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AT&T Says Tweaked Charter Study Gave U.S. Merger Suit Boost

Updated on
  • Consultant paid by Charter testifies on subscriber-loss study
  • U.S. sued to block AT&T’s $85 billion takeover of Time Warner

The Justice Department’s claim that AT&T Inc.’s proposed takeover of Time Warner Inc. will raise consumer prices is based on a study by a pay-TV competitor that was tweaked to boost the government’s case, defense lawyers suggested while grilling a witness for the U.S.

Antitrust enforcers say the $85 billion deal should be blocked because it will hike costs for cable and satellite-TV subscribers by more than $400 million a year. That prediction, by University of California at Berkeley economist Carl Shapiro, was based in part on a study commissioned by Charter Communications Inc., which opposes the merger, according to evidence presented by AT&T on Tuesday in Washington.

Stefan Bewley, a director at consulting firm Altman Vilandrie & Co., which created the study for Charter, testified the report predicted Charter would shed 9 percent of its subscribers if it lost access to programming by Time Warner’s Turner Broadcasting. The U.S. believes such data backs its case that cable companies like Charter would suffer in negotiations with a more powerful post-merger Turner.

Bewley acknowledged under cross-examination by AT&T’s lawyer, Daniel Petrocelli, that the “final” version of the study presented to Charter in April last year put the subscriber loss estimate at 5 percent. Bewley, confronted with his own emails about the last-minute change, said he agreed to the update after meeting with Charter, which was discussing the merger with the Justice Department, he testified.

"Are you aware that if he’d used 5 percent there would have been a price increase of zero?" Petrocelli asked Bewley, referring to Shapiro’s analysis. Bewley said he didn’t.

Bewley said the idea to make the change was his, based on his firm’s own findings, and that he didn’t know the study would be provided to the Justice Department. Bewley said that they didn’t make the change earlier because they ran out of time. Charter gave them an extension of a few days to change the Turner data, he said.

Lost Subscribers

The loss of subscribers that may occur if Turner pulls channels like TNT and CNN from pay-TV distributors is a key element of the Justice Department’s antitrust case against AT&T’s acquisition of Time Warner. The government says if negotiations between Turner and a pay-TV company break down over price or other terms, AT&T’s DirecTV unit would be able to pick up some of those subscribers who decide to switch.

Bewley also revealed that his firm’s report ranked Turner in a less-popular "Group 3" of broadcasters because so few of its networks were "must have" according to an online survey of 10,000 people that Bewley’s firm commissioned. All but TNT, TBS and CNN were deemed "niche" networks that were less popular. Nevertheless, Bewley said assigning a 5 percent subscriber loss didn’t accurately reflect the appeal of Turner content, based on their methodology, so his firm decided to change the estimate to 9 percent.

Petrocelli asked why the same change wasn’t applied to all the other programmers in the study until October 2017, a month before the Justice Department filed its lawsuit against the merger. Bewley, whose firm was paid $700,000 for the report, testified that an exception was made for the Turner data.

Charter’s lead programming negotiator, Tom Montemagno, also took the stand on Tuesday as a government witness. He testified that he wasn’t involved in the commissioning of the study and that it wasn’t a critical element of his negotiations with Turner.

Montemagno, whose testimony continues Wednesday, said during his cross-examination that he had only "skimmed" the study, even though it was created for precisely the kind of negotiations that are central to his role at Charter.

The executive also said programming similar to most of what Turner offers is available "on more affordable networks," with sports and news the exceptions. That opinion undercuts the government’s claim that Turner would have too much post-merger negotiating power in part because so much of its programming is "must have" for cable companies.

(Adds testimony from Charter executive.)
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