T AT&T Inc

By John D. McKinnon 

The CEOs of AT&T Inc. and Time Warner Inc. on Wednesday defended their proposed $85 billion merger to skeptical lawmakers, portraying the union as a bulwark against the dominance of tech giants while promising new digital media services that will benefit consumers.

Senators from both parties expressed wide-ranging concerns about the blockbuster deal at a hearing on Capitol Hill, adding public pressure on two companies trying to navigate a shifting political landscape. But no new roadblocks were placed before the transaction.

The combination -- putting together the country's largest pay-TV provider with one of biggest content producers -- became a political lightning rod when it was announced at the height of the presidential campaign in late October. President-elect Donald Trump expressed opposition before the deal was even sealed, adding his voice to the skepticism toward corporate consolidation usually found on the other side of the aisle.

The deal could lead to "potential anticompetitive favoritism," warned Sen. Mike Lee (R., Utah), amid the grilling of the two CEOs during a hearing that lasted about three hours. The hearing was in front of the Senate subcommittee on antitrust, competition policy and consumer rights.

Antitrust enforcers in the Trump administration will ultimately decide whether to approve the deal or block it as anticompetitive. However, members of Congress can both reflect and contribute to the public mood regarding the merger of such large, high-impact businesses.

Cowen analyst Paul Gallant wrote in research note before the hearing that "Congress's take on the deal could be more influential than normal" in this deal review, given that enforcers will have to balance Mr. Trump's unusual opposition with Republicans' typically hands-off approach.

Shares of Time Warner, which have been trading at a sharp discount to AT&T's $107.50 per-share offer amid Wall Street skepticism, closed Wednesday up 8 cents at $93.98 while AT&T rose $1.10, or 2.8%, to $40.45.

Sen. Amy Klobuchar (D., Minn), the subcommittee's top Democrat, also expressed concerns about the deal resulting in higher prices and less competition.

The worries of the Republican lawmakers were notable.

Mr. Lee, the subcommittee's chairman, said the merger could lead to price and access problems for competitors seeking Time Warner's prized content, such as HBO. The senator has previously expressed skepticism of other deals ranging from Comcast Corp.'s failed attempt to buy Time Warner Cable and AT&T's nearly $50 billion acquisition of DirecTV last year.

The Republican also voiced concern about AT&T's practice of zero rating -- or exempting from data charges -- its new DirecTV streaming video service. Critics worry that the practice could turn AT&T into a powerful gatekeeper for consumers' content, he noted.

The issue came up multiple times in the hearing, including Sen. Al Franken (D., Minn) questioning how AT&T pays for the service. The company has defended the practice as legal and good for consumers, but the Federal Communications Commission has said it is worried that the practice is anticompetitive.

AT&T Chief Executive Randall Stephenson said the merger "eliminates no competitor" and that the company aims to "get the most content to the most people at the lowest prices."

The deal would combine AT&T's pay-TV subscribers and wireless customers with one of the nation's most prized media content companies. Time Warner owns HBO as well as the Warner Bros. studios, plus cable networks including CNN and TNT.

Mr. Stephenson and Time Warner CEO Jeff Bewkes positioned the deal as a way to increase competition with entrenched cable-distribution companies, as well as the power of internet giants like Alphabet Inc.'s Google and Facebook Inc., which dominate the online advertising space and are pushing into video services.

Gene Kimmelman, a former Justice Department official and president of public advocacy group Public Knowledge, stressed that those internet companies rely on the wireless and broadband networks controlled by huge telecommunications companies like AT&T.

Sen. Charles Grassley (R., Iowa) also noted questions about the merged company's ability to employ "'bullying' tactics to dictate rates and terms to other networks." Mr. Grassley cited "concern that this acquisition will concentrate too much power into one conglomerate," as well as "concern about the merger's implications for a free and diverse press."

The comment echoed remarks from Mr. Trump in October that the deal puts "too much concentration of power in the hands of too few."

Write to John D. McKinnon at john.mckinnon@wsj.com

(END) Dow Jones Newswires

December 07, 2016 17:11 ET (22:11 GMT)

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