Executive calls antitrust objections to Time Warner deal
'absurd' in testimony
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 (April 20, 2018).
WASHINGTON -- AT&T Inc. Chief Executive Randall Stephenson
told a judge the Justice Department's antitrust claims against his
company's planned purchase of Time Warner Inc. were "absurd" and
rejected the government's arguments that the enlarged company would
use its powers to raise prices.
In testimony Thursday in defense of his company's proposed $85
billion acquisition, Mr. Stephenson called it a "vision deal" that
is crucial for AT&T to compete in a rapidly shifting
digital-media landscape.
Taking the witness stand shortly after noon, the AT&T chief
in a dark suit and blue tie explained 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 Inc., Amazon and others offer consumers
plenty of alternatives to traditional pay TV. U.S. District Judge
Richard Leon is deciding whether to allow the deal to go ahead.
The digital giants have become masters of keeping customers
engaged on their platforms, including through the use of premium
video, and AT&T wants to do the same, Mr. Stephenson said. To
achieve that, "we need to own content," he said.
The testimony Thursday followed an appearance Wednesday by Time
Warner Chief Executive Jeff Bewkes, who from the witness stand said
the government was being "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."
The Justice Department has argued that AT&T, which owns
satellite service 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, which began cross-examining Mr.
Stephenson late in the afternoon, appeared to have trouble landing
substantial blows against the executive, in part because Judge Leon
sided with AT&T's objections to certain questions the
government sought to ask.
The judge shut off the Justice Department's first line of
inquiry before it got started, after AT&T objected to an
unnamed document the government sought to introduce. Later,
AT&T raised objections when department lawyer 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's on a different platform. And he
said AT&T would be collecting certain consumer data with
permission from its customers.
After his 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.
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 Inc. -- two companies now in talks to
merge businesses -- but was rebuffed. A 2016 dinner with a Fox
executive left him convinced he should take another path, he said.
Time Warner presented 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
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-based 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 20, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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