Regulator Concerned About Google Ad Deal (WSJ Subscription)

The Federal Trade Commission appears to be laying the groundwork for an antitrust challenge to Google Inc.’s proposed purchase of mobile-advertising company AdMob.

The FTC has assembled an internal litigation team to prepare for a possible effort to block the deal, according to people familiar with the matter. It also sent letters to AdMob’s competitors asking them to testify in sworn statements about the potential impact of the purchase, according to several other people with knowledge of the effort.

In addition, the agency has briefed Congress on its concerns about the deal, the people familiar with the matter said.

The FTC’s staff hasn’t made a final decision to try to halt the AdMob deal, and its five commissioners haven’t yet voted on the issue. Google lawyers continue to meet with the agency’s staff to argue in favor of the acquisition, and the two sides could yet come to an agreement that assuages the FTC and preserves the deal.

The FTC declined to comment.

Still, the moves suggest that FTC investigators have serious concerns that Google’s $750 million agreement to buy AdMob— a leading supplier of ads that run on mobile devices like Apple Inc.’s iPhone— could allow Google to extend its dominance into a crucial new technology sector. The potential clash comes as the Internet-search giant is facing a lengthening list of antitrust investigations in the U.S. and Europe.

Google defended the deal Tuesday. “While we’re continuing to work with the FTC, there is overwhelming evidence that mobile advertising will remain competitive after this deal closes,” a Google spokesman said.

On Tuesday, Sen. Herb Kohl (D., Wis.) sent a letter to the FTC urging it to closely scrutinize the deal, which, he wrote, “raises important competition issues.”

Sen. Kohl, chairman of the Senate subcommittee on antitrust, said the deal would combine Google, which holds a dominant share of Internet search and advertising on personal computers and a growing share of mobile-advertising business, with AdMob, the leading provider of advertising to smart phones.

AdMob has more than 15,000 mobile Web sites and applications in its network, according to Google.

Some analysts believe that, in coming years, searches on mobile devices—and revenues from related advertising—will surpass those generated by PC users. “It is therefore of vital importance to be wary of any transaction that would create undue market dominance of search- or application-based advertising on mobile devices such as smart phones,” Sen. Kohl wrote in his letter.

The FTC, along with the Justice Department, reviews proposed mergers for any potential harm to competition. But making a case against the AdMob deal might not be easy, some antitrust experts say.

Google argues that the mobile-advertising market is at such an early stage that it would be hard for the FTC to project which company will dominate it. Google is also pointing to Apple’s recent purchase of AdMob’s smaller rival, Quattro Wireless, as evidence that the market has multiple competitors.

And, while Google does offer mobile advertising, it says its focus has been on mobile search ads—those that appear alongside Web-search results—while AdMob has focused on mobile display ads and ads inside mobile-phone applications. “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,” Google said in a statement.

Even so, the FTC could argue that it is important to nip any potential anticompetitive pressures in the bud before they become entrenched.

AdMob, based in San Mateo, Calif., is one of the largest companies that sell the graphical ads that appear on mobile Web sites. It also was one of the first companies to sell ads that appear inside mobile applications like games that run on the iPhone and other high-end devices.

Both businesses remain relatively small. Spending on mobile-advertising in the U.S. last year was about $416 million, according to eMarketer, compared with $24 billion for online advertising. While tech companies and marketers expect revenue from ads on mobile phones to explode over the next several years, they say it is too early to tell which formats will dominate.

Ross Sandler, a senior Internet analyst with RBC Capital Markets, said AdMob would give Google “a nice head start” over other companies. But Google already has some of the same capabilities, he added, and could quickly develop the others. “I don’t view it as the end of the world if they don’t get this,” he said of the acquisition.