AT&T And Government Trade Opening Salvos As Antitrust Showdown Begins

Jeff Bewkes

After a series of lower-stakes moments in court and a day-plus delay due to snow, attorneys for AT&T and the U.S. Department of Justice finally gave their opening arguments in the landmark trial to determine the fate of the $85 billion merger of the telco and Time Warner.

“Prices will go up. Competition will go down,” summed up Craig Conrath, the lead attorney for the DOJ’s antitrust team. “Consumers will pay hundreds of millions of dollars more for pay TV.”

Conrath added, “There’s no good substitute for Time Warner content. Distributors feel they need it in order to compete.” Once the companies combine, he said, AT&T could withhold Turner content as a way of privileging their own distribution pipes, especially satellite service DirecTV and internet-delivered sibling DirecTV Now.

Customers’ bills, in any event, will go up. And even if, by the government’s own estimate, the average pay-TV bill would rise just 45 cents a month, that’s too much. “The Antitrust Division [of the DOJ] tries to keep people from having to pay even a few dollars more for anything each year,” Conrath said. “When the defendant says that 45 cents is just a fancy cup of coffee … that’s a frontal attack on antitrust law enforcement.”

Daniel Petrocelli, the lead attorney for AT&T and Time Warner, spent much of his allotted 45-minute argument tearing into the government’s estimates of economic harm.

“They cannot meet their heavy burden of proof,” he said. AT&T, even when adding Time Warner, is not just competing with its peers in the pay-TV bundle space, but against tech giants like Google and Facebook. “They are running away with the industry,” he said. “They have radically transformed it” by becoming dominant in advertising and launching “skinny bundle” services that offer live TV packages for deep discounts and no contracts.

What’s more, Petrocelli said, it would be “financially ruinous” for Turner to withhold its programming in a carriage dispute, aiming to force customers to subscribe to DirecTV in order to watch it (a cornerstone of the government’s case). He also questioned why the government has singled out Turner in charging that the merger would result in blackouts or gamesmanship over programming, but never Warner Bros or HBO, the two other Time Warner business units.

“The government’s theory is fundamentally stuck in the past,” he said. “They’re trying this case as if it were 1980 or 1990, before any of this innovation came along.”

Petrocelli also argued that instead of a 45-cent increase, an AT&T expert had concluded that the deal would result in a 50-cents-a-month savings for consumers.

The case, which is being heard by U.S. District Court Judge Richard Leon (without a jury), is the first legal challenge to a “vertical” merger (one where directly complementary, not competitive, business units are merged) since the 1970s. It is the most consequential antitrust case in the media world since the government took on Microsoft in the 1990s.

Given the anticipation and the stakes, not surprisingly the line formed at dawn outside the U.S. District Courthouse at the corner of Pennsylvania and Constitution avenues. After Wednesday’s snowstorm (which delayed opening arguments until today), there was another one-hour delay to the proceedings.

After waiting several hours, about 180 people squeezed into Courtroom 18, with dozens more filling an overflow courtroom next door to listen to the arguments via audio. In some respects, the process was democratic – Randall Stephenson and Jeff Bewkes, the CEOs of AT&T and Time Warner, respectively, sat in the third row, behind the press. In other ways, a familiar D.C. hierarchy asserted itself, with “line-standers” collecting small fees ($30 seemed to be the going rate) to hold a spot for the investors, attorneys, consultants and communications specialists with a keen interest in the case.

The executives, along with Makan Delrahim, head of the DOJ’s antitrust division, did not reveal much emotion as they listened to the arguments, though Bewkes and Stephenson maintained a steady conversation during the half-hour of . One of the execs sitting a few seats down the row from Bewkes and Stephenson told Petrocelli, “Go get ’em, Dan!” as the attorney walked into the courtroom. This week’s start to the trial has unfolded in a more reasonable fashion, certainly, than the roller-coaster months that preceded it, when the government stunned observers by seeking to block the deal in court and questions swirled about President Donald Trump’s role in it.

Conrath said that of the roughly 2,000 applications submitted to the DOJ, just 2% “even get a serious look.” The reason that regulators decided to pounce in this instance? Because the deal “would give AT&T a weapon to slow down innovation and protect their ‘cash cow,'” DirecTV.

The trial is expected to last six to eight weeks. After a lunchtime recess, the DOJ planned to call its lead witness, an executive from Cox Communications, who would testify that the cable operator’s leverage would decrease after the merger.

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