Everyone loses after Hutton orders BSkyB to sell ITV stake

I don't think I made a good fist of my answer. But, if Lord Fowler and his colleagues are looking for a classic example of what I meant, they would do well to consider the Government's demand that BSkyB divest itself of more than half its stake in ITV.

Though the decision by John Hutton, the Secretary of State for Business and Enterprise, was expected, it is nonetheless astonishing. According to the Communications Act, in paragraphs that were clearly designed to prevent Rupert Murdoch increasing his media holdings to an unacceptable level, the bar on large media companies buying into broadcasting outlets was set at 20%.

So the acquisition of 17.9% of ITV in 2006 by BSkyB's then chief executive, James Murdoch, did not breach the Act. It was, of course, an aggressive move because it effectively blocked a takeover bid for ITV by Virgin Media. It was described as ruthless and cunning. Arguably, it could also be said to have been against the spirit of the Act, but it was definitely not against the letter.

Yet the Competition Commission clearly saw it differently, ruling that the satellite company's holding in a terrestrial rival was against the public interest because it amounted to "a substantial lessening of competition within the UK market for all television".

With the greatest of respect to the regulator, that is a purely subjective view and ignores the objective test laid down in the Act, namely the 20% ceiling. On reflection, I cannot think why I told the Lords committee that the Competition Commission, rather than a politician, should be the final arbiter.

Hutton has, of course, merely accepted the Commission's decision, but he has now got himself embroiled by making yet another nonsensical subjective decision in ordering BSkyB to reduce its stake to 7.49%.

How on earth did he reach that figure? Has he plucked it from the air? By what criteria did he divine that 7.49% will be of public benefit while 17.9% is not?

If BSkyB is to make an appeal, and it has four weeks to decide whether to embarrass the Government further, then it will surely hinge on definitions of public interest and the way the regulator and the Secretary of State have, to all intents and purposes, ignored the Act's specific provisions.

All that having been said, I do not want anyone to think I favour a further increase in Murdoch's media empire. It is vast and, in the British context, it is certainly large enough.

The point I am making is simply that, if he is to be constrained, it should be done transparently, within the rules. I imagine BSkyB's lawyers will be saying just that when asked for their advice.

In truth, everyone appears to be a loser in this saga. Hutton is likely to be locked into a lengthy struggle, and inevitably it means that the Prime Minister, Gordon Brown, will find himself at odds with the Murdochs. Given his present poll ratings he might wish not to antagonise the men who control The Sun and The Times.

The political fallout could do longterm damage to Labour. Be sure that, if BSky B appeals, Brown and Hutton will be drawn into a war of words with the Murdoch camp. Is it really a battle worth fighting?

An appeal will cost BSkyB a fortune and it is uncertain, even if it succeeds, what it will achieve beyond, perhaps, being able to sell off its stake in its own time. Otherwise, Murdoch may take the view that fighting for a principle is not worth the money.

If it doesn't appeal, despite a small rise in ITV shares, BSkyB stands to lose the best part of £250 million if it sells in the immediate future. Not that there appear to be any enthusiastic buyers anyway, a problem that may end up at Hutton's front door.

Virgin Media has already been a loser, having failed in its takeover opportunity. Then there is ITV itself, becalmed by these events and unable to influence the outcome. It may have expressed delight at the Hutton's announcement, but the short-term outlook for the broadcaster still looks bleak.

Would Virgin's Sir Richard Branson, working in tandem with ITV's chairman, Michael Grade, have transformed the company? We will never know now, of course. Whose fault is that? James Murdoch's for his blocking manoeuvre or the Government's for having failed to draft its Communications Act more carefully in order to stifle any possible share raid?

I rather think the latter.