ENTERTAINMENT : Time Warner Could Face Suit Over Merger : Acquisitions: Partner US West could derail plan to combine with Turner if HBO is restructured.

Time Warner Inc. could face a lawsuit by partner US West Communications Inc. if it puts the Home Box Office pay TV service under Turner Broadcasting System Inc. as part of an $8-billion merger proposal, according to Wall Street and entertainment industry sources.

US West owns 25.5% of a partnership whose assets include most of Time Warner’s cable operations, HBO and the Warner Bros. studio. Sources familiar with the partnership say Time Warner cannot change the asset structure of the partnership without the approval of the regional phone company.

The sources also said that neither Time Warner nor US West is allowed to enter into businesses that would compete with HBO, the studio or its cable operations without getting approval from the other partner. Time Warner had to get approval from US West when it bought cable operations that were held outside of the partnership, and US West sought Time Warner’s OK for its purchase of Atlanta cable systems, which it owns entirely.

The provision is designed to prevent either partner from favoring the operations it has a greater stake in, to the detriment of the other.

Legal sources say US West could file an injunction to block the entire transaction, even if the reporting structure of HBO were to remain the same. That is because Turner Broadcasting owns cable programming such as Cable News Network and the Cartoon Network that competes with HBO for air time, and also three movie studios that could be considered competitors to Warner Bros.

US West would not comment on whether it intends to file a lawsuit to block the proposed merger. Time Warner also would not comment, although sources close to the company say a suit by US West would be without merit.

Those sources argued that even if HBO were to be put under Turner, that would not change the revenue structure of the pay service and would constitute only a supervisory change. The company says it has made management changes before without advising US West.

It is unclear how involved US West has been in the ongoing negotiations of the proposed merger, although Ted Turner, the chairman of Turner Broadcasting, is said to have met with officials from US West in the past month.

Such a suit could derail a deal that has been in the making for nearly a month. Negotiations have been slow in large part because of the complicated financial structure of Turner, which is virtually controlled by three large shareholders: Time Warner, Ted Turner and John Malone, through his Liberty Media group.

That a deal could be stopped by US West underscores the equally arcane financial structure of Time Warner. The company has been under pressure from Wall Street to unwind the cumbersome partnership and to spin off its cable operations into a free-standing company. The capital-intensive cable operations have dragged down the stock.

Although negotiations between US West and Time Warner to restructure the partnership have been ongoing since February, little progress has been made, Wall Street sources say, because both parties have insisted on 51% controlling interest of a new cable-only company. US West has been reluctant to part with programming assets such as HBO as it builds up its cable presence.

One Time Warner executive said the threat of a potential lawsuit is a strong-arm tactic by the telephone company to gain the upper hand in those talks.

Meanwhile, lawyers continued working Tuesday on the papers to close the deal, which has suffered a series of delays. Turner board members have been put on alert to approve the agreement at least twice, only to be told it would take longer to iron out the details.