* UK lawmaker calls for piracy claims probes
* Australian newspaper, BBC allege piracy sabotaged TV
* News Corp's NDS unit denies Panorama claims
* News Corp denies Australia media claims
* NDS points to successful defence of lawsuits
By Georgina Prodhan and Sonali Paul
LONDON/MELBOURNE, March 28 Pressure is building
in Britain and Australia for fresh probes into Rupert Murdoch's
News Corp, already under siege over phone-hacking
claims, after allegations that it ran a secret unit that
promoted pirating of pay-TV rivals.
The Australian Financial Review on Wednesday alleged that
News Corp had used a special unit, Operational Security, set up
in the mid-1990s, to sabotage its competitors, reinforcing
claims in a BBC Panorama documentary aired earlier this week.
"These are serious allegations, and any allegations of
criminal activity should be referred to the AFP (Australian
Federal police) for investigation," a spokeswoman for Australian
Communications Minister Stephen Conroy told Reuters.
Operational Security was a unit of News Corp's
secure-encryption subsidiary NDS, which has denied any
wrongdoing in relation to the Panorama claims.
News Corp, which this month sold NDS to Cisco Systems
for $5 billion, said it accepted those assurances.
Its Australian arm, News Limited, denied the claims in the
Australian Financial Review.
"The story is full of factual inaccuracies, flawed
references, fanciful conclusions and baseless accusations which
have been disproved in overseas courts," News Limited said.
NDS has faced several lawsuits over alleged piracy: one was
dropped and the firm was largely cleared in the others, which
News Limited highlighted in its statement.
NDS's Operational Security unit, staffed by former police
and intelligence officers, used hackers to crack the codes of
smartcards issued to customers of rival pay-TV services. The
hackers then sold black-market smartcards using those codes to
give viewers free access to those services, the Review said.
This cost News Corp's rivals millions of dollars, it added.
The Operational Security unit had originally been set up to
hunt pirates targeting Murdoch's own operations but later turned
into a dirty-tricks campaign to undermine competitors, it said.
The BBC Panorama documentary broadcast on Monday alleged
that NDS hired a consultant to post the encryption codes of ITV
Digital, a rival of Murdoch's then Sky TV, on his website.
Widespread piracy after the online publication of the codes
contributed to the 2002 collapse of ITV Digital, which had been
set up by the parties that later formed ITV, Britain's
leading free-to-air commercial broadcaster, in 1998.
Australian police said they received a referral from UK
police against the company in July last year, but declined to
comment on whether that had to do with phone hacking or TV
"The AFP is assisting the UK police with their inquiries,"
an AFP spokeswoman said.
UK regulator Ofcom is already investigating News Corp and a
senior executive, James Murdoch, youngest son of Rupert, in the
light of new evidence emerging from probes into phone and
computer hacking and bribery at the News of the World tabloid,
which News Corp shut down last July.
"These allegations, if true, are the most serious yet and I
am referring the matter to Ofcom, who have a duty to investigate
as part of their fit and proper test," lawmaker Tom Watson said
of the claims made in the BBC's Panorama programme.
"If what Panorama says is true, it suggests a global
conspiracy to undermine a great British company, ITV Digital,"
the member of parliament told Reuters on Tuesday.
An Ofcom spokesman declined to comment on the specific
allegations but said the regulator would consider "all relevant
evidence" as part of its duty to be satisfied that the owner of
the licence was fit and proper.
James Murdoch has also served as an NDS director.
NDS said in a statement: "It is wrong to claim that NDS has
ever been in the possession of any codes for the purpose of
promoting hacking or piracy."
News Corp said: "NDS has consistently denied any wrongdoing
to Panorama and we fully accept their assurances."
The Australian Financial Review, citing a four-year
investigation and a trove of internal NDS emails, said the
piracy undermined the value of competitors like DirecTV
in the United States and Telepiu in Italy, and helped News Corp
to take them over cheaply.
"NDS sabotaged business rivals, fabricated legal actions and
obtained telephone records illegally," said the newspaper, which
is owned by Fairfax Media, a rival of News Corp in Australia.
