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.
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