WASHINGTON — A key government expert witness took the stand in the AT&T-Time Warner antitrust trial, running through the results of his study showing that the merger will lead to higher prices for consumers.
The expert, UC Berkeley Professor Carl Shapiro, traces the price increases to the increased leverage that AT&T-Time Warner will have in the marketplace, and that one of its subsidiaries, the Turner networks, will be able to demand and get higher rates for its channels in carriage negotiations from AT&T’s rivals.
But U.S. District Judge Richard Leon, who is presiding over the case, questioned one of Shapiro’s assumptions — that the Turner networks actually will take marching orders from new parent AT&T, in a way that also would be to the benefit of AT&T-owned DirecTV.
Leon noted that an executive from NBCUniversal testified that he didn’t “take orders” from Comcast, its corporate parent, and that it conducted its negotiations with Comcast Cable’s rivals independently.
Shapiro said that there would be an incentive within the company to act in a way that would benefit AT&T’s interests. He acknowledged that he was making an “assumption,” and that he didn’t have evidence that such a scenario happened in the case of Comcast-NBCUniversal. He also noted that Comcast-NBCUniversal is operating under a consent decree as part of its 2011 merger, which governs its conduct in the marketplace. Shapiro later said that his assumption was based on the standard of review for mergers.
Shapiro, who worked on the Comcast-NBCU merger when he was chief economist for the Justice Department, said that merger would give AT&T-Time Warner the increased incentives to exert its leverage, and suggested that not doing so would mean “leaving money on the table.”
Much of the morning was spent going over how Shapiro came up with one of his key conclusions of his economic model — that the merger would lead to a net increase in prices for pay-TV subscribers of $436 million annually. AT&T has pointed out that the figure works out to about 45 cents per month.
Shapiro also said that his study shows that the merger would create two vertically integrated giants in the business — AT&T-Time Warner and Comcast-NBCUniversal — and that there would be a “risk” and “danger” that they will “coordinate” to withhold programming in a way to harm emerging online multichannel distributors.
He also concluded that AT&T-Time Warner could restrict DirecTV’s rivals from using HBO as a promotional tool, as it is often dangled by cable and satellite companies to lure new customers and retain existing ones.
Under cross examination on Wednesday afternoon by AT&T-Time Warner’s lead attorney Dan Petrocelli, Shapiro acknowledged that his warning of the risk that AT&T and Comcast would coordinate was not based on a quantifiable model, as well as the contention that AT&T could withhold HBO as a promotion tool.