April 11, 2018 / 6:53 PM / 8 days ago

Economist tells U.S. judge AT&T-Time Warner deal would harm consumers

WASHINGTON (Reuters) - The U.S. Justice Department called an economist on Wednesday to testify that allowing AT&T (T.N) to purchase movie and TV production company Time Warner (TWX.N) would cost consumers hundreds of millions of dollars, as the government wrapped up efforts to convince a federal judge to halt the proposed deal.

FILE PHOTO: An AT&T logo is pictured in Pasadena, California, U.S., January 24, 2018. REUTERS/Mario Anzuoni/File Photo

Carl Shapiro, an economics professor at the University of California at Berkeley, said the planned $85.4 billion merger would give AT&T, which owns satellite and streaming television provider DirecTV, leverage to charge more for Time Warner’s Turner family of channels, which includes sports content and CNN.

It would also give AT&T the opportunity to coordinate with Comcast Corp (CMCSA.O), which owns NBCU, to starve cheaper online video companies of content, he said.

Shapiro is expected to be the government’s last witness as it seeks to show that the proposed merger is illegal under antitrust law because it would raise pay TV costs to consumers. The government filed a lawsuit in November and is asking U.S. District Court Judge Richard Leon to block the deal.

FILE PHOTO: A screen shows the current price of Time Warner shares, above the floor of the New York Stock Exchange, shortly after the opening bell in New York, U.S. on November 15, 2017. REUTERS/Lucas Jackson/File Photo

Following Shapiro, AT&T’s lawyers are expected to call their own economist, Dennis Carlton of the University of Chicago.

Shapiro testified that AT&T’s ownership of DirecTV means that it will likely raise rates for content when it negotiates contracts with other cable and satellite companies, and will be more willing to let contracts lapse so DirecTV could win over irritated subscribers when the rival “goes dark.”

    Blackouts mattered, he said. “Even though they don’t happen very much, that’s the key to leverage,” he said.

    Leon noted that a Comcast executive said in testimony that when its content subsidiary NBCU negotiates with rivals that it does not consider a blackout of a rival a way for Comcast to win new subscribers.

    “That’s what they say. Is that correct? Do you have a different understanding?” he asked.

    Shapiro noted that companies tend to function as one entity rather than parts. NBCU’s strategy of steering clear of a blackout “would not be in the combined interest of the company. They would be leaving money on the table,” he said.

    On cross examination, Daniel Petrocelli, a lawyer for AT&T and Time Warner, pressed Shapiro on why he did not factor into his model an arbitration offer made by AT&T that would prevent blackout.

    He also questioned other aspects of the government expert’s report.

    The trial, which began in mid-March in the U.S. District Court in Washington, is expected to wrap up this month.

    Reporting by Diane Bartz; editing by David Gregorio and G Crosse

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