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AT&T-Time Warner Trial: DOJ Goes After Claims of Merger’s Cost Savings, Revenue Growth

WASHINGTON — The AT&T-Time Warner antitrust trial began to wind down on Monday as the Justice Department presented two expert witnesses who have raised doubts about the cost savings and new revenue that can be tied to the merger.

AT&T’s John Stankey, tasked with overseeing the integration of the companies, last week testified that his group had identified about $2.5 billion in merger synergies, including cost savings and additional revenue. Those synergies may play a role in how U.S. District Judge Richard Leon ultimately views the transaction, as they make the case that the merger will produce certain efficiencies.

One of the DOJ’s witnesses, Ronald Quintero, said that none of the companies claimed synergies that he studied could be verified through documentation or were not specific to the merger. He said that some of the figures that AT&T-Time Warner used were speculative.

In a contentious cross-examination, AT&T-Time Warner attorney Rob Walters tried to attack Quintero, suggesting that he “turned a blind eye” to finding out more about how the companies came up with the figures.

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“I only know what they provided in documentation,” Quintero said.

Walters pointed to claimed cost efficiencies from corporate overhead that will come from the merger. For instance, there will be savings from the elimination of the Time Warner board of directors and the departure of Jeffrey Bewkes, its CEO, he said.

Quintero said that while such savings may be achieved through the merger, the companies had not provided adequate material for him to give them credit for the efficiencies in his review.

Another witness, Stanford professor Susan Athey, questioned AT&T’s projections for the growth of its ad business because of the merger.

AT&T projects expanding the sales of ads by “several hundred million per year” by 2020, Athey said, via the use of data to better target ad spots, including those on Time Warner’s Turner networks. She said that the projected revenue growth appeared to be based on assumptions, and that such targeting can be achieved via data sharing arrangements and without merger.

She also questioned whether AT&T’s plans to build an automatic ad platform, in which buyers and sellers across the industry could buy spots across screens and devices, would actually work. She said that Google tried to do something similar starting in 2007, but it shut down five years later because potential participants “didn’t see the value” in going to the platform.

AT&T-Time Warner attorney Mike Raiff highlighted how Time Warner’s Turner networks have been largely unsuccessful in acquiring useful ad-targeting data from third parties. He also pointed out that AT&T’s  automatic ad buying platform will initially depend on the availability of the Turner networks ad inventory.

The DOJ is seeking to block the merger, claiming that the combined company will gain increased leverage over AT&T’s distribution rivals for the rights to carry Time Warner’s Turner networks. That will ultimately lead to higher prices for consumers, the government says.

The trial is now in its sixth week, and witness testimony is expected to wrap up in the next several days. Carl Shapiro, the government’s economic expert, is expected to return to the stand on Tuesday. It probably can’t come soon enough. Leon on Monday instructed an attorney for AT&T-Time Warner, Rob Walters, that he had just one question left as his cross-examination of Quintero went on apparently too long. The judge later told Athey to answer questions directly, rather than provide lengthy explanations.

“You aren’t teaching a course here,” Leon said. “Answer the question.”

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