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AT&T Chief Takes Stand to Defend Time Warner Deal

WASHINGTON—

AT&T
Inc.


T -1.11%

Chief Executive

Randall Stephenson

told a judge the Justice Department’s antitrust claims against his company’s planned purchase of

Time Warner


TWX -0.54%

Inc. were “absurd” and rejected the government’s arguments that the enlarged company would use its powers to raise prices.

In testimony Thursday in defense of his company’s proposed $85 billion acquisition, Mr. Stephenson called it a “vision deal” that is crucial for AT&T to compete in a rapidly shifting digital-media landscape.

Taking the witness stand shortly after noon, the AT&T chief in a dark suit and blue tie explained his long history with the company and how he came to believe that AT&T, with its wireless and satellite assets, needed to own a media company like Time Warner, which owns the Turner networks, HBO and Warner Bros. studios.

Mr. Stephenson said AT&T was focused on growing so it could compete for advertising dollars with technology giants like

Amazon.com
Inc.,

Facebook Inc. and Google owner Alphabet Inc., rather than the traditional TV providers that vie for its customers today.

The Justice Department sued to block the deal in November, saying it would hurt consumers and competition by allowing AT&T to charge cable-TV rivals higher prices for Time Warner channels like TNT and CNN. Executives for both AT&T and Time Warner have said the government’s suit defies logic at a time when streaming services from

Netflix

Inc., Amazon and others offer consumers plenty of alternatives to traditional pay TV. U.S. District Judge

Richard Leon

is deciding whether to allow the deal to go ahead.

The digital giants have become masters of keeping customers engaged on their platforms, including through the use of premium video, and AT&T wants to do the same, Mr. Stephenson said. To achieve that, “we need to own content,” he said.

The testimony Thursday followed an appearance Wednesday by Time Warner Chief Executive

Jeff Bewkes,

who from the witness stand said the government was being “ridiculous” with its allegation that the companies would use their added heft to squeeze rival pay-TV providers, resulting in higher prices for consumers. He did say, though, that other industry players saw media consolidation as a way to gain more leverage.

“We did not agree with that,” Mr. Bewkes said. “We did not think it was the right thing to do.”

The Justice Department has argued that AT&T, which owns satellite service DirecTV, might threaten to withhold the Turner Networks from rival pay-TV distributors like Dish Network Corp. or Charter Communications Inc.

Mr. Stephenson said wide distribution was key to Time Warner’s success. “The value of a content company is a function of how many people watch it. Period,” he said.

The Justice Department, which began cross-examining Mr. Stephenson late in the afternoon, appeared to have trouble landing substantial blows against the executive, in part because Judge Leon sided with AT&T’s objections to certain questions the government sought to ask.

The judge shut off the Justice Department’s first line of inquiry before it got started, after AT&T objected to an unnamed document the government sought to introduce. Later, AT&T raised objections when department lawyer

Craig Conrath

began to reference pre-lawsuit negotiations in which the department told AT&T it could buy parts of Time Warner, like Warner Bros., without government concerns. After a bench conference with the judge and a recess, Mr. Conrath dropped the inquiry.

Judge Leon also precluded Mr. Conrath from asking Mr. Stephenson about a 2012 AT&T filing with the Federal Communications Commission.

Among the points the Justice Department was able to make, Mr. Conrath said the kinds of ads that have made Facebook and Google successful don’t lend themselves to competition from television. He also said consumers might object to AT&T’s plans to use their personal data to show them targeted video advertisements.

Mr. Stephenson responded that advertisers want an alternative to the digital giants, even if it’s on a different platform. And he said AT&T would be collecting certain consumer data with permission from its customers.

After his testimony, the companies rested their defense and the government began calling witnesses in rebuttal. The trial, which began in mid-March, could wrap up next week. Judge Leon’s decision isn’t expected for several more weeks.

Also testifying over the past two days was Mr. Stephenson’s deputy,

John Stankey,

who told the court he tried several ways to solve AT&T’s challenges before settling on Time Warner. The company first looked at snapping up a string of small companies before its strategists decided to hunt bigger prey. Mr. Stankey said initially he sought access to channels owned by

Walt Disney

Co. and

21st Century Fox
Inc.

—two companies now in talks to merge businesses—but was rebuffed. A 2016 dinner with a Fox executive left him convinced he should take another path, he said. Time Warner presented that solution.

21st Century Fox and Wall Street Journal parent News Corp share common ownership.

AT&T’s Time Warner bid is just the latest in a string of multibillion-dollar purchases the former Bell operating company has made over the past three decades. In 2015, the company bought DirecTV to get the rights to live TV channels along with a base of 20 million subscribers.

Mr. Stankey acknowledged the DirecTV deal didn’t meet all the Dallas-based company’s targets when it acquired the business for $49 billion. Its subscriber base has slid over the past three years, and too few wireless customers accepted the company’s offer to package pay-TV plans with cellphone service, an arrangement Mr. Stankey called an “unnatural bundle.”

Appeared in the April 20, 2018, print edition as ‘AT&T Chief Hits Foes of Merger.’

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