Proposals put forward by the BBC detailing a new £68 million network of local news websites featuring video content has been rejected.
One of the major qualms held by communications watchdog Ofcom was that the service would not reach enough Brits living without broadband in remote areas.
The content featuring local news, sports and weather would have only been fully available to those with broadband or carrying 3G mobile phones.
As well as a failure to reach poorer people living without broadband or even dial-up connections, the plans were thought to be a threat to the livelihood of local newspapers and other media groups.
BBC Trust chairman Sir Michael Lyons explained: "Our decision to refuse permission for local video means that local newspapers and other commercial media can invest in their online services in the knowledge that the BBC does not intend to make this new intervention in the market."