U.K. Regulator Finds BSkyB 'Fit and Proper' After News Corp. Phone-Hack Scandal

No Evidence to Show Rupert Murdoch Acted Inappropriately, Ofcom Says

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British Sky Broadcasting Group can keep its broadcast license, a U.K. regulator ruled, while criticizing board member James Murdoch's reaction to phone-hacking revelations at News Corp., which owns 39% of the country's biggest pay-TV operator.

"We consider James Murdoch's conduct, including his failure to initiate action on his own account on a number of occasions, to be both difficult to comprehend and ill-judged," U.K. media watchdog Ofcom said today. In the wake of the scandal, News Corp. Deputy Chief Operating Officer James Murdoch resigned first as chairman of News Corp's U.K. newspaper arm and then as chairman of BSkyB.

Ofcom had been reviewing whether the phone-hacking scandal suggested that BSkyB was not "fit and proper" to continue holding its broadcast licenses -- a requirement of the U.K.'s 1990 and 1996 Broadcasting Acts -- given the ownership stake by News Corp. and James Murdoch's role.

News Corp. has been trying to move past the scandal, which erupted last year after reports that one of its U.K. newspapers accessed the voicemails of politicians, celebrities and a murdered teenager.

Ofcom's report also said it didn't find evidence against News Corp. Chairman-CEO Rupert Murdoch. "We do not consider that the evidence currently available to Ofcom provides a reasonable basis on which to conclude that Rupert Murdoch acted in a way that was inappropriate in relation to phone hacking, concealment or corruption by employees of NGN or News International," Ofcom said, referring to News Group Newspapers.

Ofcom's decision allows BSkyB to distance itself from the scandal at News Corp., said Claire Enders, CEO of Enders Analysis, which advises clients including the U.K. government. But it doesn't conclude the fallout for News Corp.

"This is a very clear distancing of BSkyB and its corporate governance from James Murdoch," Ms. Enders said. "I don't think the issues of the alleged behavior, criminal or otherwise, are going to be going away."

News Corp. was forced to abandon its 7.8 billion-pound ($12.6 billion) bid to take control of BSkyB last year as British politicians attacked the company's fitness amid allegations that its employees had hacked phones and computers and bribed public officials.

"After a lengthy review process, we are pleased that Ofcom has now reached its conclusion and we look forward to continuing to develop our business," BSkyB said in a statement.

James Murdoch, who had previously also been CEO of BSkyB, oversaw News Corp.'s newspaper group while the company repeatedly denied that widespread hacking had taken place.

News Corp. said today that while it appreciates the decision to allow BSkyB to keep its license, allegations that James Murdoch failed in his duties as a director are not backed by evidence.

"James deserves credit for his role as chief executive, then chairman and now non-executive director, in leading Sky to an outstanding record as a broadcaster, including its excellent compliance record," News Corp. said.

Should further relevant evidence become available in the future, Ofcom would need to consider that evidence in order to fulfill its duty, it said today.

Ofcom's interest in News Corp.'s control over BSkyB, and the potential to reopen the investigation if more evidence comes to light, could make it more difficult for News Corp. to make another attempt at buying all of the British pay-TV operator, said Claudio Aspesi, a London-based analyst at Sanford C. Bernstein.

The investigations are dragging on, with former News Corp. executives not slated to go on trial until at least next year. Police probes into phone hacking and bribery could last for at least another three years, Metropolitan Police Service Deputy Assistant Sue Akers said this month.

A majority of British lawmakers on a committee concluded earlier this year that Rupert Murdoch was not "a fit person" to lead a major international company after News Corp. officials misled Parliament about the extent of phone hacking at the News of the World. The tabloid paper was closed because of the scandal.

~Bloomberg News~

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