The Office of Fair Trading (OFT) has signalled the beginning of the end of the current news distribution system by saying that the supply arrangements for newspapers and magazines are "difficult to justify in competition law and may harm consumers".

After a long period of consultation, the OFT has shifted its opinion about the news supply chain, suggesting that the current system is technically illegal and without sufficient offsetting benefits to make it acceptable. The report is subject to a consultation with the trade, but is the clearest indication so far that the OFT is inclined to outlaw the current system of wholesale monopolies.

The official statement says that the existing arrangements could encourage wholesaler inefficiency, adding: "The OFT is aware of repeated complaints from retailers of excessive wholesaler carriage charges and late or insufficient deliveries. Many newspapers and magazines are wasted and returned unsold, and in over half of all distribution territories there is only one bidder for the distribution contract."

The consultation will be open until the beginning of September, and the OFT is carrying out a parallel review of the newspaper code of practice. The final opinion on the supply chain is expected early in 2007.

Retail groups expressed delight at the draft ruling. Association of News Retailing managing director John Lennon said: "For too long publishers and wholesalers expected retailers to pay for the lack of flexibility, inefficiencies and high costs of the current supply chain."

The National Federation of Retail Newsagents (NFRN) also welcomed the announcement, adding that it would continue to press for a new, legally-enforceable code of practice for the news industry.