Has the ACCC signalled an end to media concentration in Australia by raising significant doubts about the $2 billion takeover bid from Foxtel for regional Pay TV group, Austar?

Potentially it is the second setback for Rupert Murdoch and his News Corporation in as many weeks.

News Corp, through News Ltd controls a quarter of Foxtel and the management of the Pay TV group. Last week Murdoch was forced to withdraw its bid for the 61% of Sky it didn’t own as the weight of the News of the World phone hacking scandal destroyed his reputation and that of his company as British politicians and voters turned on him.

The ACCC signalled its unease with the proposed deal in a statement this morning.

Judging by the the preliminary comments and issues raised, the takeover looks in considerable doubt.

Coming amid the controversy over News Corporation/News Ltd in London and here in the past fortnight, and questions here about media diversity and ownership, the decision to question the merger will get some in the community wondering if there’s another agenda here from the ACCC. Certainly some at Foxtel and News Ltd will view the Commission’s statement as an anti-Murdoch/News push, but then they are accustomed to thinking in these terms about criticism or attempts to restrict their expansion, regardless if it’s real or imaginary.

Others will see it through the prism of News Corp’s dominance in Australia (owning 70% of all daily papers) and 25% of Foxtel and 50% of Premier Media Group, the major supplier of content to Foxtel. News Ltd has management control over Foxtel and Premier Media, which is an added, power.

But that power (nor the fact that Lachlan Murdoch owns 9% of the Ten Network and is currently acting CEO, as well as 50% of radio group, DMG Australia), is not addressed by the Commission. This is solely about the attempt to buy Austar.

There is a lot riding on this deal: it’s just not News Ltd and Telstra involved on the Foxtel side, but also includes James Packer and Kerry Stokes, who together control Consolidated Media Holdings which owns the other 50% of Premier Media Media Group and 25% of Foxtel. Mr Stokes has ambitions to extend his reach in subscription TV. At one stage the Seven network looked at a deal for Austar.

Mr Stokes controls around 25% of Seven West Media Group, which controls the Seven Network, Yahoo Seven and West Australian Newspapers. The ACCC gave that deal (the sale of Seven Media Group into WAN), the greenlight last year, but has ruled a line in the sand on further concentration with the Foxtel/Austar transaction.

If the merger isn’t allowed could the huge rights deal between Foxtel and the AFL (Foxtel is paying half the $1.25 billion value of the deal over five years) be impacted, as well as the probable one with the NRL next year that could go for the same amount or more?

Foxtel has plans to move more of its metro subscribers onto satellite. Austar is all satellite as is BSkyB in London, 39% controlled by News Corp, which was forced to withdraw its takeover offer for BSkyB last week.

Looking at the statement, the Commission is clearly worried about competition.

“The extent to which FOXTEL and Austar compete currently, or have competed in the past, is not necessarily indicative of the likely future level of competition between the parties.

“This may particularly be so in light of significant industry changes which are likely to occur in the foreseeable future, most notably the rollout of the NBN, which has the potential to facilitate entry by FOXTEL, Austar and other parties into areas of new activity (either in the sense of providing different products and/or expanding their geographic presence).”

“Foxtel and Austar are the only significant providers of subscription television services in Australia. The proposed merger would therefore effectively create a near monopoly subscription television provider across Australia.”

Foxtel has tried to buy Austar at least twice before, but Austar’s controlling shareholder, US media billionaire, John Malone wouldn’t sell at the price Foxtel wanted to pay. Earlier this year, another attempt was successful when the two groups agreed on a price of $1.52 for Austar shares.

That price is looking shaky with the immediate reaction of investors to sell off Austar shares. This was done mostly by hedge funds which had bought in when the latest merger talks surfaced at the start of the year: the Austar share price was around $1.

The shares fell 16.6% to $1.08 at 11.30 am today as the market signalled it saw the takeover bid failing. Austar’s share price had fallen on Monday to around $1.285 as it got caught up with the Murdoch/News Corp story from London, leading some investors to start taking early profits.

The Commission is seeking responses to its issues of concern by August 11, before making a final determination on September 8.