AT&T calls on more expert witnesses to undermine DOJ's antitrust lawsuit

CNN/Stylemagazine.com Newswire | 6/6/2018, 11:59 a.m.
AT&T introduced two more expert witnesses on Monday, as lawyers for the defense continued to question the credibility of the ...
AT&T introduced two more expert witnesses on Monday, as lawyers for the defense continued to question the credibility of the government's experts in the lawsuit to stop the telecom company's bid to take over Time Warner

Hadas Gold, Tom Kludt and Sarah Mucha

(CNN Money) -- AT&T introduced two more expert witnesses on Monday, as lawyers for the defense continued to question the credibility of the government's experts in the lawsuit to stop the telecom company's bid to take over Time Warner.

Professor Michael Katz of the University of California, Berkeley, a former Federal Communications Commission and Justice Department official, testified that Time Warner's arbitration offer to distributors will hold down price increases. The arbitration offer was presented to 1,000 cable distributors after the government filed its lawsuit last year and guarantees distributors no blackouts and baseball-style arbitration for seven years in the event a distributor believes Turner, a Time Warner subsidiary, is charging too much for its content.

The Justice Department sued to stop AT&T's $85 billion acquisition of Time Warner, which owns HBO, Warner Bros., and the Turner networks, including CNN. The government has claimed that with the Turner content, AT&T will have too much bargaining leverage with other pay-TV distributors, and as a result raise prices for consumers.

Carl Shapiro, an economist from the University of California, Berkeley, testified last week that based on his analysis, the merger would cause a price increase for cable consumers nationwide. That price increase would be around 50 cents a month per subscriber, but that it would add up to hundreds of millions of dollars a year for American consumers.

But Katz said on Monday that a "fatal flaw" in Shapiro's analysis is that he did not consider Turner's arbitration offer, where an arbiter chooses a binding offer after each side makes its case. That offer would eliminate the possibility that Turner will pull its content -- a practice known as a "blackout" -- and creates an incentive for both sides to "come to the middle" and present fairer offers. Conventional arbitration, he said, splits the difference and would lead the companies to put in "absurd" requests.

Arbitration, Katz said, worked out well for Comcast and NBCUniversal, which went through a similar vertical merger in 2010. Judge Richard Leon, who will decide the AT&T case, also oversaw the settlement agreement between the Justice Department and Comcast/NBCUniversal that allowed their merger to go through.

Upon cross examination, government attorney Fredrick Young noted that distributors do not like to go into arbitration because of the risks and unknowns. He noted, and Katz acknowledged, that the arbitration offer rests on the idea of a "fair market value" for Turner content, but that such a value is not defined.

Young also attempted to question Katz's expertise on the issues, noting that none of the dozens of academic articles and book chapters that he authored are on FCC rules or arbitration.

Following Katz, AT&T called Professor Peter Rossi from University of California, Los Angeles, to dispute Shapiro's reliance on two surveys in his analysis. The surveys, one done by Professor John Hauser of MIT and the other by the consulting firm Altman Vilandrie & Company, tried to establish the approximate number of customers who would switch their TV subscriptions if they lost access to Turner content.