- Associated Press - Friday, July 8, 2011

LONDON (AP) — Prime Minister David Cameron’s former communications chief and an ex-royal reporter were arrested Friday in a phone hacking and police corruption scandal that has already toppled a major tabloid and rattled the cozy relationship between British politicians and the powerful Murdoch media empire.

The 168-year-old muckraking tabloid News of the World was shut down Thursday after being engulfed by allegations its journalists paid police for information and hacked into the phone messages of celebrities, young murder victims and even the grieving families of dead soldiers. Its last publication day is Sunday.

The hacking revelations horrified both ordinary Britons and advertisers, who pulled their ads en masse. News International, the British arm of Rupert Murdoch’s News Corp., killed the paper in hopes that a 12-billion pound ($19 billion) deal to take over satellite broadcaster British Sky Broadcasting could be saved. But the British government on Friday signaled the deal would be delayed as a result of the crisis.

“Given the events of recent days, this will take some time,” Cameron said.

A billion pounds ($1.6 billion) was wiped off the value of BSkyB Friday, with shares down nearly 8 percent in London trading as investors recoiled at the bad news.

“The pressure on the stock has really been driven by a sense News Corp. is not taking in the severity of its political issues and the embarrassment they are causing the prime minister,” said industry analyst Claire Enders.

British broadcast regulator OFCOM — which has a duty to ensure media owners are “fit and proper” — said it was “monitoring the situation closely.”

London police said a 43-year-old man was arrested Friday morning on suspicion of corruption and “conspiring to intercept communications.” They did not name him, but offered the information when asked about Andy Coulson, Cameron’s once-powerful aide and a former editor of News of the World.

Police also arrested Clive Goodman, the former News of the World royal editor who served a jail term in 2007 for hacking into the phones of royal aides. This time the arrest was on suspicion of making illegal payoffs to police for scoops.

Detectives searched Coulson’s home in London and Goodman’s home south of the city Friday, as well as the newsroom of a second tabloid, the Daily Star Sunday. That paper is owned by Richard Desmond’s Northern & Shell media conglomerate, and Goodman has done work for the paper since his release from jail.

The Daily Star Sunday said detectives spent two hours at its offices and took away a disc containing a record of Goodman’s computer activity.

The paper said police were “carrying out these routine checks at all places where Mr. Goodman has worked as a freelance since he left the News of the World.” It said there was “no suggestion whatsoever” that he acted improperly during his shifts at the Star.

Cameron, realizing that the crisis was knocking at his 10 Downing St. door, moved quickly to distance himself from it. He acknowledged that British politicians and the press had become too close and promised investigations into both the tabloid’s actions and into future media regulation.

“The truth is, we’ve all been in this together,” Cameron told reporters at a hastily arranged news conference Friday morning. “Party leaders were so keen to win the support of newspapers that we turned a blind eye to the need to sort this issue. The people in power knew things weren’t right but they didn’t do enough quickly enough.”

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