AT&T Would Use Time Warner as a ‘Weapon,’ Justice Dept. Says
WASHINGTON — The much-watched antitrust trial between the Justice Department and AT&T began on Thursday, with opening statements that presented starkly different visions for how the company’s blockbuster merger with Time Warner would fit into a media industry upturned by the internet.
Before a packed courtroom with some of the industry’s leading figures, the two sides zeroed in on the case’s central question: Whether the deal would force consumers to pay more to watch their favorite shows on Time Warner cable channels like CNN and TNT.
The Justice Department, which is suing to block the $85 billion deal, argued that AT&T, with its nationwide wireless and satellite TV business, could use Time Warner’s content as a “weapon” by raising the licensing fees those channels command. The government said that the merged company could charge rival cable and streaming companies more for popular channels. Those increases, the agency argued, would be passed on to consumers.
“If the merger goes forward, consumers all across America will be worse off as a result,” said Craig Conrath, the Justice Department’s lead lawyer.
AT&T and Time Warner said they would disprove the notion that the deal would raise prices. And they said that the combined company could compete with the giants of Silicon Valley: Amazon, Facebook, Netflix and Google. Those companies now produce their own shows and distribute them on their popular websites. They also dominate the market for the advertisements that run with videos streamed over the internet.
“The government’s theory is fundamentally stuck in the past,” said Daniel Petrocelli, the lead lawyer for AT&T and Time Warner. He said the merger would do the opposite of what the government asserts: The company would have no incentive to withhold Turner channels, which are owned by Time Warner.
“It would be financially ruinous if Turner were not as widely distributed as possible,” Mr. Petrocelli said.
The opening statements previewed the fierce legal battle that will play out before Judge Richard Leon of the United States District Court for the District of Columbia. His decision in the case will help set the direction for antitrust law for years to come. It will also frame the shape of the media industry, which is facing major shifts as more people move from cable television to viewing streaming entertainment over the internet.
Hundreds of company officials, reporters, hedge fund investors, antitrust scholars and industry analysts stood in line for hours to get a seat at the trial. Randall Stephenson, AT&T’s chief executive, and Jeffrey Bewkes, Time Warner’s chief executive, sat together during the 90 minutes of opening remarks. Makan Delrahim, the Justice Department’s top antitrust official, watched from the front row on the other side of the room. The chief executives and Mr. Delrahim did not interact.
The case has drawn unusual public attention partly because of questions about whether it had a tinge of political interference. The Justice Department’s opposition came as a surprise when it was announced in November, and AT&T suggested it had been instigated by President Trump, who has said that he opposed the deal. The government said that Mr. Trump did not communicate with antitrust officials on the deal and that their decision to oppose the merger had not been ordered by the White House.
Judge Leon has rejected many of AT&T’s efforts to introduce evidence about political interference into the case. Instead, the trial, which is expected to last six to eight weeks, will largely focus on fundamental principles of antitrust law: whether the merger would cause prices to increase and competition to decrease.
The court’s decision will determine what sort of media mergers will be permitted between the creators and the distributors of content. Such deals, called “vertical mergers,” generally pass regulatory scrutiny because they don’t make a company dominant in one specific market area. Judge Leon has noted the unusual case is like a “rare horse” but not a “unicorn.”
Blair Levin, an analyst for New Street Research, a firm focused on the telecommunications industry, wrote in a research note that a Justice Department victory would “set a standard for what constitutes substantial harm that would call into question a number of other potential and pending mergers.”
About 60 witnesses are expected to take the stand over the course of the trial, including Mr. Stephenson of AT&T and Mr. Bewkes of Time Warner, and executives from digital services like SlingTV and YouTube.
The Justice Department said it would present internal documents from Time Warner and AT&T to show that the merged company would have the incentive to raise prices on rivals and consumers. In one email Mr. Conrath mentioned on Thursday, a Turner executive explained how Dish TV, AT&T’s top rival in satellite TV service, would be weakened without his company’s channels.
“Time Warner,” Mr. Conrath said, “would be a weapon for AT&T because AT&T’s competitors need Time Warner programming.” The government said consumers would have to pay an extra $436 million a year because of the deal.
Mr. Petrocelli foreshadowed a plan to attack that economic analysis. He said the Justice Department’s calculations, made by the antitrust economist Carl Shapiro, had omitted key information and were therefore flawed.
Mr. Petrocelli promised to show Judge Leon that cable consumers could end up paying about 50 cents less a month if the deal goes through.
“This is what I call the government’s shrinking case,” he said.
A version of this article appears in print on March 23, 2018, on Page B1 of the New York edition with the headline: AT&T Antitrust Trial Offers Dueling Views of TV’s Future. Order Reprints| Today's Paper|Subscribe