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AT&T-Time Warner Trial: Focus Turns to Charter’s Opposition to Merger

WASHINGTON — A senior executive at Charter Communications testified at the AT&T-Time Warner antitrust trial that he has concerns that the merger will enable the combined company to demand “excessive” price increases and give them greater leverage over content-bundling practices.

But Tom Montemagno, who, as Charter’s executive vice president of programming acquisition, is chief negotiator for carriage of cable channels, said that he was largely unaware of the contents of a study that Charter commissioned in 2016 to gauge the impact of the potential loss of Turner network channels, which include CNN, TBS, and TNT.

That study, which initially cost $700,000 and was done by Altman, Vilandrie & Co., came up with a key estimate that Charter would suffer a 9% loss in current and potential subscribers if it were to lose the Turner channels. It was commissioned by Charter in advance of what were expected to be tough negotiations for carriage with Time Warner’s Turner networks.

The Justice Department is trying to show that the merger will give AT&T-Time Warner greater leverage to demand onerous rates for Turner channels, or rival distributors will face  losing large number of subscribers should those channels go dark. By calling a number of witnesses from competitors like Charter, Dish Network and Comcast, the DOJ has tried to show that Time Warner already commands great sway in securing favorable terms.

AT&T-Time Warner’s lead counsel, Daniel Petrocelli, challenged the Allen, Vilandrie report’s methodology. He also inferred that in April, 2017, its key estimate was revised to 9% to cast a more dire scenario for Charter, just as the company was going to the Justice Department to express its opposition to the merger.

Its lead author, Stefan Bewley, a director at Allen, Vilandre, said that the figures were revised after he presented its findings to Charter on April 26, 2017.

But he added that the change occurred because he saw that some of the figures his team had gathered about Turner networks were outliers — 5% on the low end and 14% on the high end. So a different methodology was used to come up with a “weighted average,” or 9%.

Bewley denied that the change was made at the behest of Charter. “It was our method,” he told Craig Conrath, the lead attorney for the Justice Department. Asked if anyone told him he had to make the change, he said, “No.”

Petrocelli noted that April 26 was also the date that Charter executives met with the Justice Department to express their concerns about the merger, and that Charter gave the Allen, Vilandre study to government lawyers.

Bewley, however, claimed that at the time, he was unaware that Charter was meeting with the Justice Department or that the company was giving them the study. Bewley said that he first talked to the DOJ in late August.

The findings in the study are important, Petrocelli said, because the 9% figure was used by a key expert witness for the Justice Department, economist Carl Shapiro, in his model to calculate the impact of the merger. It showed the union of AT&T and Time Warner would lead to a 45 cent-per-month increase in monthly bills for pay-TV subscribers. A lower figure of 5% would have shown no change, Petrocelli said.

Another AT&T-Time Warner attorney, Rob Walters, pressed Montemagno on his knowledge of the Allen, Vilandre study. Walters at one point asked Montemagno whether he found it “strange” that, as the lead negotiator, he knew so little about a study that was commissioned for the purpose of negotiating strategy.

Montemagno said that the study was overseen by a separate Charter analytics team, yet acknowledged that he only skimmed through it. When asked if he was “skeptical” of its key finding of a 9% subscriber loss, Montemagno answered, “It’s tough to estimate what the exact outcome will be.”

Part of the study involved an internet survey that included 10,000 participants who could earn a small reward or stipend for their time. The other part relied on set-top box data on subscribers’ viewing. Allen, Vilandre also produced a “hybrid” result that relied on survey and set-top box information.

U.S. District Judge Richard Leon asked a number of questions about the survey, including how Allen, Vilandre could make sure that participants weren’t just skimming through it and were being honest in their answers. Bewley said that they had a set of “quality control” questions in place to try to screen participants.

Other highlights:

AT&T-Time Warner leverage: Montemagno said that a concern of Charter is that AT&T will “mash it all together” when it comes to negotiations for HBO, Turner and sports programming. “That is going to change [negotiations] greatly,” he said.

Charter is the second largest cable provider, and Montemagno’s testimony was a contrast to that of an executive from the No. 1 provider, Comcast, last week. When asked whether the merger would alter the dynamics of negotiations, Comcast’s Greg Rigdon said that he had “no reason to believe” it would change things.

Next up: Scheduled to take the stand on Wednesday are AT&T’s Vince Torres, Playstation’s Dwayne Benefield and HBO’s Simon Sutton.

 

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