BskyB shares plunged yesterday after the communications watchdog cast doubt on Rupert Murdoch's bid to buy the satellite broadcaster by saying revelations of phone hacking at News International could determine whether Mr Murdoch's News Corp was a "fit and proper" owner.
The shares fell 7.6 per cent, taking their decline to 11 per cent in the past three days. Analysts said Ofcom's intervention and the storm over phone hacking at News International's News of the World could scupper the deal.
The watchdog is asking the police, parliamentary committees and other authorities to keep it informed.
In a letter to John Whittingdale, chairman of the House of Commons Culture, Media and Sport Committee, Ofcom said: "We are monitoring the situation closely and in particular the investigations by the relevant authorities into alleged unlawful activities in regard to any evidence or findings of any relevant conduct."
The decision draws phone hacking at the News of the World and News International's handling of the scandal into the judgement on whether parent company News Corp's £12bn-plus bid for BSkyB should succeed.
News International is closing the News of the World this weekend in an attempt to draw a line under a scandal that threatens to damage the rest of Mr Murdoch's UK media empire and smash his dream of owning BSkyB.
The Culture Secretary, Jeremy Hunt, was ready to wave through the bid after accepting News Corp's plan to split Sky News from the business. But the hackingscandal has sparked an outcry over the bid for BSkyB, of which News Corp already owns 39 per cent.
Alex DeGroote, an analyst at Panmure Gordon, said the BSkyB deal could now be doomed. He gave it only a 50 per cent chance of success.
Mr DeGroote said the closure of the News of the World was "a cynical attempt to improve the prospects of regulatory approval for the News Corp deal with BSkyB". Predicting further falls in BSkyB shares, he added: "We believe it is seriously erroneous to assume the closure of the News of the World improves the probability of the deal getting done."
BSkyB shares fell 62p to 750p.
The price is still above News Corp's 700p indicative offer for the rest of the shares. However, after a series of strong results from the broadcaster since the original approach last year, some investors have demanded at least 1,100p a share when News Corp makes a firm offer.
Richard Nunn, an analyst at Charles Stanley Securities, was more optimistic about the deal, but warned that the likely delay could force Mr Murdoch to pay more than expected.
He said BSkyB's results on 29 July would have been the natural date to agree a price, but that now that prospect is a long way off. "With positive results expected, it just raises the ongoing issue of how much will News Corp bid," Mr Nunn said.
Mr Murdoch's UK rivals continued to seize on the opportunity to attract readers and advertisers from what was Britain's top-selling Sunday paper. Trinity Mirror, publisher of the Sunday Mirror and Sunday People, and Daily Mail & General Trust, owner of the Mail on Sunday, were said to be planning big print runs for those titles this weekend. Trinity Mirror shares rose 4.2 per cent and DMGT's were little changed.