Wed, May 02, 2018 - Page 10 News List

Compromise deal eyed for AT&T and Time Warner

Reuters, WASHINGTON

Daniel Petrocelli, right, lead attorney for AT&T Inc and Time Warner Inc, arrives for court in Washington on Monday.

Photo: Bloomberg

The US judge who will decide if AT&T will be allowed to buy movie and TV show maker Time Warner on Monday indicated that he could be considering a decision that was not a clear approval or blocking of the US$85 billion deal.

In his closing remarks, US Department of Justice lawyer Craig Conrath asked for the planned transaction to be stopped.

“Consumers will be worse off and that’s why this merger ought to be blocked,” he said.

In the absence of blocking it, Conrath urged the judge to consider a divestiture, or asset sale.

Judge Richard Leon asked about the possibility of imposing a remedy, like saying the deal could go forward if the companies sell a particular asset.

Conrath said that if the judge found the deal to be anti-competitive then he could impose a fix or a remedy.

In his summation, Daniel Petrocelli, speaking for AT&T and Time Warner, argued against any ruling that would, for example, require AT&T to sell DirecTV, which has more than 20 million subscribers, in order to purchase Time Warner.

“That is an effort to kill the deal,” he said.

Leon said that he would likely have a decision on June 12.

The judge’s decision will guide dealmakers on how aggressive they can be with “vertical mergers,” where one company buys another in the same industry, but operating at a different point in the supply chain. Regulators approve the vast majority of vertical deals.

In his closing remarks, Petrocelli argued that the government had failed to prove that the merger was illegal because they had not shown that it would lead to higher prices.

“We have a complete failure of proof,” he said at one point.

He said that the deal would mean half a billion dollars per year in price decreases for pay TV subscribers.

He also criticized a report by economist Carl Shapiro, who has testified that the deal would cost consumers more money because AT&T would have the incentive to withhold Time Warner content like CNN or “March Madness” basketball from pay TV rivals, both pricey cable companies and cheaper online startups.

Petrocelli also said that an arbitration offer given by AT&T would take away much of the power to raise prices.

In hopes of preventing a court fight, AT&T proposed that for seven years it would submit to third-party arbitration any disagreement with distributors over the pricing for Time Warner’s networks and promise not to black out programming during arbitration.

In his final argument, Conrath told the court that AT&T chief executive Randall Stephenson, who said it was “absurd” that they would withhold content from competitors, also wrote an e-mail to Time Warner’s chief executive Jeff Bewkes to complain after Time Warner took a stake in Hulu, a cheaper online competitor.

“‘It’s hard to imagine how it won’t impact all of our relationships,’” Conrath quoted Stephenson as writing.

Referring to DirecTV, Conrath said that AT&T “wanted to preserve that ‘cash cow’ for as long as they can.”

DirecTV lost 187,000 traditional US video customers in the first quarter of this year.

Two key witnesses at the trial were Stephenson and Bewkes, who is retiring if the transaction goes through. They were present for the closing arguments, and Stephenson shook Petrocelli’s hand during a break after his summation.

The two executives said during the trial that marrying AT&T’s granular information about customers with Time Warner’s ability to create compelling video would allow the merged company to advertise more effectively, giving it a fighting chance to compete with Internet advertising titans such as Facebook Inc and Alphabet Inc’s Google.

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