U.S. Justice Department urges judge to block AT&T-Time
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[March 23, 2018]
By Diane Bartz and David Shepardson
WASHINGTON (Reuters) - The U.S. Justice
Department squared off on Thursday with AT&T Inc in a long anticipated
trial, as the two sides disputed whether AT&T's $85 billion purchase of
Time Warner Inc would be good for consumers or an expensive drag on
During opening statements, Justice Department lawyer Craig Conrath asked
for the deal to be blocked, saying it would hike prices for consumers by
more than $400 million annually, or an average of $0.45 a month for pay
TV subscribers, by making rival pay TV companies pay more for Time
"Time Warner would be a weapon for AT&T because AT&T's competitors need
Time Warner," Conrath told U.S. District Judge Richard Leon, who will
decide the case after a trial expected to last six to eight weeks.
Conrath also said AT&T would be able to use content from movie and TV
show maker Time Warner, including its Turner unit, to slow innovation in
In opening remarks, Daniel Petrocelli, speaking for AT&T and Time
Warner, ridiculed the Justice Department's case and suggested the
government was "fundamentally stuck in the past" with arguments that
were "divorced from reality."
Petrocelli said the deal would actually lead to a 50-cent decrease in
prices for pay TV subscribers, citing what he said were errors in a
government expert's model of how the transaction would impact future
The Justice Department, Petrocelli said, "cannot meet their burden of
proof. They cannot prove that this would lessen competition."
The merger is about the companies trying to better compete with
technology businesses like Alphabet Inc and Amazon.com Inc, Petrocelli
The internet companies, including Netflix Inc, pose two challenges to
pay TV. They either compete with cable and satellite television for ad
dollars or provide cheaper online video that has hurt pricey pay-TV.
Some do both.
Petrocelli added that the combined company would be better at using
customer data to target advertising. Companies like General Motors Co
and Mastercard In will pay more for higher quality advertising and
consumers will pay less, he said.
The Justice Department filed suit in November to stop AT&T, which has
some 25 million pay-TV subscribers, from closing the deal. AT&T says a
merger would benefit consumers by creating efficiencies. AT&T is the
biggest pay-TV provider via subsidiary DirecTV.
Conrath suggested that AT&T would be able to hike fees that Turner
charges for its content by about 10 percent if the merger were approved
and that the company could withhold content from rival distributors. He
referenced an internal email from Turner executives that Dish Network
Corp's Sling service would be "crap" without Turner content, as he
paraphrased the stronger language in the email.
[to top of second column]
Time Warner CEO Jeff Bewkes arrives ahead of arguments in the trial
to determine if AT&T's merger with Time Warner is legal under
antitrust law at U.S. District Court in Washington, U.S., March 22,
2018. REUTERS/Aaron P. Bernstein
President Donald Trump publicly criticized the deal as a candidate and
as president, and the Republican president often has excoriated Time
Warner's CNN news network.
For its first witness, the Justice Department called Cox Communications
content buyer Suzanne Fenwick, who described Time Warner's movies,
television shows and sports programming as "must-have content" for the
cable TV provider.
If the merger went through, she said, she feared the next negotiation.
"We're very concerned that we're going to be presented with a horribly
ugly deal," she said.
Petrocelli, in response, pressed her in vain to show any analytics to
prove that Cox needed Time Warner to prevent customers from moving to
DirecTV. "You've never done a single bit of quantitative analysis," he
GOVERNMENT LOSS MEANS MORE DEALS
If the government loses, that could open up the field for more tie-ups
between distributors and content providers. But a win could strengthen
the hand of antitrust regulators looking at other, similarly structured
AT&T and Time Warner are not direct competitors, making the deal a
so-called vertical merger between companies on the same supply chain.
The vast majority of challenged mergers involve one rival buying
The merger would hand AT&T, if it becomes the new owner of Time Warner,
the motive and opportunity to refuse to license March Madness NCAA
basketball tournament games, along with premium cable channel HBO and
other content, to pay-TV rivals and online distributors, the Justice
Department has said.
Petrocelli had asked for access to communications between the White
House and Justice Department about the deal, but the judge denied the
request. Trump's opposition to the merger did not come up during opening
If the government loses, Verizon Communications Inc and Charter
Communications Inc could strike deals to buy movie or television makers
and squeeze smaller pay-TV providers.
AT&T has said the merger would result in more than $2.5 billion in
annual cost savings by 2020.
(Reporting by Diane Bartz and David Shepardson in Washington; Editing by
Will Dunham and Cynthia Osterman)
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