Antitrust case against AT&T'sthe $85 billion deal for media companyTime Warner opens in D.C. court

By Brent Kendall and Drew FitzGerald 

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 (March 23, 2018).

WASHINGTON -- The Justice Department and AT&T Inc. traded legal jabs Thursday as a federal judge opened proceedings on whether the telecom giant's planned purchase of Time Warner Inc. violates antitrust laws.

U.S. District Judge Richard Leon said little while the government and the companies spent about 90 minutes of opening arguments attacking the opposing side's legal position.

The Justice Department, which is seeking to block the $85 billion deal, said the merger could mean at least $400 million in pay-TV price increases because AT&T, which owns the DirecTV satellite service, would have newfound marketplace leverage if it folds in Time Warner's stable of programming, including the Turner networks and HBO.

"If the merger goes forward, consumers all across America will be worse off as a result," said Justice Department lawyer Craig Conrath.

AT&T and Time Warner lawyer Daniel Petrocelli called the government's claims "preposterous" and "dead wrong," saying the case was simple because the Justice Department couldn't offer proof that the deal would lessen competition.

"It is a case where there is only one just, clear-cut outcome, and that is to deny the government's case to block this historic merger," Mr. Petrocelli said.

The fireworks came on the first official day of a trial that could take six to eight weeks.

People lined up in snow-covered D.C. early Thursday morning for a chance to witness the start of the proceedings. The crowd filled two courtrooms and included the companies' chief executives, AT&T's Randall Stephenson and Time Warner's Jeff Bewkes, as well as U.S. antitrust chief Makan Delrahim.

Both sides used their opening presentations to emphasize key points they made in written legal briefs submitted ahead of the trial. They also revealed new details for the first time publicly and hinted at their strategic focus.

The Justice Department argued a post-merger AT&T would use Turner's valuable channels to wring higher prices out of rival cable providers who need that programming for their packages. The government also argued AT&T would try to deter emerging online rivals who are offering pay-TV packages at cheaper prices.

Mr. Conrath highlighted Dish Network Corp.'s Sling TV, a new online-only TV package that competes against AT&T's DirecTV Now streaming service, as proof of Time Warner's importance. He said Turner chief John Martin warned a Sling TV executive the service would be "crap" if it didn't carry Turner's networks. (Mr. Conrath said Mr. Martin used a more profane word best kept out of the courtroom.) Sling TV today offers two basic $20-a-month TV packages, both of which carry Turner channels.

Google's YouTube TV offered more proof of Turner's power, the Justice Department lawyer said. The cable-like streaming service launched last year without channels like CNN, TBS and TNT. "Guess what happened next. It turned out that apparently launching without Turner content didn't work out that well," Mr. Conrath said, and YouTube TV added them to the package in February.

AT&T's Mr. Petrocelli, in turn, said the deal would allow the companies to compete better with major online rivals and to offer a more attractive advertising platform that tailors commercials to specific viewers based on their interests and preferences.

The platform would bring in new ad dollars and relieve higher pricing pressures on consumer pay-TV packages, Mr. Petrocelli said.

Withholding Turner content from rivals would be "ruinous" for the newly merged company because it would mean less revenue, Mr. Petrocelli said. He also objected to Justice Department claims that a post-merger AT&T, along with Comcast Corp., could act in tandem to put a stranglehold on the industry and slow the innovation that has upended the traditional cable business model.

Mr. Petrocelli spent a considerable portion of his presentation attacking the Justice Department's economic calculations that assert the deal would lead to higher prices, a signal that AT&T believes the two sides' competing math could be crucial in the case.

After opening arguments, the government began presenting its case, calling Cox Communications Inc. negotiator Suzanne Fenwick as its first witness.

The regional cable company executive said a combined AT&T-Time Warner would have worrisome leverage to force Cox to pay more for Turner programming and accept unfavorable conditions.

"We are very concerned that we are going to get presented with a horribly ugly deal," Ms. Fenwick said. And if Cox can't get a new, fair deal to carry Turner, "we think we're going to lose a lot of customers," she added.

Mr. Petrocelli in cross-examination questioned Ms. Fenwick's motives and suggested Cox had attempted to use the antitrust review process to extract better terms for carrying Turner than it had been able to win from Time Warner in negotiations.

The AT&T lawyer also accused the Cox executive of offering opinions without any evidence to back them up. "You've never done a single bit of quantitative analysis," he said.

Proceedings will continue Monday with two witnesses, Warren Schlichting, president of Sling TV at Dish Network, and Turner's Mr. Martin.

Write to Brent Kendall at brent.kendall@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com

 

(END) Dow Jones Newswires

March 23, 2018 02:47 ET (06:47 GMT)

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