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By Drew FitzGerald and Brent Kendall
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 12, 2018).
AT&T Inc., a company that has had virtually nothing to do with show business for most of its history, now faces a court battle that's all about it.
Early signs suggest the antitrust fight over AT&T's $85 billion takeover of Time Warner Inc. will focus heavily on the small screen, with much of its evidence coming from the companies' video rivals. Those competitors argue the telecom company will use Time Warner's entertainment assets against them, according to documents reviewed by The Wall Street Journal.
Dish Network Corp., Showtime owner CBS Corp., 21st Century Fox Inc., Netflix Inc. and Starz Inc. are among the companies that have provided information that the U.S. Department of Justice could use to bolster its case that the megadeal would hinder competition in the pay-TV market, according to people familiar with the matter.
Government lawyers have subpoenaed roughly 30 third parties for information in the case, Justice Department attorney Craig Conrath told federal judge Richard Leon at a pretrial hearing last Friday. Such requests are typical in high-profile antitrust cases.
AT&T is also gearing up for the legal fight. The company has drawn up a wish list of 22 potential witnesses, while the government has requested up to 35, AT&T lead attorney Daniel Petrocelli said.
"We have agreed to bring them from all over the country to Washington, D.C., to make it easier on the process," said Mr. Petrocelli.
The Justice Department surprised many observers in November when it sued to block the combination, arguing that melding the country's largest pay-TV distributor with one of its biggest media companies would put too much power in the hands of a single entity. AT&T Chief Executive Randall Stephenson said the government's case "defies logic" and vowed to defend the deal in court.
The trial is scheduled to start March 19, and people familiar with the matter say it appears unlikely the two sides will find a way to settle their differences and avoid the court battle.
As the government's investigation has progressed, rivals of both AT&T and Time Warner have shared information with the Justice Department -- much of it confidential -- that offers a window into how entertainment companies and distributors play hardball during negotiations.
Starz, which competes with Time Warner's HBO, told the Justice Department in May that AT&T already wielded its hefty subscriber base against the premium TV channel, according to a person familiar with the talks. AT&T unveiled its deal in October 2016 and has been fighting for government approvals ever since.
A Starz document reviewed by the Journal accused AT&T management of telling DirecTV call-center workers to stop pitching Starz channels as add-ons to TV bundles during a contract dispute between the TV channel and the satellite service. The move caused Starz monthly sign-ups through AT&T-owned DirecTV to drop from the hundreds of thousands to fewer than 100, according to the document.
Starz also told the Justice Department the company can't avoid AT&T by selling its service directly to consumers because online distributors haven't yet developed a broad reach. Several startups and incumbents have launched such services, including Dish's SlingTV, Alphabet Inc.'s YouTube TV and Sony Corp.'s PlayStation Vue. Starz also said it can't quickly add subscribers to its direct-to-consumer app because its contract with AT&T keeps it from charging a cheaper price, according to the document.
Perhaps most central to the case is how the AT&T-Time Warner deal would affect rival video distributors. AT&T, which would own Warner Bros. as well as cable channels like TNT and CNN, has said that the television ecosystem is awash in content and that its deal won't deter the industry transformation that is taking place.
AT&T has argued that the emergence of newer platforms like Netflix and the entry of tech giants like Amazon.com Inc. into video content means that new viewers will still have an ample range of choices regardless of what the telecom company does with Time Warner.
The Justice Department sees things differently, arguing that a postmerger AT&T could force rival TV providers to pay more for Time Warner content like Cartoon Network and TNT, which broadcasts many NBA games. It also argues that AT&T's control of Time Warner could hinder innovation in online TV packages, which increasingly attract consumers looking to drop traditional cable or satellite service.
The department continues to examine whether the deal might harm the development of emerging alternatives to cable and satellite TV, a key prong of its lawsuit. It has issued subpoenas to online distributors asking how changes in Time Warner carriage fees would affect their business, according to a person familiar with the request.
AT&T late last year said it would offer all TV distributors terms that would allow them to submit disputes with Time Warner's Turner unit to arbitration, a move designed to undercut the government's argument that the telecom company would use Turner's TV shows to squeeze the competition.
The government will likely poll rival TV distributors in search of signs that AT&T's proposed fix isn't airtight, according to Kevin Arquit, a partner at Weil, Gotshal & Manges LLP. The solution has to cover all the government's allegations to work in court, Mr. Arquit said, though he added the government still faces the bigger challenge of meeting its burden of proof in the case.
Write to Drew FitzGerald at firstname.lastname@example.org and Brent Kendall at email@example.com
(END) Dow Jones Newswires
January 12, 2018 02:47 ET (07:47 GMT)
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