WASHINGTON (Reuters) – AT&T sought to hide the high cost to consumers of its $85-billion deal to buy movie and TV producer Time Warner, the Justice Department said in its closing arguments on Monday as the United States tried to block the deal in court.
The Justice Department’s Craig Conrath told a court that AT&T’s Chief Executive Randall Stephenson, who said it was “absurd” that they would withhold content from competitors, also wrote an email 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.
The judge’s decision, which is expected in several weeks, will guide dealmakers on how aggressive they can be in buying suppliers in what is known among antitrust people as a vertical merger. Until this tie-up, vertical deals were largely considered approvable by regulators.
The government has argued that AT&T viewed the merger as a way to convince viewers to stick with pay TV instead of moving to cheaper online providers.
Conrath said that AT&T, which has 25 million pay TV subscribers through DirecTV, “wanted to preserve that ‘cash cow’ for as long as they can.”
AT&T’s satellite television service DirecTV lost 187,000 traditional U.S. video customers in the first quarter of 2018.
Conrath added that it was “impractical and unrealistic” to expect that AT&T would resist the temptation to use Time Warner content to help DirecTV.
He reiterated that the merger would cost consumers hundreds of millions of dollars a year in higher pay-TV fees, adding that AT&T’s claims of cost savings through efficiencies were “unsupported numbers” with no data to back them up.
Two key witnesses at the trial were Stephenson and Bewkes, who is retiring if the transaction goes through.
The two executives argued earlier in 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 the to advertise more effectively, giving it a fighting chance to compete with internet advertising titans like Facebook Inc and Alphabet Inc’s Google.
They also denied that AT&T would be reluctant to license Time Warner content like CNN or March Madness basketball to pay-TV rivals or to cheaper online video companies – a key government argument.
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.
But smaller pay TV rivals called as government witnesses argued that this was inadequate. Warren Schlichting, group president of Dish Network’s Sling TV, argued that AT&T’s offer was inadequate because it was limited to 7 years and HBO was not part of the proposal.
Reporting by Diane Bartz, Editing by Franklin Paul