The conclusion has emerged from Ofcom's parallel consultations on Picnic, which started in October last year, and on whether Sky has unfair influence in the pay-TV market, which was triggered by joint complaints by BT, Setanta, Top Up TV and Virgin Media in January 2007.
Ofcom believes the best remedy to both market issues is for it to impose regulation on Sky that ensures it will wholesale its premium content to other operators.
It said: "Sky would be required to supply its premium sports and movies channels on a suitable wholesale basis which is commercially viable, in particular, subject to certain conditions in relation to wholesale pricing."
It is the second regulatory setback for the satellite operator in as many days after its appeal against being ordered to sell down its stake in ITV was yesterday thrown out by the Competition Appeals Tribunal.
Ofcom is now seeking responses to this proposal within 10 weeks, which will further extend Sky's timetable for the terrestrial pay-TV service it had wanted to launch early this year.
Sky, blaming regulatory drag, last month said it was shelving the project temporarily leading to redundancies among the 28-strong team unless they could be redeployed to other operations.
Documents published by Ofcom reveal there is strong opposition to allowing Sky to introduce Picnic unconditionally.
The regulator said 87% of the responses it received from 426 individuals to the earlier stage of its consultation were against unconditional approval for Picnic, as were all 24 of the responses it received from organisations except Sky.
Picnic involves Sky swapping its three Freeview channels -- Sky News, Sky Sports News and Sky Three -- for a new pay-TV service, which will offer Sky Sports 1, and in the evening Sky Movies Screen1 and Sky One, and in the daytime Discovery Channel and Disney Channel.
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