Italy's Communications Authority has vetoed the takeover of Cecchi Gori-owned broadcaster Telemontecarlo (TMC) by publishing giant Seat Pagine Gialle and Telecom Italia.

Seat, which recently merged with Telecom Italia's internet division, agreed last August to buy 75% of TMC from the Cecchi Gori group for L750bn ($350m), with an option to up its stake to 100%. However, an Italian law which forbids Telecom Italia or any company it controls from owning a free-to-air TV network, has now spurred the Italian watchdog to red-light the deal.

Earlier, Telecom had argued that the law contrasted with European regulations designed to encourage liberalisation. But the watchdog ruled that every individual country is allowed to maintain its own regulations if these help monitor a situation that is specific to that country. In this case, the authority said, the regulations help avoid a former monopoly such as Telecom, which is still the leading player on the Italian telecoms market, having a strategic hold over telecom networks, the internet, TV and the publicity sector.

Telecom and Seat said they would appeal the authority's decision. It also sparked protests from the government, which had approved Seat's proposal to buy TMC saying that a third TV force would boost competition and bring advantages to consumers. "This is an unprecedented, grave decision," communications under-secretary Vincenzo Vita said. Meanwhile, the veto was applauded by the opposition party, which is led by Silvio Berlusconi who owns rival television group Mediaset.

Now, the watchdog's decision could pave the way for other potential offers to buy the debt-ridden TV stations from media mogul Vittorio Cecchi Gori. According to market rumours, these could include Spain's Telefonica and Italy's multimedia group De Agostini.