Updated at 11:39 a.m. PDT with comment from Yahoo.
While Wall Street and Google are betting that the search giant's controversial search advertising partnership with Yahoo will get the green light from antitrust regulators, caution may be in order as regulatory scrutiny intensifies in the coming weeks.
Antitrust regulators at both the state and federal level are rushing to gather information and complete their respective investigations as a number of tight deadlines approach, according to people familiar with the regulatory reviews.
Antitrust regulators, for one, are concerned there will be less choice for advertisers and pricing could be affected, which in turn could result in consumers ultimately being affected.
"We're concerned about the anticompetitive effect of certain linkages between advertisers and other issues," Richard Blumenthal, attorney general for the state of Connecticut, said in an interview early Thursday. He noted a number of advertisers have received subpoenas.
Connecticut is one of the lead states in a coordinated effort that includes approximately a dozen states investigating the Yahoo-Google partnership, Blumenthal said, declining to list the other states. But the states of Missouri, Arkansas, and Florida confirmed their participation to CNET News.
"Assignments have been given out and a lot of work is getting done. It's a challenge to meet the tight deadlines that have been given," said one antitrust regulator with one of the dozen states involved in the investigation.
Under the agreement, Yahoo will serve up Google's advertisements alongside its own search results. Yahoo has previously said it does not believe its open-ended deal is anticompetitive, citing it is under no obligation to run a certain number of Google's ads, or give its competitor's ads favorable placement on its search results pages.
The multistate task force expects to make a decision by the fall whether to challenge the partnership, Blumenthal said. And he noted if the companies move forward on the deal without the blessing of the states, they do so at "their own peril."
Google's Chief Executive Eric Schmidt, meanwhile, said in an interview with Bloomberg on Thursday that the search giant plans to move forward with the partnership in October.
Yahoo and Google, in announcing their advertising partnership in June, had said they would delay implementing their nonexclusive deal for 100 days, to give the U.S. Department of Justice an opportunity to review the transaction. The companies also signed an agreement with the Justice Department, in which a timeline was set out to move the regulatory review process along.
No such agreement was signed between the companies and the states, but one source familiar with the investigations said that the states and the Justice Department often coordinate and that the states will frequently follow the same schedule as the federal regulators.
"The states have the benefit of (Yahoo-Google's) arrangement with the DOJ, but they also have the burden of it," the source noted.
The Justice Department, for example, is expected to reach a decision at the end of this month as to whether to challenge the transaction. And while there are several trigger dates that regulators are aiming to hit as part of that agreement, it's not a hard and fast deadline and it would not be surprising to see a decision spill over slightly beyond September, said the source familiar with the investigations.
By the third or fourth week of September, the companies will likely receive greater clarity on where antitrust regulators stand on their proposal. If the Justice Department staff is fine with the deal, the companies could get a green light in the second half of the month. But if there is opposition, it would not be surprising to see it take longer to work its way through, noted the source.
A spokeswoman for the Justice Department declined to comment on the timing of a decision.
And a Yahoo spokeswoman said: "We have been and will continue to work cooperatively with the Department of Justice and we look forward to moving ahead with the implementation."
Meanwhile, Canada's Competition Bureau confirmed last week that it was also conducting a review on the partnership.
"The parties made it known they had a certain time frame and we are sensitive to those time frames," said a spokeswoman for the Canadian antitrust bureau. She declined to comment on whether it would operate under the same deadlines as the Justice Department.
The companies are also concerned about antitrust regulators in Europe, especially in light of the recent fines and actions that the European Commission has taken against Google's arch rival Microsoft on antitrust matters, said one source familiar with the companies.
A spokesman for the European Commission was not available for comment.
Wall Street, meanwhile, is largely expecting the advertising partnership to be approved, say analysts.
"We feel pretty confident the Google deal will get approved. That would be a positive for Yahoo," said Steve Weinstein, a Pacific Crest Securities analyst. "There are those who are concerned the deal won't get through, so there is some risk that's already factored into the stock, but I think the majority of investors think the deal will be fine."