AT&T-Time Warner Deal at Crossroads as Judge Hears Final Pitches

(Bloomberg) -- The judge who will decide the fate of AT&T Inc.’s proposed takeover of Time Warner Inc. heard final pleas from a government lawyer who said the merger will leave consumers footing the bill and a defense attorney who said the U.S. utterly failed to make its case.

It’s a "key fact" that the deal would give the combined company both the incentive and ability to raise prices that rival pay-TV providers pay for Time Warner’s "must-have" programming, Justice Department lawyer Craig Conrath said Monday in federal court in Washington. Critically, Conrath said, the U.S. doesn’t need to prove beyond a reasonable doubt that the $85 billion merger will lessen competition -- just that it’s likely to do so.

Daniel Petrocelli, the lead attorney for AT&T and Time Warner, told the judge "that is a burden that the government did not come close to meeting."

Despite a "massive investigation" and millions of pages of documents, the U.S. antitrust case shrank "before our very eyes," he told U.S. District Judge Richard Leon. "This is a case of theories in search of facts."

Judge Leon said he’ll announce his decision on the merger at a June 12 court hearing.

Both sides were given an hour and a half to summarize their best arguments from the six-week trial. Leon spoke only once during the Justice Department’s argument, asking Conrath at the start of his statement to explain the evidence backing the government’s theory.

At the end of his argument, Conrath suggested to Leon that he could consider imposing a "meaningful remedy" to fix the alleged competition problems posed by the deal. That would include requiring AT&T to sell DirecTV or preventing AT&T from acquiring Time Warner’s Turner Broadcasting, but allowing the rest of the deal to proceed.

Before filing the lawsuit last year, antitrust division chief Makan Delrahim told AT&T that it needed to sell DirecTV or Turner to fix the competitive harm caused by the deal and win government approval. He repeated his offer Monday at the Milken Institute Global Conference.

In summarizing the government’s case, Conrath quoted industry executives who took the witness stand to criticize the merger. They testified that the deal could make it harder for distributors to sign programming contracts with Turner, and that AT&T’s DirecTV could benefit by taking in disgruntled subscribers from its rivals.

“It would let AT&T make its rivals less competitive,” Conrath said.

Time Warner shares were little changed at $94.72 after briefly gaining as much as 2.5 percent. The price remains below the $101.24 price offered by AT&T.

AT&T-Time Warner Deal at Crossroads as Judge Hears Final Pitches

Citing evidence produced in the case, Conrath noted that before the merger was announced, AT&T wasn’t happy about the so-called vertical integration of a programmer and a distributor when Time Warner bought a 10 percent stake in the Hulu streaming service. Emails from the time show that AT&T Chief Executive Officer Randall Stephenson was concerned the deal could impact "all of our relationships" with Time Warner.

Concerned State

Stephenson was worried about not getting Time Warner content, Conrath said, reflecting the same concern raised by the Justice Department about its takeover of Time Warner.

On the witness stand, Stephenson said the U.S. concerns about the merger were "absurd."

"So maybe that concern really isn’t so absurd after all," Conrath said.

Conrath also pointed to a document Stephenson prepared for AT&T’s board where he described a "key issue" for the merger was how to "advantage" AT&T’s pay-TV distribution by acquiring Time Warner. That’s the theory of the government’s case, Conrath said.

"Stephenson’s attempt to explain this away really strains credibility," he said.

Petrocelli didn’t mince words in criticizing the government’s case, saying it would help consumers rather than hurt them, thanks largely to claimed efficiencies from the deal.

Under the government’s "flawed analysis," Petrocelli said, the merger would result in a price increase of 13 cents per subscriber per month, which he called "indistinguishable from zero from a statistical point of view."

Petrocelli slammed what he called the government’s repeated "cherry picking" of excerpts from internal AT&T documents to make the contents appear "sinister."

"This trial has exposed serious questions about the credibility of the government’s entire presentation," Petrocelli said.

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