Publishing company Guardian Media Group has warned that the government's plans to create an expanded public service broadcaster including Channel 4 would harm the commercial media market.

The publisher of the Guardian and MediaGuardian.co.uk also said it was worried that the "negative effects" of the BBC and search engines and aggregators such as Google had not been acknowledged by the draft Digital Britain report published in January by communications minister Lord Carter.

The company was responding to Carter's proposals as part of a consultation ahead of the final report expected in the early summer.

GMG warned that the government's plans for Channel 4, possibly including a merger with the BBC's commercial arm, BBC Worldwide, risked hampering the commercial sector's ability to provide public service content too.

"We are concerned that, by focusing solely on maintaining Channel 4 as the primary counterbalance to the BBC, the government may be jeopardising the ability of the commercial sector to develop its own public service content; this is particularly relevant in a converged media market," GMG said in its submission.

"Such commercial development would allow for greater innovation, reduce reliance on public funding, and ultimately safeguard the future prospects of the commercial sector as an important supplier of plurality in the market.

"We are particularly concerned that the entity envisaged in the Digital Britain interim report – based on a joint venture between BBC Worldwide and Channel 4 – will inevitably seek to expand aggressively online in the UK, exploiting both BBC and Channel 4 brands.

"We believe this would have the deeply undesirable effect of attempting to sustain plurality of public service content delivered by the public sector at the expense of the commercial market – and would have the further undesirable consequence of concentrating all production in public ownership.

"Furthermore, we do not believe this entity will solve the problem of Channel 4's funding gap."

GMG pointed out that the Guardian was already a "major provider of content that creates public value", including video and audio material.

The company said that a joint venture between BBC Worldwide and Channel 4 was "an inadequate solution for a converging media environment unless it is given significant commercial freedom or additional public funding".

"It is likely to have negative effects on the commercial sector, thereby undermining the potential for a genuinely plural public service content market," it added.

There was also a danger that the joint venture would be encouraged to risk public funds through "aggressive expansion online", disrupting the operations of newspaper websites, GMG added.

Online rates would be depressed by a tie-up between Channel 4 and BBC Worldwide, while merging the advertising sales houses of Channel 4 and UKTV, the channels business 50%-owned by BBC Worldwide, was "likely to confer greater bargaining power upon the merged entity, placing competing sales houses at a considerable disadvantage", GMG said.

GMG called for the government to improve oversight of the BBC's commercial activities, pointing to its "aggressive expansion" into new areas, such as the controversial acquisition of Lonely Planet.

It also highlighted the corporation's plans to invest in local online video and the danger of "scope creep" in the BBC's radio activities.

The government failure to address the negative effects of search engines and aggregators on content companies' investment plans was a "glaring omission", GMG also said.

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