LONDON - 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.
And according to the Guardian, authorities were investigating whether a News International executive deleted millions of emails in an attempt to obstruct the hacking probe.
Sources close to the investigation told the paper that a senior executive in Murdoch's company is believed to have deleted "massive quantities" from an internal archive believed to date back to January 2005 and contain messages between News of the World staff and outsiders, including private investigators.
If so, that would contradict the company's claim to be aiding the investigation.
The Guardian also reported that News International also leaked sensitive information to the consternation of police and tried to hide the contents of a reporter's desk after his arrest in April.
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."
Coulson quit as editor of News of the World after Goodman and private investigator Glenn Mulcaire were jailed in 2007 for hacking into the phones of royal aides. Coulson was hired in 2010 as Cameron's director of communications, but resigned in January as it became clear the hacking at the tabloid had been far more widespread.
CBS News correspondent Elizabeth Palmer reports that Coulson insists he didn't know about the hacking, and deeply regrets it taking place. Cameron has stuck to a similar line - saying he was never given any "adverse" information about Coulson before he hired him, and that he performed his job as communications director admirably before stepping down as the hacking scandal grew.
"This really is a very dangerous moment for David Cameron," Eleanor Goodman, long-time political editor for Britain's Channel 4 News, told "The Early Show" on Friday.
"People are equating it with the moment when Tony Blair lost the trust of the nation by his handling of the Iraq crisis, and Ed Milliband (opposition Labour Party leader) suddenly looks like a man who is more in touch with public opinion than the prime minister."
Opposition Labour Party leader Ed Miliband had urged Cameron to apologize for "the appalling error of judgment he made in hiring Andy Coulson." Cameron refused, saying Coulson remained a friend, but clearly moved a further step away.
"(Coulson) gave me assurances," Cameron said. "He said he had resigned because of what had happened, but he didn't know the hacking had taken place."
"I took a conscious choice to give someone who had screwed up a second chance," Cameron said. "He worked for me, he worked for me well, but actually he decided in the end the second chance wouldn't work, he had to resign all over again for the first offense."
Cameron said press self-regulation by the Press Complaints Commission had failed and a new body, independent of the media and the government, was needed to properly enforce standards. The police investigation of the phone hacking charges years ago has now been criticized as incomplete and compromised by new bribery allegations. The Metropolitan Police this week expanded their hacking inquiry and say they are looking at the names of over 4,000 people as possible victims.
Cameron suggested his friend Rebekah Brooks, a former editor of the tabloid, should have resigned as chief executive of News International. He also said there were questions to be answered by James Murdoch, the heir-apparent to his father's media empire.
"I want everyone to be clear: Everything that has happened is going to be investigated," Cameron said.
He said a judge will be appointed to lead a thorough investigation of what went wrong at the News of the World, including alleged bribery of police officers, and a second inquiry to find a new way of regulating the press.
The scandal exploded this week after it was reported that the News of the World had hacked the mobile phone of 13-year-old murder victim Milly Dowler in 2002 while her family and police were desperately searching for her. News of the World operatives reportedly deleted some messages from the phone's voicemail, giving the girl's parents false hope that she was still alive.
That ignited public outrage far beyond any previous reaction to press intrusion into the lives of politicians and celebrities, which the paper has acknowledged and for which it has paid compensation to some prominent victims, including actress Sienna Miller.
Dozens of companies pulled their advertising from the paper this week, fearing they would be tainted by association. James Murdoch then announced Thursday that this Sunday's edition of the tabloid would be its last and all revenue from it will go to "good causes."
News International has not said whether it will move quickly to put another paper into the Sunday market that has been dominated for decades by News of the World. According to online records, an unnamed U.K. individual this week bought the rights to the domain name "sunonsunday.co.uk."
The British government gave its qualified approval in June to Murdoch's News Corp. purchasing the 61 percent of British Sky Broadcasting that it doesn't already own, on the condition it spins off news channel Sky News as a separate company.
But Culture Secretary Jeremy Hunt said Friday there had been a huge volume of responses to a public consultation on the takeover, said to exceed 100,000 submissions, and would delay the approval process.
Despite the public outcry, many analysts think Britain will still sanction the takeover but delay it until at least September.
By late afternoon London time, BSkyB's share price was down 7.8 percent at 749 pence ($11.98).
Shares in the Nasdaq-listed News Corp., which owns 39 percent of BSkyB, were down 3.5 percent at $16.82 around midday in New York.