Hutton's New Year dilemma over sale of Sky stake in ITV

Few observers doubt he will back the Commission - not least because the Brown Government is seen as far less close to the Murdoch media empire than the Blair regime.

But the published report had one key fact censored: the amount of time Sky should be given to sell down its stake to the maximum permitted level.

It is now more than a year since James Murdoch, who has since been promoted from chief executive to chairman of Sky while also taking charge of his father Rupert's entire European operations within News Corporation, spent £940 million in a late-night raid on ITV shares.

That daring move effectively thwarted attempts by Sir Richard Branson's Virgin Media to create a £5 billion broadcaster by taking over ITV.

Sky spent 135p a share to accumulate its stake. If it were forced to reduce it to 7.5% today, with the share price down to 86.6p, Sky would book a capital loss of £200 million. There is also another £50 million or so for the carrying cost of the stake - in other words, the interest that could have been earned on £940 million if it had not been tied up in ITV shares.

But few analysts can see any reason why Sky should want to continue to own a mere 7.5% stake in ITV. By the Commission's own definition, that is too little for Sky to have material influence over ITV or for it to "significantly lessen competition." That means Sky is more likely to sell the entire holding, which at the current price would mean a total loss on the venture of just under £400 million.

That would almost certainly be greeted as a victory by Branson, who dramatically declared when Sky bought the stake that "you may as well let Murdoch decide who is going to be Prime Minister". He has certainly won the public relations battle.

But it is a pyrrhic victory as great as any Plutarch described. The chances of Virgin and ITV reviving a merger are now remote. Slapping the Virgin brand onto the disaster that was NTL is only just starting to show results and, despite the energising arrival of Michael Grade at ITV one year ago, all broadcasters know 2008 is bound to be another tough year.

Branson will also get his day in court, next month, when the bitter squabble over Sky's removal of its basic package from the cable operator is heard by a judge. But that's an argument over a few million pounds not the hundreds of millions involved in the ITV stake.

For the Murdoch empire, even losing the maximum £400 million would not be a disaster. After all, because News Corp owns only 40% of BSkyB, some £240 million of the loss will be borne by outside shareholders. The other £160 million seems a petty price to pay to thwart what might have seen the creation of a very serious rival.

We will hear more on that, no doubt,when the industry watchdog takes its study on the whole pay-TV market into various allegations that have been made of anti-competitive behaviour. No prizes for guessing who is on the receiving end of most of those claims.

But Hutton has to set Sky a sell-down deadline well before then. He has some leeway, though.

It has been pretty much the norm in such cases for the Competition Commission to recommend and the Secretary of State to endorse a six-month deadline. ITV has asked for that to be cut to just three months, claiming it would be adequate time to find a buyer or buyers while limiting any further damage to its share price. No doubt it has already offered the services of its broker UBS to handle a placing of the shares if Sky so wished.

That offer would never be accepted. Sky has already told the Commission the "appropriate period within which to effect the divestment would be 17 to 20 months", claiming this would cause least disruption to ITV's share price. But analysts believe Sky wants the maximum time to flush out a rival overseas broadcaster that might pay a premium for the stake, which it could use as a hefty launchpad to bid for ITV.

The odds are that Hutton will turn a deaf ear to both companies' pleas and plump for the standard six-months rule. But whatever he does, it's unlikely this will the last time he has a fat file on Sky sitting in his in tray.