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Could the U.S. government upset AT&T’s plans to give viewers Internet streaming bundles that leveraged its acquisition of Time Warner? Not a chance, the telecom giant’s CEO insisted Friday.
The morning after the Justice Department said it would appeal an anti-trust decision that led to AT&T’s acquisition last month of Time Warner for $85 billion, AT&T CEO Randall Stephenson insisted the legal maneuver would not jeopardize any of the latest video offerings AT&T has pitched to consumers.
“We’re off and running,” Stephenson told CNBC from Sun Valley, Idaho, where he is attending the annual Allen & Co. conference with other tech and media moguls, many of whom will have a rooting interest in how the legal proceedings play out.
After the merger was completed, AT&T launched WatchTV, a broadband-delivered video streaming service with 30-plus channels, made available free to consumers under two new AT&T unlimited plans or for $15 per month for other consumers. WatchTV has been in the works for awhile, but AT&T was waiting for clarity on the Time Warner deal before proceeding with the launch Stephenson reports seeing a good uptake for Watch TV in the early going.
AT&T had argued the merger would allow it to offer more streaming alternatives to customers, raising the risk that an unspooled Time Warner deal could derail WatchTV. Consumer groups complained the bigger company would lead to higher prices.
Stephenson says the government’s appeal “changes nothing about how we operate the business, …changes nothing about products we will launch. It changes nothing about other M&A that we may need to do.”
Investors appear less sanguine, while consumer groups cheered the appeal.
AT&T’s shares closed down 1.7% Friday. And following the DOJ appeal, analyst firm Raymond James & Associates downgraded AT&T’s stock from “outperform” to “market perform.”
Analyst Craig Moffett of MoffettNathanson believes the government’s chances of prevailing on appeal “are actually relatively low. But they are not zero.”
The Justice Department offered no additional comment beyond its filing Thursday. Stephenson himself acknowledged that a period of uncertainty could last five or six months.
John Bergmayer, senior counsel at consumer advocacy group Public Knowledge, says customers should be heartened by the DOJ’s move, because the merger represents “a bad deal for consumers and competition.”
AT&T recently hiked prices on DirecTV Now video service by $5 a month across its various tiers and also increased its monthly administrative fee.
The Justice Department’s appeal is the latest twist in a nearly two year saga to combine a telecom giant with an entertainment powerhouse. Announced in October 2016, the U.S. government sued to block the merger in November 2017, saying one company having so much power over both how Americans get their entertainment (AT&T provides broadband as well as owns satellite TV service DirecTV) — and what they watch — would hurt consumers.
The merger was expected to usher in a wave of media and telecom mergers designed to counter the growing heft and influence of Netflix, Amazon and Apple.
Indeed, it was just after Judge Richard Leon approved the deal last month after a six-week trial ended in April that Comcast upped its bid for the Fox assets and reignited its ongoing fight against Disney.
Judge Leon had not been persuaded that the government had adequately made the case that the combination of a telecom distributor with a network of TV studios and channels would hurt competition, and he strongly discouraged the DOJ from seeking a stay, declaring that the likelihood of a successful appeal on the merits was small.
“The Government has had this merger on hold,” the Judge wrote in his July 12 ruling, as “the video programming and distribution industry has continued to evolve at a breakneck pace.”
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During the trial held in the U.S. District Court in Washington, D.C., the DOJ argued AT&T would have the leverage to charge rival pay-TV providers more for the right to distribute Time Warner’s networks. Those higher costs would be passed on to consumers, the government said.
AT&T countered that a combined company would be better able to compete with a growing roster of online video competitors including Facebook, Google, Netflix and Apple.
Time Warner has been incorporated into an new entity within AT&T called WarnerMedia, which includes HBO, the Warner Bros. studios, and Turner networks such as CNN and TBS.
Some Wall Street analysts had already anticipated the DOJ’s move and are dismissing it because of the strength of the judge’s ruling, says Daniel Ives, chief strategy officer & head of technology research for GBH Insights. “The DOJ appeal will add more noise to the story in the near term until it is heard in the courts although AT&T is moving ahead full steam in its merger plans,” he said.
Looming over the DOJ’s appeal is the Trump factor. President Donald Trump, as a candidate, said, “AT&T is buying Time Warner, and thus CNN, a deal we will not approve in my administration.”
CNN has long been a target for Trump, calling the Time Warner-owned news network “fake news.” His son-in-law Jared Kushner brought up concerns about CNN’s coverage being unfair to the administration in a February 2017 meeting with Time Warner executives.
For his part, Stephenson declares that “the merger is closed. We own Time Warner.”
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Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider. Follow USA TODAY tech columnist Edward C. Baig @edbaig
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