Jan. 29 (Bloomberg) -- British Sky Broadcasting Group Plc, the U.K.'s biggest pay-television provider, must cut its stake in broadcaster ITV Plc to below 7.5 percent from 17.9 percent to avoid harming competition, the government said.

The U.K. will impose the remedies recommended last month by the Competition Commission, said John Hutton, the U.K. secretary of state for business and enterprise and regulatory reform, in an e-mailed statement today. BSkyB, based in Isleworth, England, has four weeks to appeal the decision.

BSkyB said today it will book a loss of 343 million pounds ($682 million) for the first half ended Dec. 31. The impairment was calculated on ITV's share price on Dec. 28, the company said. The stock closed that day 36 percent below the 135 pence per share BSkyB paid in 2006.

``The timing isn't good for BSkyB,'' Oriel Securities analyst Redwan Ahmed said in a phone interview today. ``BSkyB would lose quite some money if it has to sell the ITV stake at the current price, so they will probably appeal the decision.''

BSkyB paid 940 million pounds for the holding, blocking plans by Virgin Media Inc. to acquire the London-based broadcaster. ITV's shares rose 2.1 percent to 73.5 pence in London trading today.

Hutton said today BSkyB doesn't have to disclose the period in which the divestment of shares is to be completed.

Effect on Competition

BSkyB's holding was likely to result in ``substantial lessening of competition'' in the TV market, which could harm quality and increase prices for consumers, the commission said in a report last month.

``We believe this decision is in the best interests of the overwhelming majority of our shareholders,'' ITV said in an e- mailed statement today. BSky said in an e-mailed statement that it will give ``careful consideration to the announcement and confirm any further steps in due course.''

BSkyB's Chairman James Murdoch has called the stake a ``long-term investment.'' The company had proposed that it be allowed to keep the stake and said it would answer the commission's concerns by either putting the shares in a voting trust or promising not to exercise its voting rights.

A sale of the stake would be ``far beyond'' what is required as a remedy, BSkyB argued in October.

``An appeal could drag the process on for another six months, after which BSkyB may have several extra months to sell its stake,'' UBS analysts Daniel Kerven and Ian Whittaker said in a note to clients today.

BSkyB shares rose 18.5 pence, or 3.5 percent, to 549.5 pence in London trading.

Effective Remedy

``We were satisfied that partial divestiture to a level below 7.5 percent was in practical terms likely to be as effective a remedy as full divestiture,'' the commission said in December. The regulator also recommended BSkyB not hold any ITV board seats.

Billionaire Richard Branson, Virgin Media's biggest shareholder, in 2006 described BSkyB's purchase of the stake as a ``blatant attempt to distort competition even further by blocking any attempt to create a strong and meaningful competitor.''

``We now hope that this matter can be brought quickly to a close,'' Virgin Media said today in an e-mailed statement.

ITV said in November BSkyB should be forced to sell the stake because the holding harms competition and may influence decisions at the broadcaster.

In addition to today's announcement, BSkyB faces a review by U.K. media and telecommunications regulator Ofcom. The watchdog started the review after Virgin Media and three pay-television competitors complained that BSkyB's control of film and TV rights creates a ``vicious circle'' that hurts competition and keeps prices high.

BSkyB said this argument was ``fundamentally flawed'' and failed to take into account the competition provided by free-to- air digital television.

To contact the reporters on this story: Alex Armitage in London at aarmitage@bloomberg.netSimon Thiel in London at sthiel1@bloomberg.net.

Last Updated: January 29, 2008 11:57 EST