AMZN Amazon.com Inc

By Brent Kendall and Drew FitzGerald 

WASHINGTON -- AT&T Inc. Chief Executive Randall Stephenson testified Thursday in defense of his company's proposed Time Warner Inc. acquisition, calling it a "vision deal" that was crucial for AT&T to compete in a rapidly shifting digital-media landscape.

Time Warner "met all the needs we were looking for," Mr. Stephenson told U.S. District Judge Richard Leon, who is deciding whether to allow the $85 billion transaction.

The AT&T chief took the witness stand shortly after noon in a dark suit and blue tie, explaining his long history with the company and how he came to believe that AT&T, with its wireless and satellite assets, needed to own a media company like Time Warner, which owns the Turner networks, HBO and Warner Bros. studios.

Mr. Stephenson said AT&T was focused on growing so it could compete for advertising dollars with technology giants like Amazon.com Inc., Facebook Inc. and Google owner Alphabet Inc., rather than the traditional TV providers that vie for its customers today.

The Justice Department sued to block the deal in November, saying it would hurt consumers and competition by allowing AT&T to charge cable-TV rivals higher prices for Time Warner channels like TNT and CNN. Executives for both AT&T and Time Warner have said the government's suit defies logic, at a time when streaming services from Netflix, Amazon and others offer consumers plenty of alternatives to traditional pay-TV.

The digital giants have become masters of keeping customers engaged on their platforms, including through the use or premium video, and AT&T wants to do the same, Mr. Stephenson said. To do that, "we need to own content," he said.

The CEO called the Justice Department's antitrust claims against the merger "absurd" and rejected the government's arguments that AT&T, which owns DirecTV, might threaten to withhold the Turner Networks from rival pay-TV distributors like Dish Network Corp. or Charter Communications Inc.

Mr. Stephenson said wide distribution was key to Time Warner's success. "The value of a content company is a function of how many people watch it. Period," he said.

The Justice Department appeared to have trouble landing substantial blows against the executive in cross-examination, in part because Judge Leon sided with AT&T's objections to certain questions government attorneys sought to ask.

The judge shut off the government's first line of inquiry before it got started, after AT&T objected to an unnamed document being introduced. Later, AT&T raised objections when government attorney Craig Conrath began to reference pre-lawsuit negotiations in which the department told AT&T it could buy parts of Time Warner, like Warner Bros., without government concerns. After a bench conference with the judge and a recess, Mr. Conrath dropped the inquiry.

Judge Leon also precluded Mr. Conrath from asking Mr. Stephenson about a 2012 AT&T filing with the Federal Communications Commission.

Among the points the Justice Department was able to make, Mr. Conrath said the kinds of ads that have made Facebook and Google successful don't lend themselves to competition from television. He also said consumers might object to AT&T's plans to use their personal data to show them targeted video advertisements.

Mr. Stephenson responded that advertisers want an alternative to the digital giants, even if it is on a different platform. And he said AT&T would be collecting certain consumer data with permission from its customers.

After Mr. Stephenson's testimony, the companies rested their defense and the government began calling witnesses in rebuttal. The trial, which began in mid-March, could wrap up next week. Judge Leon's decision isn't expected for several more weeks.

The testimony Thursday followed an appearance Wednesday by Time Warner Chief Executive Jeff Bewkes, who from the witness stand said the government was "ridiculous" with its allegation that the companies would use their added heft to squeeze rival pay-TV providers, resulting in higher prices for consumers. He did say, though, that other industry players saw media consolidation as a way to gain more leverage.

"We did not agree with that," Mr. Bewkes said. "We did not think it was the right thing to do."

Also testifying over the past two days was Mr. Stephenson's deputy, John Stankey, who told the court he tried several ways to solve AT&T's challenges before settling on Time Warner. The company first looked at snapping up a string of small companies before its strategists decided to hunt bigger prey.

Mr. Stankey said initially he sought access to channels owned by Walt Disney Co. and 21st Century Fox -- two companies now in talks to merge -- but was rebuffed. A 2016 dinner with a Fox executive left him convinced he should take another path, he said. Time Warner offered that solution.

21st Century Fox and Wall Street Journal-parent News Corp share common ownership.

AT&T's Time Warner bid is just the latest in a string of multibillion-dollar purchases the former Bell operating company has made over the past three decades. In 2015, the company bought satellite provider DirecTV to get the rights to live TV channels along with a base of 20 million subscribers.

Mr. Stankey acknowledged the DirecTV deal didn't meet all the Dallas company's targets when it acquired the business for $49 billion. Its subscriber base has slid over the past three years, and too few wireless customers accepted the company's offer to package pay-TV plans with cellphone service, an arrangement Mr. Stankey called an "unnatural bundle."

(END) Dow Jones Newswires

April 19, 2018 18:34 ET (22:34 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.