Expect a 6 month freeze on Facebook’s Instagram acquisition

A former U.S. Department of Justice lawyer and antitrust expert says Facebook’s purchase of photo-sharing site Instagram will take between four months and one year to clear regulatory hurdles. In the meantime, the deal is effectively on hold.

One month after Facebook announced it bought Instagram for an eye-popping $1 billion, the Financial Times reported that the deal would be delayed due to a probe by the Federal Trade Commission. Here’s what you need to know:

Why is the FTC messing with the deal?

The federal agency conducts a routine 30-day review of any deal over $66 million as a matter of course. If it has concerns, it sends a “second request” and begins a more detailed review. This is what has happened here.

Right, but Instagram has like 10 people and no revenue. What the’s problem?

If Facebook can have Instagram, it will be a leading player in photo sharing both online and on mobile. (See Om’s explanation here). The FTC is concerned Facebook could become a dominant advertiser on these platforms — and hurt competition.

According to Washington antitrust expert Andre Barlow, “the FTC and DOJ are really concerned about tech markets and the internet.” He adds that the agencies also use the review process to get up to speed on fast-moving industries they may not fully understand.

Will the FTC block the deal?

Barlow says antitrust regulators very rarely block a deal altogether but will ask for a “structural remedy” in some cases (this often means requiring a company to divest part of its business before the deal can go ahead). Noting that the FTC has cleared every Google deal so far, he predicts: “The likelihood is that at the end of the investigation the FTC will not require any remedies and the transaction will be allowed to close.”

So when will the deal clear?

Barlow says that a quick FTC ┬áinvestigation is 3-4 months but that they can take up to a year. “A good middle of the road estimate is 6 months.”

I heard Google and Twitter are behind this. Could that be true?

A Reuters source claims Google (s goog) and Twitter egged on the FTC to investigate the deal. This is very likely. Competitors are often the ones to instigate an antitrust investigation.

Why would Google and Twitter do such a thing?

Facebook can’t have anything to do with Instagram while the investigation is ongoing. The two firms have to continue to act as “competitors.” If the deal is tied up for even six months (an eternity in the tech world), it will give companies like Google and Twitter a chance to catch up in the photo-sharing space. And there is also a PR benefit — the media attention to the purchase helps signify to the world that Facebook is now a giant company (Google, especially, is likely to relish having the regulatory spotlight on someone else for a change).

So when will we hear more?

The FTC will not say anything until the investigation is done. The news so far has been from leaks — either from Facebook or its competitors (or possibly someone within the government). Things will likely go quiet for months until more leaks appear near the close of the investigation.

Facebook did not respond to a request for comment on the story. The company is in a quiet period prior to its upcoming IPO.

(Photo by Mel Canlas)