By Scott Moritz

The planned advertising partnership between Google (GOOG) and Yahoo (YHOO), which was devised during Microsoft’s (MSFT) unsolicited bid for Yahoo, is headed for a federal antitrust challenge. And that could mean, according to one analyst, that Google could wind up walking away from the deal.

Two days after the Association of National Advertisers sent a letter to the Justice Department opposing the Google-Yahoo ad pact, antitrust regulators hired high-powered attorney Sanford Litvack to lead its legal challenge to block the deal, according to The Wall Street Journal. For a look at what veteran antitrust lawyer Stephen Axinn told CNNMoney.com about Litvack’s hiring and what it means for Google and Yahoo, click here.

Part of Google’s strategy to form a search ad partnership was to keep Yahoo out of Microsoft’s hands. After failing to strike a deal, Microsoft and Yahoo went separate ways and Yahoo continued to pursue the ad partnership with Google.

Now, it might make more sense for Google to withdraw the partnership plan rather than fight the Justice Department in court, said Stifel Nicolaus analyst Blair Levin. Even though Google and Yahoo don’t need regulatory approval for their ad arrangement, Levin wrote in a research note Tuesday that “it would be risky…to proceed if they are getting signals that the agency has serious concerns.”

In addition, another analyst suggested that Google would not suffer too much if its Yahoo search ad plans were killed.  Cowen analyst Jim Friedland wrote in a note that he thought a Yahoo deal would only boost Google’s earnings before charges by 1% to 2% in the first 12 months of the deal.

Representatives for Google and Yahoo did not immediately return calls seeking comment.

But Google has already voluntarily delayed the start of the joint advertising process until October so regulators could examine its potential impact. “We are confident that the arrangement is beneficial to competition,” Google said in statement Tuesday.

The search ad partnership was first proposed in June when Microsoft went public with its offer to acquire Yahoo. The ad arrangement called for Google to run its text ads next to Yahoo’s search results. In exchange, Google would pay Yahoo an unspecified cut of the search revenue. But from the beginning, the deal between the top two Internet search services invited antitrust scrutiny and, as it turned out, some industry opposition.

After reviewing the deal, the ANA said in its letter to the Justice Department that Google and Yahoo would control 90% of the search ad market. “The partnership will likely diminish competition, increase concentration of market power, limit choices currently available and potentially raise prices to advertisers for high quality, affordable search advertising,” the ANA wrote.

Google responded indirectly to the ANA letter saying that “While there has been a lot of speculation about this agreement’s potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact.”

In somewhat related news, Google, in an attempt to ease concerns among regulators, announced on its official blog late Monday that it has decided to shorten the length of time it keeps users’ Web information to 9 months from a previous target of 18 months. Google says it compiles some user information like Internet addresses and search history to better match ads to user interests.

By Scott Moritz

Cablevision’s Dolan family is weighing its options again. But while the chilly credit market puts some boundaries on the scope of the Long Island cable company’s options, some of the more likely moves include a dividend and a spinoff of its Rainbow Media unit, say analysts.

“We arrive at the view that given the current state of the credit markets and $1.7 billion in maturities [Cablevision faces] next year, the company’s options are fairly limited,” Goldman Sach’s analysts wrote in a research note Tuesday.

Shares of Cablevision (CVC), the No.6 cable provider, shot up 7% Tuesday on word that the company was exploring moves to enhance shareholder value. Holding about 20% of the company’s stock, the Dolan family has a keen eye on trying to extract more value for the stockholders. The Dolans have made three failed bids to take the company private, but with the lack of big financing available at the moment, another take-private move is probably not in the works.

Most likely is the sale or spin off of Rainbow, the holding company behind TV programming including AMC, WE and IFC. In February, the Dolans were shopping the media unit around but target buyers like Liberty Media (LINTA) didn’t bite.

If Cablevision and its bankers can’t find a buyer for Rainbow, the company may spin the unit off to shareholders and, with the sale, toss in new debt to finance a dividend, say analysts.

“We believe the company could institute a regular dividend on the order of $1 per share,” Goldman’s analysts say. The $1 annual dividend would be within reach, costing Cablevision about $280 million, or 34% of the company’s free cash flow in 2008, according to Goldman.

A bigger special dividend is less likely since the company would have to seek financing to make a sizeable one-time payout.

