Korea's antitrust watchdog has effectively banned SK Telecom Co. from taking over the country's dominant cable TV operator, saying a merger would hurt normal market competition, industry and government sources said Tuesday.

SKT, the top mobile carrier here, agreed to acquire a 53.9-percent stake in CJ HelloVision Co. from its parent firm CJ O Shopping, an affiliate of CJ Group, for 1 trillion won ($870 million) in November last year. CJ  HelloVision has a budget phone service business as well.

The high-profile takeover bid, SKT said, is meant to raise its competitive edge as an all-around media platform operator, while CJ wants to sell off the company in restructuring efforts amid uphill competition with IPTV and satellite broadcasting service firms.

If realized, it would make SKT the leading service provider in 21 of the nation's 23 broadcasting blocs where CJ is currently in operation.

SKT wants to combine CJ HelloVision, which has around 4.2 million subscribers, with its cable and internet TV service unit SK Broadband that has some 3 million subscribers.

It would sharply narrow the gap with the No. 1 TV platform provider KT Corp. with roughly 8.1 million subscribers.

The move has drawn fierce backlash from SKT's local rivals -- KT and LG Uplus Corp. They are worried about its enhanced presence in the budget phone market and the possibility that it will misuse the cable TV business to attract internet or mobile phone service customers.

The Fair Trade Commission informed SKT of the decision through its secretariat on Monday after a longer-than-expected review of the matter, according to the sources.

It's quite rare for the FTC to put the brakes on a local firm's M&A bid. The FTC would not formally confirm the details of its notice to SKT.

Every South Korean company with 2 trillion won or more in assets or revenue is subject to the FTC's prior review of any of its M&A bid under the country's fair trade law.

SKT officials are strongly protesting against the FTC's ruling, albeit provisional.

"It's a decision hard to understand, which runs counter to market economy," an official said.

Another official also said the FTC is using an "excessively stringent yardstick" to regulate the market.

CJ HelloVision also said the FTC's decision is "very regrettable."

"It's the worst review outcome, as the future of the cable TV industry is taken into account," it said in a statement. "It's a measure to put (the company) at the risk of collapse by blocking pre-emptive and voluntary restructuring of the cable TV industry."

SKT has a few weeks to scrutinize a related document from FTC and submit its own opinion. Then the FTC will convene a plenary session to fix its position on the M&A attempt.

Based on the FTC's opinion, the Ministry of Science, ICT and Future Planning will make its final decision on the issue in consultation with the Korea Communications Commission.

Share prices of both SKT and CJ HelloVision were hard hit by the news of the FTC's move. CJ HelloVision plunged 13.33 percent to close at 10,400 won on Tuesday. SKT also shed 1.14 percent to 216,500 won. (Yonhap)