Scandal could influence Ofcom over News Corp's BSkyB bid
- 8 July 2011
- From the section Business
I have learned that Ofcom is deeply concerned by recent revelations about the years of mismanagement at the News of the World and is monitoring developments at News Corporation extremely closely.
It is expected to make a statement later today.
I understand that Ofcom regards evidence that the News of the World's newsroom was out of control for many years as relevant to a judgement on whether News Corporation would be a fit-and-proper owner of British Sky Broadcasting.
Ofcom has a statutory and continuous duty to ensure that any holder of a broadcasting licence is fit and proper. It can launch an investigation into this question at any time of its choosing.
When it comes to the question of whether News Corporation is an appropriate owner of its 39% of BSkyB and of the 100% it wants to own, Ofcom will want to know how it was that the News of the World was able to engage in unacceptable journalistic practices for many years, who in theory had management responsibility for what went on there, and who knew what and when about all of this.
I would expect Ofcom to liaise with the police on securing information that would allow it to make this judgement.
That said, I do not expect Ofcom to launch an enquiry into this "fit-and-proper" question immediately. It will want to allow the police to continue their investigation for a while longer, before making its own assessment.
That said, its statement later today will leave little doubt that such an enquiry is likely to be launched in coming months.
Ofcom's probable intervention will therefore erect a very big obstacle in the way of News Corp's planned bid of almost £10bn for the 61% of BSkyB it doesn't already own - because the board of BSkyB will be not able to judge whether News Corp would be allowed by Ofcom to complete the takeover.
Ofcom and Jeremy Hunt are also likely to erect a second obstacle in the way of the takeover.
Mr Hunt is to ask Ofcom and the Office of Fair Trading for their advice yet again on the separate issue of whether the takeover would restrict plurality or choice in the media to a damaging extent.
He will do this after he has sifted through the 156,000 electronic submissions received by Culture Department in its week-long submission on the deal that closed at 1200 today and has examined a paper petition from the campaign group 38 Degrees with 100,000 signatures.
Examining the submission will take many weeks. And there will be a further delay while he waits for new advice from Ofcom and the OFT.
So it now looks unlikely Mr Hunt can make a judgement on any of this till the autumn.
What will disturb News Corporation is that Ofcom and the OFT will reconsider whether the undertakings given by News Corporation to protect the editorial independence of Sky News are adequate, in the light of disclosures about the extent to which the News of the World was a law unto itself within the organisation.
Undertakings from the board of News Corp are only valuable if the regulators can be confident that the board of News Corp has sufficient control over the organisation for the undertakings to be followed.
Update 1526 BST: Ofcom's statement takes the form of a letter to the chairman of the House of Commons Culture, Media and Sport Committee, John Whittingdale.
In the letter, Ed Richards, the chief executive of Ofcom, says it is "monitoring the situation closely and in particular the investigations by the relevant authorities into alleged unlawful activities in regard to any evidence or findings of any relevant conduct".
Mr Richards says Ofcom is "writing to the relevant authorities [such as the police] to highlight our duties in relation to 'fit and proper' and indicating that we would like to be kept abreast of the timescales of their investigations and of any further information which may assist us in the discharge of our own duties".
What may perhaps be of greatest concern to News Corp - in the light of its 39% holding in BSkyB and desire to own 100% - is Mr Richard's statement that "in considering whether any licensee remains a 'fit and proper' person to hold broadcasting licences Ofcom will consider any relevant conduct of those who manage and control such a licence".
Or to put it another way, Mr Richards is saying that the years in which the News of the World's newsroom was out of control, and the subsequent years during which News Corp failed to learn the truth of what happened in that newsroom, are relevant to Ofcom's judgement about whether News Corp is fit and proper to hold a broadcasting licence (or to own a controlling interest in British Sky Broadcasting).
Update 1607 BST: BSkyB shares have now fallen more than 8%. The market agrees that Ofcom has put a pretty big obstacle in the way of News Corp's takeover of BSkyB.