AT&T's Worries Over Comcast Mirror Time Warner Threat, U.S. Says

(Bloomberg) -- The Justice Department sought to bolster its antitrust case against AT&T Inc.’s deal to buy Time Warner Inc. by pointing to concerns that AT&T executives raised about the power of a big rival that combined programming with pay-TV distribution.

AT&T theorized in 2016 that the expiration of a settlement that allowed Comcast Corp.’s takeover of NBCUniversal could result in higher prices for its pay-TV customers or programming blackouts, according to emails presented by the government Thursday. That’s the same harm the Justice Department says will occur if AT&T completes its $85 billion takeover of Time Warner.

The expiration of Comcast’s decree “means NBCU can play hardball,” one AT&T email read. There will be “no more conditions on how they behave in the marketplace,” read another. The emails concerned a 2016 AT&T project analyzing the potential impact on its DirecTV unit.

The Justice Department argues that by acquiring Time Warner, AT&T will gain leverage over rival cable and satellite-TV companies in programming negotiations because Time Warner channels are so important for retaining and attracting subscribers. AT&T will be able to raise prices on competitors, leading to higher prices for consumers, according to the government. AT&T disputes the theory.

Timothy Gibson, an AT&T vice president, helped analyze the expiration of the 2011 consent decree that allowed Comcast, the largest U.S. cable TV company, to complete its takeover of NBCUniversal. The deal with the Justice Department aimed to protect competition in the market, particularly with online video rivals, by putting conditions on Comcast’s conduct. He was called to testify Thursday for the government.

Concerns Faded

During cross examination by an AT&T lawyer, Gibson said his team’s initial concerns about Comcast were assuaged by a deeper analysis of trends in the industry, such as the emergence of new competitors like Netflix, that he said would undercut the market power of Time Warner’s Turner Broadcasting, which operates CNN, TNT and other networks.

“It was apparent there were regulatory tailwinds in support of online video,” he said.

The Justice Department appeared to run into trouble with its last witness of the day, Gregory Manty, a director of corporate strategy at AT&T. A lawyer for the government questioned him about company documents that recommended AT&T buy a “content player to reinforce pay-TV bundle” and that buying Time Warner would help achieve a company goal of “shaping the ecosystem.” That language appeared to support the government’s theory that AT&T wants to use the Time Warner deal to protect DirecTV’s pay-TV business.

An AT&T lawyer made several objections during the testimony, leading to confidential discussions with U.S. District Judge Richard Leon. The government then abruptly ended the examination and didn’t call another witness. Justice Department spokeswoman Kerri Kupec declined to comment afterward.

The government also attempted to show that AT&T executives were angry about online video products being launched by smaller competitors to DirecTV. The U.S. claims the company wants to frustrate new rivals that threaten its “cash-cow” pay-TV business.

Justice Department lawyer Eric Welsh pointed to a note that Dan York, AT&T’s chief content officer, drafted to Time Warner Chief Executive Officer Jeff Bewkes to “chastise” Bewkes for a March Madness deal that Time Warner reached with Apple Inc. York disputed that he’d chastised Bewkes.

On cross examination, York said his reaction to the Apple deal was due to the fact that AT&T had been a sponsor of the March Madness college basketball tournament and didn’t get an offer to do something similarly innovative.

“I was quite disappointed,” he said. “The courtesy of a call would have been nice.”

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