The European Commission (EC) watchdog has approved the long-awaited merger of Italian pay-TV companies Telepiu and Stream, paving the way for Rupert Murdoch's single pay-TV platform, Sky Italia.

The antitrust authority's thumbs-up comes after an arduous two-and-a-half year battle led by News Corp's own Italian pay-TV company, Stream, and Vivendi Universal's Telepiu to stem their devastating financial losses.

The deal was sealed last October, when News Corp agreed to buy Telepiu from Vivendi Universal through a cash-and-debt agreement worth Euros 893m.

The merger, however, must still be approved by Italy's Enzo Cheli, head of the Italian Authority for the Guarantee of Communications.

In a statement, Tom Mockridge, the chief executive of Stream and chief executive designate of Sky Italia, said: "We welcome today's decision which represents a major step forward in the merger between Telepiu and Stream. This decision creates the conditions to launch the new pay-TV platform in Italy."

Stream said the legal completion of the merger "is not expected to be before the end of April."

Neither Stream nor Telepiu have made a profit since their launch in 1996 and 1991 respectively.

If Sky Italia launches, as expected, later this year, one of the toughest battles Murdoch will have to face is rampant piracy - which is largely held responsible for Stream and Telepiu's losses.

The piracy problem in Italy is so bad that while two million people in the country currently subscribe to pay-TV operators Stream and Telepiu, a massive six million are believed to be using pirate satellite dishes and smart cards.

However, earlier this year, the Italian Parliament approved a new anti-piracy law that will put behind bars those who use counterfeit smart cards to access pay-TV channels. Smart card counterfeiters and users could now face up to three years in jail and fines of up to Euros 15,000.