The Office for Fair Trading said that the purchase of the 17.9% stake several months ago could "result in a substantial lessening of competition" and that remedies to resolve its concerns about competition "were not offered."
Ofcom, the regulator for the communications industry, said that there are "public interest issues in relation to sufficient plurality of news provision for both cross media and television news in the U.K."
Trade and Industry Secretary Alistair Darling will now consider each of the reports before deciding whether to instruct the Competition Commission to begin a full inquiry. Darling has until May 26 to announce his decision.
BSkyB, which is 39% owned by News Corp., bought the ITV stake in November 2006 for $1.8 billion in a move that most analysts viewed as an attempt to prevent its pay-TV rival NTL from acquiring ITV.
NTL, which is now called Virgin Media after a merger with Richard Branson's Virgin Mobile, had announced shortly before BSkyB's move that it was in initial talks with ITV about an offer.
NTL and Branson, who are also embroiled in a separate dispute with BSkyB over content fees, complained bitterly about the maneuver. However, the OFT and Ofcom reports focused solely on competition issues rather than whether the purchase was intended to block NTL.
By buying less than a 20% stake, BSkyB was not legally obliged to publish a formal takeover bid and it has denied any such ambitions.
The company said Friday that it continued to cooperate with the regulatory inquiries. It said it had helped "unprecedented expansion in choice and diversity" on British TV, pointing to the more than 400 channels now on offer.
However, OFT Chief Executive John Fingleton said there were significant competition concerns.
"Sky's shareholding means that ITV is no longer fully independent, and this may alter the future competitive landscape, especially as we approach digital switchover," said Fingleton. "Given the high stakes for tens of millions of U.K. consumers, we believe these risks to competition merit further examination."
Britain is switching over to digital TV transmission over the next few years and aims to complete the process in 2012.