WASHINGTON — AT&T’s merger with Time Warner faced a new round of judicial scrutiny on Thursday as a three-judge panel weighed whether there were clear errors in a district court decision that cleared the way for the transaction.
The panel — Judith Rogers, a Clinton appointee; Robert L. Wilkins, an Obama appointee; and David Sentelle, a Reagan appointee — gave little clear indication of which way they were leaning.
But they did ask a number of skeptical questions to the Justice Department’s attorney, Michael Murray, and pressed him on just where the government can show that the lower court erred in its decision.
In June, U.S. District Judge Richard Leon’s 172-page decision ruled in favor of AT&T, and rejected all of the government’s arguments.
The Justice Department claims Leon ignored the “economics of bargaining,” and that he “illogically and erroneously concluded” that the merger would not give Time Warner, now known as WarnerMedia, more leverage. The government contends that the merger will allow WarnerMedia to extract higher prices for Turner content from distribution rivals, and that AT&T-owned DirecTV would ultimately benefit.
Murray argued that Leon was inconsistent in that he accepted that, before the merger, Time Warner’s leverage came from the threat of a blackout. But in weighing the post-merger landscape, he instead concluded that a blackout was unlikely.
Sentelle, though, said the government had to do more than prove economic theory but “show that there is going to be harm to competition that is substantial.”
Much of the hearing, which lasted nearly two hours, was devoted to the merits of an economic model, used by economist Carl Shapiro, that was presented during the six-week trial. The model showed that the merger would lead to an increase in consumer prices, but Leon found fault with the inputs that were used to calculate those figures.
AT&T’s attorney, Peter Keisler, several times said one of the figures used in the calculation was changed and made the merger’s price effect greater, and that it was Charter Communications’ consultant who made the switch as he was standing in an airport line waiting to board.
Murray, however, said AT&T’s focus on the inputs used was “a lot of smoke” and that the figure was supported by a separate, sealed study from Comcast.
He also said the government’s case can be proven without quantifying the merger’s harms, something that courts have accepted in past precedent.
At least publicly, AT&T executives haven’t been worried about the appeal. CEO Randall Stephenson said his team was spending “zero effort” thinking about it.
The DOJ and AT&T already made an agreement to keep Turner’s assets a separate unit until Feb. 28 in order to limit impact should the government prevail.
A decision may not come for several months.
“We appreciate the Court’s attention to the arguments of counsel and look forward to receiving its decision,” an AT&T spokeswoman said.
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