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AT&T, Time Warner Chiefs Face Questions About Merger in Senate Hearing

A Senate hearing on the proposed $85 billion merger between AT&T and Time Warner went for almost three hours without major fireworks, but elected officials still raised concerns over the potential for the combined company to wield its influence at the expense of competition.

In his opening remarks, the chairman of the antitrust subcommittee, Sen. Mike Lee (R-Utah), raised the possibility that the combined company would have the incentive to withhold content from competitors or to jack up rates on Time Warner programming.

The merger is not a horizontal transaction in which competing firms combine overlapping businesses, but Lee said that if that if that were the only factor in play, then “this would be Seinfeldian — a hearing about nothing.”

“The key question is what will the incentives be for the combined firm once the deal takes place,” he said.

But Randall Stephenson, the CEO of AT&T, argued that it would be “illogical” for the company to take steps that would limit the reach of Time Warner content.

“What this merger is not about is consolidation — either in media or telecom,” Stephenson said. He said that their intent is to “disrupt the existing pay TV model,” and he cited the recently introduced DirecTV Now as an example. It offers a smaller bundle of 100 channels at $35 per month.

He argued that it DirecTV Now already was having an impact on the industry, citing CBS’s decision to add NFL games to its All Access service at no additional charge as the type of action taken in response to competition.

Time Warner CEO Jeffrey Bewkes said that the Time Warner-owned Turner networks depend on broad distribution. He said that the combined company would give Time Warner more flexibility to offer “more choices and better experiences at more attractive prices.”

He cited the case of TV Everywhere, an initiative to offer content across devices. Although Time Warner has offered apps and video-on-demand to consumers, it has gotten bogged down as other companies have haggled over additional payments.

He said that there would be “no incentive” for the combined company to withhold content from competitors because “we would be cutting off meaningful revenue.”

The Turner networks, he said, depend on advertising revenue, and “if we didn’t have full coverage we could not sell advertising effectively to advertisers.”

He also said that when Time Warner owned a cable distributor, Time Warner Cable, “it never occurred to us to do anything different or restrictive when we owned it versus after.”

Their defense of the deal was bolstered by Mark Cuban, the entrepreneur and chairman of HD cable network AXS TV.

But Gene Kimmelman, the president of public interest group Public Knowledge, said that while he praises the offering of a service like DirecTV Now, “the question is what happens when you combine those assets.”

He noted that the Department of Justice, in reviewing past mergers like the combination of Comcast and NBC Universal, found that the combined company would have incentives to harm competition, and put in place conditions to try to prevent it.

“This deal is even bigger,” he said.

He also said that a concern is in the dominance of AT&T’s wireless offerings, and whether its offering of “zero rating” on AT&T owned programming poses a competitive harm.

“Zero rating” is the term for offering consumers the ability to stream content without counting against their data caps. Critics of the merger suggest that this could be used to allow AT&T to gain an unfair competitive advantage over competitors, as consumers would be drawn to programming that doesn’t threaten to add additional subscription fees.

Stephenson, however, compared zero rating to AT&T past offerings of toll-free telephone calls.

Daphna Ziman, president of Cinemoi North America, warned that the industry already was concentrated too greatly at the expense of independent programmers — 90% of the content on TV controlled by six conglomerates. Her network, she said, competes with such networks as Turner Classic Movies, but it has been difficult getting distribution from major players.

“More consolidation is not the answer,” she said, adding that it will be “catastrophic to diversity” and shut out fledgling networks run by women and minorities.

She argued that the combined company would have “the means and incentive to discriminate against independents.” She pointed to the panel, which was made up of white men.

Stephenson told lawmakers that he thought that the merger would lead to lower prices for consumers in that it will speed up the ability to offer content across all platforms.

“You can speed innovation like you can never do in arm’s length transactions,” he said. “Our ambition is that the customer pays for their content only one time.”

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