* BSkyB "fit and proper" to hold broadcast licence-Ofcom
* Regulator sharply criticises James Murdoch over hacking
* Shares up 1 percent against lower market
By Kate Holton
LONDON, Sept 20 Britain's media regulator gave
pay-TV firm BSkyB a clean bill of health on Thursday,
saying there was no evidence it was linked to a phone hacking
scandal which engulfed Rupert Murdoch's News Corp, its
However, Ofcom criticised Murdoch's son James for failing to
investigate allegations of criminality at the group's newspapers
properly, describing his failure to uncover the scale of the
problem as "both difficult to comprehend and ill-judged".
The ruling by Ofcom, which has clashed repeatedly with BSkyB
in the past, will lift a cloud that had long hung over the
hugely successful group and will allow it to focus on the
challenges of intensifying competition and growing economic
pressures on its customers.
Ofcom concluded BSkyB was "fit and proper" to hold a
broadcasting licence and avoided making the most serious ruling
that News Corp should sell down some of its near 40 percent
But it sharply criticised James Murdoch, a former chief
executive and chairman of BSkyB who was in charge of News Corp's
British newspaper arm when the scandal exploded last year at its
now defunct News of the World. He stepped down as chairman of
BSkyB in April in an attempt to protect the company's reputation
from being damaged, but remains on the board.
"In our view, James Murdoch's conduct in relation to events
at News Group Newspapers repeatedly fell short of the exercise
of responsibility to be expected of him as CEO and chairman," it
said. "To date (however), there is no evidence that Sky was
directly or indirectly involved in any of the wrongdoing either
admitted or alleged to have taken place at News of the World or
Prompted by the admission that News of the World journalists
had hacked into the voicemails of celebrities, politicians and
crime victims, Ofcom had examined whether News Corp was an
appropriate owner of BSkyB and whether James Murdoch was an
The ruling brings to an end one of the many outstanding
concerns for the Murdoch family.
The admission of criminality at Murdoch's powerful British
newspaper arm, including the detail that staff had hacked into
the voicemails of a murdered schoolgirl, sent shockwaves through
the political and media establishment last year.
Under pressure for his own close ties to Murdoch's media
group, Prime Minister David Cameron ordered a judge-led inquiry
into press standards while some journalists at Murdoch's daily
Sun tabloid are still being arrested over allegations of illegal
payments to public officials.
The subsequent scrutiny of the company has meant the issue
of whether the Murdochs were "fit and proper" to run a British
media company had become a recurring theme, after a
parliamentary committee said the scandal had shown Rupert
Murdoch was not fit to run a major international company.
More than 80 people have now been arrested over allegations
of phone hacking, illegal payments, computer hacking and
attempts to pervert the course of justice.
Two of the most high profile to be held are Rebekah Brooks,
the former head of Murdoch's British newspaper arm, and Andy
Coulson, a former News of the World editor who became the
spokesman for Cameron's government until he resigned.
"This was, on balance, expected but it definitely removes an
overhang on the stock," Liberum analyst Ian Whittaker said of
Ofcom's findings. "This wasn't seen as a huge threat to the
business but ... this was seen as a risk, because Ofcom and Sky
don't have a great relationship."
News Corp said it welcomed the findings but disagreed with
the criticism of James Murdoch, pointing out that he had helped
to make the business the most successful pay-TV group in Britain
with more than 10 million customers.
The group is so lucrative that News Corp tried to buy the
rest of BSkyB that it did not already own for $12 billion. It
halted the bid under pressure from politicians who had once
openly courted Rupert Murdoch.
"As a company, we are committed to high standards of
governance and we take our regulatory obligations extremely
seriously," BSkyB said.
The ruling will allow BSkyB to concentrate on its
operational problems. It has won customers with popular sports
events and movies, but has faced increasing competition from
telecom group BT in recent months. BT has won the rights
to some Premier League soccer and rugby for its own sports
Recession in Britain has also made potential subscribers
reluctant to sign up to monthly payments.
Shares in BSkyB were up 1 percent against a wider FTSE 100
Index which was down 0.7 percent.