The outcome of the regulator's latest consultation on the pay-TV market is a victory for rivals of the satellite broadcaster such as Virgin Media, BT Vision, and Top-Up TV.
Ofcom's preferred way of enforcing its decision is to set prices at which Sky must offer its sports and movie (excluding its Classic Movies channel) to other retailers.
Ofcom has now opened a period of consultation on its findings, which will end on September 18.
Sky has issued an immediate threat to use "all available legal avenues" to head off what it described as Ofcom's "unwarranted intervention".
A Sky spokesman said: "We disagree fundamentally with Ofcom's approach, analysis and conclusions."
Ofcom believes its remedy is likely to benefit consumer choice and lower the retail cost of pay-TV packages but is not likely to lower the value of sports and movie rights.
It has accused Sky of using its market power to restrict competition in pay-TV.
It said: "We confirm our view that Sky is acting on an incentive to restrict the distribution of premium channels, with effects on a variety of platforms including cable, digital terrestrial television and IPTV.
"Despite lengthy negotiations and its own claims that it has an incentive to distribute its channels as widely as possible, Sky has still concluded no wholesale agreements for premium channels with non-cable retailers.
"This situation is not consistent with fair and effective competition."
The regulator also signalled it is considering further areas where its intervention could be necessary.
It is now consulting on the view that Sky holds market power in the retail (as well as wholesale) of premium sports and movie packages.
The other areas it is looking at include the rights to distribute movies via video on demand and the next auction for FA Premier League rights in 2012.
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