A spokesman for News Limited, the Australian arm of News
Corp, was not immediately available for comment on the
News Corp owns 25 percent of Australia's top pay-TV firm,
Foxtel, which is looking to take over rival Austar.
Austar declined to comment on the report.
Foxtel said NDS was one of many service suppliers it had
used, and the pay-TV company had worked hard to combat piracy.
"Foxtel notes that there are no allegations of wrongdoing by
Foxtel," a spokesman said in a statement emailed to Reuters.
British lawmaker Watson is known for his dogged questioning
of James and Rupert Murdoch on their role in the phone-hacking
affair, notoriously comparing James to a Mafia boss when he
appeared at a parliamentary hearing on the hacking.
The committee has been due since early this year to present
a report based on its investigations, which is expected to be
critical of James Murdoch and may determine whether he has a
future in Britain.
Watson said the report was now unlikely to be published
before the Easter holiday on April 8. He said the new
revelations were unlikely to affect the committee's work, since
they were not part of its remit.
"There's no suggestion anywhere that Sky or News Corp knew
what NDS was doing," broadcaster and media consultant Steve
Hewlett told Reuters. "But if it all turns out to be true, then
you have a News Corp company once again behaving in ways that
are less than proper," he said.
The Australian Financial Review's investigation involved
14,400 emails from a hard drive in a laptop used by Ray Adams,
who was the European chief for NDS Operational Security from
January 1996 to May 2002.
The newspaper said Adams plotted a legal campaign in an
attempt to ruin the reputation of a Swiss hacker, Jan Saggiori,
who had evidence that NDS had sabotaged the products of News
Corp's rivals. Emails between Adams and News executives raised
"questions about whether News was involved in an abuse of
process of the U.S. court system", it said.
News Limited said the only NDS lawsuit against Saggiori was
an action taken with DirecTV, designed to protect their
intellectual property and stop piracy.
"Saggiori admitted, under cross examination, hacking several
NDS pay-TV card systems," News Limited said.
The BBC's Panorama interviewed Lee Gibling, owner of a
satellite hacking website, who said NDS funded the expansion of
his site and had him distribute ITV Digital's codes.
NDS said it had never used or intended to use the site for
any illegal purpose, and said it had paid Gibling for his
expertise so that information from the site could be used to
track and catch hackers and pirates.
NDS also said it was common for companies in the pay-TV
industry to discover one another's encryption codes - a view
endorsed by Adam Laurie, a security researcher with UK-based
Aperture Labs, which specialises in access control.
"It's possible they cracked them themselves in order to test
the security of the algorithms," he told Reuters.
"To compare yours against others, you have to test them and
there's a chance you'll succeed."
ITV Digital was beset by issues from the start, including
internal competition between its shareholders, a lack of premium
content, and a price war with BSkyB, which had been shut out of
the venture by the regulator.
"It's a complex picture, but to say that ITV Digital failed
because of piracy, I think, is not correct," said Hewlett, who
was working for an ITV company at the time.
An industry source in Australia said hacking was a common
problem in the 1990s but the industry had changed over the past
decade as engineers had worked out how to address these issues.
NDS was sued in a $3 billion lawsuit in 2002 by Canal Plus
, which had supplied the scrambling technology for ITV
Digital and accused NDS of extracting the code from the cards
and leaking it onto the Internet.
Canal Plus dropped the action in 2003 when News Corp bought
Italian satellite pay TV company Telepiu from Canal Plus's then
debt-stricken owner, Vivendi, renaming it Sky Italia.
U.S. satellite TV provider EchoStar, which had
tried to join the Canal Plus suit, then sued NDS in 2003 in a
similar case. NDS was cleared of the main charges and EchoStar
won a tiny fraction of the $2 billion in damages it had sought.
This month, NDS was awarded $19 million in damages after the
U.S. Supreme Court denied a petition by EchoStar and Swiss
digital security company Kudelski over their allegations
that NDS had abetted piracy in the United States.
In Italy, a long-running pay-TV piracy trial is still going
on. One of the defendants, Davide Rossi, says he was collecting
intelligence on behalf of an NDS security officer.
NDS said on Tuesday: "NDS wholly refutes the allegation that
Mr Rossi acted illegally on behalf of NDS. NDS is not a
defendant in the trial in Sicily or any other."