Embattled News Corp. suffered a fresh setback on Friday when Australian competition regulators said its bid to expand its pay-TV operation in the country raised "significant" monopoly issues.
The news will come as a blow to News Corp -- and its chief Rupert Murdoch as it struggles to overcome a phone hacking scandal in Britain that has seen it abandon its pay-TV expansion plans in Europe.
Subscription TV service Foxtel -- 25 percent owned by News Corp has mounted a Aus$2.5 billion ($US2.7 billion) takeover bid for regional cable operator Austar, its major rival, in a move that would expand its base into rural Australia.
But the Australian Competition and Consumer Commission (ACCC) ruled that the merger was "likely to result in a substantial lessening of competition" in the pay-TV, audio-visual content and telecoms markets.
"Foxtel and Austar are the only significant providers of subscription television services in Australia," the ACCC said in its preliminary issues paper.
"The proposed merger would therefore effectively create a near monopoly subscription television provider across Australia."
The rollout of Canberra's ambitious National Broadband Network, a Aus$43 billion project to connect 93 percent of Australians to superfast Internet by 2017, would mean greater opportunities for telcos to compete, it added.
"The proposed acquisition would prevent any such competition from occurring," it said.
The ACCC plans to hand down its final decision in September, but the issues ruling is a significant blow for Foxtel, the remaining 75 percent of which is owned by telecoms giant Telstra (50 percent) and Consolidated Media Holdings (25 percent).
Consolidated Media Holdings is a joint venture of Kerry Stokes' Seven television network and Consolidated Press Holdings, run by media and casino magnate James Packer.
News Corp is in the middle of a firefight in Britain where it has closed its top-selling Sunday tabloid the News of the World over a phone hacking scandal that culminated in Murdoch and his son James being grilled this week by MPs.
It also led the 80-year-old mogul to abandon his bid for British pay TV giant BSkyB, while he is also facing an FBI probe and calls for an inquiry in the United States over allegations his company targeted the phones of 9/11 victims.
But ACCC chairman Graeme Samuel said there was "not the slightest connection of any nature whatsoever" between Friday's decision and the storm over the phone hacking row.
News Corp's Australian listed shares slumped 2.26 percent on the ACCC ruling to Aus$15.13, reversing three days of gains which followed Murdoch's testimony in London.
The stock has dived sharply since the hacking scandal first broke.