U.S. makes final appeal to block AT&T deal
WASHINGTON — The government on Monday made its final plea to a federal judge to block AT&T Inc.’s $85.4-billion purchase of Time Warner Inc. or order it significantly scaled back, arguing that the combined company would be so powerful it would hinder competition and raise pay TV prices for consumers.
“This merger is a big deal. It would have a massive impact on the structure of the pay TV industry,” Justice Department lawyer Craig Conrath said in his closing arguments in the six-week antitrust trial.
“This is not just a big deal for the companies involved. It is a big deal to consumers, and a big deal to antitrust.”
U.S. District Judge Richard Leon will determine if the companies will be able to combine AT&T’s telecommunications empire with Time Warner’s stable of high-demand content to form a media colossus.
Watching from the second row in the packed Washington, D.C., courtroom were AT&T Chief Executive Randall Stephenson and Time Warner Chief Executive Jeffrey Bewkes.
A major focus of the trial was whether consumer prices would be driven up because of the clout of a bulked-up AT&T to demand distributors pay more for Time Warner’s content, including HBO, CNN, TNT, and Hollywood’s largest movie and TV studio, Warner Bros. “They’d be a gatekeeper for the content their rivals need,” Conrath said. “AT&T will be able to push up its prices and consumers will pay the bill.”
AT&T would have incentive to threaten to withhold Time Warner content from rivals because its DirecTV unit could gain customers who cancel subscriptions with those rivals because they lack that content, Conrath said.
A government expert argued prices would rise by hundreds of millions of dollars a year. An expert for AT&T and Time Warner said those calculations were faulty.
Daniel Petrocelli, the companies’ attorney, said the government had failed to prove that the merger would dampen competition and raise prices for pay TV.
“This whole case is a house of cards,” he said. In fact, consumers could end up paying less after a merger — even $500 million less annually — Petrocelli suggested, trying to poke holes in the model presented by the government's economist witness.
Yet Conrath urged Leon to nix the deal or provide significant structural remedies to preserve competition. He said Leon could force AT&T to sell Time Warner’s Turner networks, which include CNN, TNT, TBS and Cartoon Network, or divest its DirecTV unit.
Those divestitures were similar to ones proposed by the Justice Department and rejected by AT&T before the government filed its lawsuit.
Leon is expected to rule by the June 21 deadline the companies have set to complete the deal. In the interim, the two sides could decide to settle the suit if they can agree to conditions to allow the merger to be completed.
The Justice Department hasn’t successfully blocked a vertical merger in nearly 50 years.