Australia's competition watchdog has expressed concern at a bid by Rupert Murdoch's cable television operation to buy out a rival, saying it would create "a near monopoly" of pay TV service in the country.
The statement by the Australian Competition and Consumer Commission (ACCC) is another setback for Mr Murdoch, whose media empire is embroiled in the phone hacking scandal in Britain.
His News Limited, a subsidiary of his US-based News Corporation, has substantial stakes in Australian media companies, including in Foxtel, the country's largest subscription television provider.
Although the ACCC's statement is only on its preliminary finding, it gives a clear indication that it would be opposed to such a merger. The deal cannot go through without the commission's approval.
Foxtel, which delivers more than 200 channels to 1.63 million subscribers in metropolitan areas of Australia, is seeking to buy Austar, which has over 760,000 subscribers. Austar, however, is available mostly in regional and rural Australia, and the only place where the two rivals are competing is in the Gold Coast.
The ACCC said that because of the distinct markets of the two companies, there is substantial room for competition in the cable TV business in Australia. It said its preliminary view is that "the proposed acquisition is likely to result in a substantial lessening of competition in the national market for the supply of subscription television services".
"The proposed merger would therefore effectively create a near monopoly subscription television provider across Australia," it said.
Disallowing a merger will "substantially increase the ability and incentive for Foxtel and Austar to compete with one another outside of their existing distribution regions," the statement said. "The proposed acquisition would prevent any such competition from occurring," it said.
The ACCC says free-to-air television networks are not sufficiently close competitors to subscription TV to constrain the actions of a combined Foxtel-Austar.
The ACCC has asked for further submissions from interested parties by August 11, and it intends to publicly announce its final view by September 8.