Ofcom has given its backing to Sky, after the TV, home phone and broadband provider refused to air television adverts for the new BT Sport service.
BT made an official complaint to the communications regulator in April, after Sky declined to carry an advertising campaign for its subscription sport channels.
The telecoms giant claimed it has been discriminated against by Sky in breach of broadcast advertising rules.
However, Ofcom has dismissed the complaint, ruling that Sky is within its rights not to promote the services of a rival operator.
The regulator said that in rejecting BT's request, Sky was "pursuing a legitimate commercial interest".
"We also consider, given the limited extent of the effects on BT, that Sky’s approach is proportionate to its aim."
Graham McWilliam, Director of Corporate Affairs at Sky, said the company was happy with the regulator's verdict.
"We are pleased that Ofcom has confirmed that we are acting entirely reasonably in declining to advertise a direct competitor on Sky Sports," he stated.
"As we said at the time, BT's demands are a bit like Tesco expecting to advertise inside Sainsbury's."
Responding to the decision, a spokesperson for BT said that "you win some and you lose some" with regulation.
"Whilst this decision has gone against us, we are delighted that Ofcom is going to investigate Sky over their refusal to supply us with Sky Sports on YouView," she noted.
The BT representative said that is "a far bigger issue" for BT than Sky's refusal to show its adverts.
Sky's Mr McWilliam reiterated his firm's view that if BT Sport viewers are to have access to Sky Sports channels, then Sky customers should be able to watch BT content as well.