BSkyB told to drop out of bid for digital licence

The Independent Television Commission's decision on the future of digital terrestrial television hung in the balance yesterday as BSkyB was told to drop its equity stake in British Digital Broadcasting, one of the bidders for the licences.

The ITC is thought to have informed BSkyB of the news after a "lengthy submission" from the European Commission suggested that it was anti-competitive. BSkyB, which is 40 per cent owned by Rupert Murdoch's News Corporation, shares control of BDB with Carlton Communications and Granada Group. None of the companies would comment yesterday.

It is thought that the satellite operator is attempting to negotiate control of BDB's programming and subscriber management if it is forced to drop its stake.

However, one source said Granada had threatened to withdraw from BDB completely if BSkyB were not a shareholder. If Granada carried out its threat, BDB's bid would in effect be in tatters. The source said the most likely compromise would be for BSkyB to take a reduced stake in the enterprise.

Although some City analysts suggested Carlton would take a 51 per cent stake in BDB, with Granada being responsible for the rest, others said another party would emerge to take on BSkyB's equity commitment. Cable & Wireless Communications was considered the favourite if Granada and Carlton decided not to split BSkyB's pounds 100m burden two ways.

The ITC refused to confirm the reports, despite pressure from the markets as BSkyB's shares plunged 45p to 521.5p yesterday. A spokesman said merely: "We are still talking to both applicants. No decision has yet been taken." Neither BSkyB nor Digital Television Network, the rival bidder for the digital television licences which is backed by the cable company NTL, would comment last night.

A number of commentators expressed the opinion that the ITC had now almost certainly opened itself to judicial review. The ITC has said in the past that applicants would only be justified in seeking legal redress if there had been "an unfair enhancement of the bid".

Industry observers emphasised that judicial action would be unlikely to work against the ITC, with one commenting: "The ITC has an awful lot of power. It can change its own rules but the bidders can't change the rules themselves."

Although the news battered BSkyB's share price, the stock was said to be suffering in part from Tuesday's announcement that the company's top two executives, Sam Chisholm and David Chance, were to step down at the end of the year.

Alastair Smellie, media analyst at ABN Amro Hoare Govett, said that if BSkyB were to withdraw its equity stake, it would not only be good news for the company itself but for the BDB offering. "BSkyB will still be providing programming to BDB. They just won't be putting up funding," he said. "And if DTN win they'll be able to provide programming for them." However, he warned that the move would not benefit Carlton and Granada commercially, although it would boost their share prices.