The move comes as Cablevision, along with Comcast (CMCSA), Verizon (VZ) and AT&T (T), all face increasing expansion costs and cutthroat competition.

By Scott Moritz, writer

Seeing no signs that the slowing economy is crimping consumer spending, Verizon (VZ) plans to raise prices on its nascent TV service.

The New York phone giant reported first quarter earnings that met Thomson Financial’s analyst estimate but missed the Bloomberg consensus by a penny Monday. On a conference call following the release, the company blamed the loss of a large former MCI business customer for some of the profit weakness.

The most striking news of all, however, was Verizon’s bullish take on consumer behavior. Verizon said it has been watching for warning signs, like increases in so-called uncollectible or deadbeat customers, but so far hasn’t seen anything to worry about. “I’ve seen no changes,” finance chief Doreen Toben told analysts on the call, referring to a spending slowdown.

Verizon is feeling so confident about paying subscribers that it plans a price hike.

“We will move up prices at the end of this quarter or next quarter,” Verizon executives said on the call. “We are very comfortable moving up the pricing at this point.”

The company said it probably won’t tamper with its $99-a-month promotional offer for its package of phone, Internet and TV services. Instead, officials said they’re looking to hike the price of the company’s a la carte TV service, which launched in 2005 and costs $48 a month.

Verizon has been winning business from cable companies like Comcast (CMCSA), Time Warner Cable (TWC) and Cablevision (CVC) as it pushes its Web video and TV strategy. On the flip side, as the cable companies have started selling phone services, telcos like AT&T (T) and Verizon have seen the decline in landline phone subscribers accelerate. In the first quarter, Verizon’s total phone line count dropped 8.2% from the prior year, a slight increase over the 8.1% pace for 2007. And residential lines fell by an eye-popping 10.9% from the same quarter a year ago.

Raising prices in the face of a economic slowdown is a bold move that borrows from the cable industry’s long-held strategy of continual rate hikes. Two things work in Verizon’s favor here, says one analyst: Phone and TV subscribers aren’t known to be the most vigilant consumers. They may not even notice they’re paying more.

Verizon’s about to find out.

By Stephanie Mehta 

With the cable industry in the doldrums, at least one consultant expects companies such as Comcast (CMCSA), Time Warner Cable (TWC) and others may be headed for some downsizing. Shahid Khan, partner at IBB Consulting Group, recently said he thinks the big cable operators are going to spend the next two to four quarters focused on “operational efficiencies.”

“They’ve had the happy problem of growth,” says Khan. “Now that’s slowing down.”

Indeed, Time Warner Cable, whose biggest shareholder is CNNMoney parent Time Warner (TWX), today reported larger-than-expected declines in video customers, and missed some analysts’ profit estimates. Time Warner Cable’s lackluster numbers come two weeks after Comcast reported similarly uninspiring results, prompting investors to sell off the stock. Both companies’ shares are trading at or near their 52-week lows.

IBB’s Khan says the cable operators are in a bit of a holding pattern. They grew rapidly thanks to the offering of residential voice service and high-speed Internet, bundling those services with their core video product. But they’ve yet to debut the next big part of the bundle (and engine for additional growth): wireless service.

Where’s wireless? The cable operators have a joint venture with wireless operator Sprint Nextel (S) essentially to resell Sprint’s service to cable customers, but according to industry sources, that venture isn’t going well. The parties apparently are squabbling about a number of issues, including responsibility for customer service, among other details. It doesn’t help matters that Sprint is without a CEO. The cable guys also have acquired wireless spectrum but haven’t announced plans to build out a full-fledged network using those airwaves.

Meanwhile, the phone companies such as Verizon (VZ) and AT&T (T) are not standing by while cable grabs their phone and DSL customers. The telcos are fighting back with video products of their own, and apparently are having an impact in several key markets, such as the New York suburbs, Dallas and L.A.

And so Khan predicts some “network efficiencies” at some cable operators in the coming year. Our experience is that, when cable guys start talking about operational efficiencies, it usually means layoffs.

But he also sees some new products coming online that can help cable grow until their wireless strategies coalesce. He thinks switched digital video, a technology that frees up additional bandwidth on the cable network, will help operators deliver more high-definition channels over their pipes. And more high-def, argues Khan, should help the cable operators fend off competition from both phone and satellite companies touting their high-def offerings to lure cable customers.