News Corp hurdle for BT deal

British Telecom will have to sell the stake owned by MCI in Rupert Murdoch's News Corporation if it is to receive regulatory approval for its merger with the US phone company, according to a Commons report published last week.

The Trade and Industry Select Committee paper on telecommunications slipped out almost unnoticed in the flurry of activity before Parliament was prorogued on Friday. It recommends that Oftel, the industry watchdog, should force MCI to sell its 9 per cent stake in News Corporation acquired two years ago as part of a $2bn (pounds 1.25bn) investment in the company.

The MPs on the committee, which has a Tory majority but a Labour chairman, said that BT might use the stake to bypass the laws that currently prohibit it from being a broadcaster.

At the time of the merger announcement, BT indicated that it would not allow potential conflicts from its direct stake in News Corporation to get in the way of a deal.

Under the terms of the original $2bn investment, MCI agreed to put its satellite broadcasting licence, valued at $600m, into the ASkyB US satellite joint venture with Mr Murdoch. That deal might unravel if the stake is sold.

MCI also has the right of first refusal to buy the Murdoch family holding should they choose, or be forced, to sell out.

In recent weeks, however, BT executives have become more confident that the company can complete the MCI tie-up without having to sell out of News Corporation.

Last month Dr Alan Rudge, BT vice chairman, told Australian television that "we won't sell unless there are some constraints put on us that make it necessary."

BT is currently prevented by law from delivering moving pictures into the home. However, that restriction could be lifted by an incoming Labour government.

The company already has extensive ties with Mr Murdoch. BT is a partner in BSkyB's digital set-top box project, and recently launched a joint- venture internet service called Line One, which hopes to attract some of the millions of PC users without an internet connection.

This weekend Oftel said it would "consider" the report from the select committee, but added that no action would be taken until after the general election on 1 May.

An Oftel spokeswoman added that any regulatory approval for the merger would have to come from both Oftel and the European Commission, which may require other concessions.