Pressure mounts on regulator in Murdoch-BSkyB deal

The Sky News logo is seen on television screens in an electrical store in Edinburgh, March 3, 2011.

LONDON (Reuters) - Britain's broadcasting watchdog will come under intense pressure in assessing whether directors of Rupert Murdoch's business empire, including son James, are fit to run UK satellite broadcaster BSkyB -- a decision that could have implications for Murdoch's global operations.

Ofcom, which regulates broadcasting in Britain, has said it could consider whether directors at Murdoch's News Corp are "fit and proper" persons to run the pay-TV operator, which News Corp wants to take over, in the wake of a scandal at one of the group's UK newspapers.

Previously, those looking at whether Murdoch should get the go-ahead for the multi-billion dollar deal have been focused on whether it would give him too much power over Britain's media.

The government is running that part of the process and has already agreed to the deal in principle after undertakings from News Corp that would guarantee independence for its influential Sky News channel.

However, the government is still wading through submissions on Murdoch's plan to buy out the 61 percent of BSkyB his News Corp does not already own, and may not make a final decision for months.

But allegations senior editors at News of the World, part of News International -- the UK newspaper arm of News Corp -- were involved in illegally accessing thousands of voicemail messages, and paying police for information, to get scoops, has raised questions about whether Murdoch's group is the right owner for BSkyB.

Ofcom faces immense challenges in doing so given that the law that sets out this requirement does not explain what is meant by "fit and proper," and there is no guidance on the term.

It also has insisted it will take no action while a police investigation into illegal practices at News of the World continues. That could take years.

In addition, the rule applies to company directors not the company itself so even if Ofcom were to deem that some directors were not the kind of people who ought to be running BSkyB, the News Corp could simply replace the directors in question.

"If you found that people running Sky, if you found that James Murdoch was guilty of what has been alleged of others, then that would be a very important consideration given that he is chairman of BSkyB," said Simon Holmes, competition partner at SJ Berwin.

"But we're a long way off that, and even in his case, steps could be taken to distance him from the broadcaster."

DELAYS

James Murdoch, son of Rupert, is chairman and chief executive of News Corporation, Europe and Asia, whose assets include News International. He sits on the News Corp board.

It would be hugely damaging to Murdoch if his son, whom he has placed in charge of key News Corp operations, were in any way tainted by an affair in which senior editors are accused of sanctioning phone-hacking and illegal police payments.

"This is the most serious political crisis in a generation (for the Murdochs) but as a business crisis it is immense and immensely more significant for the Murdochs than the political crisis is," said Claire Enders of Enders Analysis.

"They risk the continued diminution of the asset values of their businesses."

Ofcom, which has clashed frequently with Sky in the past and which is facing job cuts under government plans to trim the public sector, was established in 2003.

Its duty is to protect the interests of citizens and consumers by promoting competition, and protecting consumers from what might be harmful or offensive material, but its remit only covers broadcasting and mobile technology, not the media as a whole.

(Writing by Jodie Ginsberg)