The provisional finding by the Competition Commission means that BSkyB, which is 39 percent owned by Rupert Murdoch's News Corp., could be forced to sell part or all of its stake in ITV.
"BSkyB's shareholding in ITV would be likely to lead to a substantial lessening of competition by giving it the ability to influence ITV's strategy," the commission said in a statement.
However it added that it did not believe the stake raised competition concerns in regard to advertising or TV news, in contrast to concerns from media regulator Ofcom that the deal raised public issues about the plurality of TV news provision.
The commission said it will now "consult on possible remedies to address the adverse public interest finding, including possible divestment of the shareholding."
BSkyB bought the ITV stake in November 2006 for US$1.8 billion in a move that most analysts viewed as an attempt to prevent its pay-TV rival NTL Inc. 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.
Virgin Media said Tuesday that the provisional findings "are a major step towards addressing the problems caused by Sky's stake in ITV."
"Strong remedies are required to finally resolve the matter. Sky should not be permitted to remain in a position where there is any question whatsoever about its ability to influence ITV," it said in a statement.
BSkyB issued a brief statement saying it noted the announcement and would "continue to engage with the Commission during the remainder of this process." ITV, Britain's largest commercial television broadcaster, welcomed the findings and said it planned to review the possible remedies in detail.
Those remedies could include the sale of the entire stake, the sale of part of the stake or the sale of part of the stake with behavioral changes, the commission said.
The watchdog said it was concerned that BSkyB's stake could allow it to block special resolutions proposed by ITV's management, noting a new strategic plan announced recently by ITV Chairman Michael Grade to expand its Internet and TV productions to bring in more viewers.
"BSkyB's ability to block a special resolution could effectively rule out some of ITV's strategic options by limiting ITV's ability to raise funds," it said.
The Competition Commission investigation is one of a series of regulatory investigations into BSkyB.
It is conducting a broad sweep of the domestic pay-TV market following complaints from companies, including Virgin Media, that BSkyB abuses its dominant market position via pricing and other means.
Ofcom is also considering whether to allow BSkyB to launch pay television services on terrestrial television.
The Competition Commission will make its final decision by Jan. 2, 2008.
BSkyB shares rose 0.5 percent to 687.5 pence (US$14.03; EUR9.86) on the London Stock Exchange.
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