Google's mobile ad deal may be in jeopardy

NEW YORK (CNNMoney.com) -- The Federal Trade Commission is gearing up to possibly challenge the proposed merger between Google and mobile advertising giant AdMob on the grounds that it violates antitrust laws, according to news reports.

AdMob, which Google (GOOG, Fortune 500) agreed to buy for $750 million last November, provides display advertising technology for mobile Internet sites. The acquisition would compliment Google's big push into the mobile phone arena with its increasingly popular Android operating system.

But like all merger deals, regulators have to give their stamp of approval before it's finalized.

Since Google already has a dominant position in the desktop search market, the AdMob heightened anticompetitive concerns. The FTC has already started putting together a litigation team in case it decides to move ahead with blocking the deal, according to The Wall Street Journal.

The agency has reportedly begun sending letters to AdMob's competitors, asking them to testify about how the deal would negatively impact their viability, and it has also briefed Congress on the matter.

The FTC has not yet made a final decision whether it will pursue any action, and it continues to talk with Google's lawyers, according to reports. It is also possible that Google could change the terms of the deal to gain the FTC's approval.

Sen. Herb Kohl, D-Wis., chairman of the Senate Antitrust Subcommittee, said that the merger "raises important competition issues" and urged "close scrutiny," according to a letter sent to the FTC on Tuesday.

"The stakes are very high in protecting a fully competitive market in this increasingly important sector of the high tech economy," said Kohl. "While antitrust regulators need to be cautious with respect to transactions affecting such a market, at the same time antitrust authorities should not allow harm to competition that may substantially harm competition in its incipiency."

The mobile search advertising market is rapidly growing as mobile Internet use soars. It is widely believed by industry analysts that search queries on mobile phones will surpass searches on traditional personal computers in the next five years.

The FTC did not immediately respond to requests for comment.

Google defended the merger by noting the large number of competitors that already exist in the smart phone search and app advertising market. Apple (AAPL, Fortune 500), for instance, bought AdMob's rival Quattro Wireless in January for an undisclosed sum. Apple was reportedly interested in buying AdMob before the mobile ad company agreed to the Google deal.

Google has also said that the mobile ad market is so young, that it is too early to determine if one transaction will lead to a dominant market position or not.

"While we're continuing to work with the FTC, there is overwhelming evidence that mobile advertising will remain competitive after this deal closes," said a Google spokesman in a statement. "Mobile app advertising is less than two years old, there are more than a dozen mobile ad networks, app developers and advertisers routinely use multiple networks, and the leading mobile app platform, Apple, is now entering the mobile ad space as well."

At the time of the announcement, Google said the acquisition would help its advertising partners improve how they target mobile Web users, as well as refine advertising formats to get end-users to click on more ads. Google said mobile advertising is a growing new area that has "enormous potential as a marketing medium."

But Kohl, in his letter to the FTC, urged the regulator not to ignore close scrutiny of the deal just because the market is still growing but rather because of how important the mobile ad market is to tech firms.

"The incipiency of the smart phone advertising market is not in itself a reason for the FTC to desist from taking any necessary action to enforce the antitrust laws or protect competition should it determine such action is necessary," Kohl wrote. "Ensuring a vibrant and competitive mobile device advertising marketplace should be a top priority for the FTC as it considers this deal."

Founded in 2006, AdMob serves mobile Internet ads for companies like Ford (F, Fortune 500), Coca-Cola (KO, Fortune 500) and Procter & Gamble (PG, Fortune 500).