If allowed by the Justice Department to proceed with its acquisition of Time Warner, AT&T said it would submit to baseball-style arbitration to settle complaints that it is gouging other MVPDs on rates for Turner programming. The offer was made in filings in the DOJ's suit to block the deal altogether.
AT&T Offers Alternative To Breakup Demand
Satellite Business News — If AT&T ultimately closes on its purchase of Time Warner, the Turner Broadcasting programming unit owned by Time Warner will submit to baseball style arbitration if it cannot come to terms on wholesale rates for its channels with video distributors, AT&T and Time Warner said yesterday in their initial response to the Justice Department’s lawsuit to block the deal.
In addition, the companies said, the Turner channels will agree to remain on the video services while the arbitration process plays out, and the provision will remain in place for seven years after the transaction is closed.
Under such a process, which has sometimes been used by the FCC, the programmer and distributor each submit the prices they believe are justified and the arbitrator chooses one of the amounts.
AT&T and Time Warner said the process will be “subject to a right of judicial review” and is “self-executing and will require no monitoring or enforcement by the government or this court.”
Among the arguments the government has made for not agreeing to so-called behavioral concessions from the companies is its unwillingness to become a regulator.
“Turner has offered this contractual commitment to its distributors as clear proof that, when it is owned by AT&T, Turner will have no greater incentive to increase the [wholesale] price of Turner Networks,” AT&T and Time Warner argued.
BRAND CONNECTIONS
“To that end, while the [government’s] allegations of competitive harm are wholly without merit, Turner’s commitment eliminates even the theoretical risk that lies at the heart of the government’s case — the risk that, post-close, Turner would be more inclined to threaten to ‘go dark’ on a distributor.”
The companies also argued that “Time Warner’s [programming] networks are not, in any antitrust sense of the word, essential to attracting and retaining subscribers.”
As part of the 29-page filing, AT&T and Time Warner also asked that DirecTV be removed as a defendant in the case because “DirecTV is not a proper defendant, and [the government] is entitled to no relief against it.”
Most of the filing contained the standard denial of specific paragraphs in the Justice Department lawsuit. However, at the beginning of the filing, the companies reiterated several of the arguments they have made over the past year over why the government should approve their transaction.
First on their list was the position that AT&T and Time Warner need to merge in order to compete with the likes of Netflix, Apple, Google, Facebook and Twitter.
“While incumbent cable companies continue to lead in the delivery of television programming to homes across the country, massive digital platforms are harnessing the power of vertical integration to bring premium video content directly to consumers’ Internet connected televisions, phones and tablets,” AT&T and Time Warner wrote.
In light of these developments, the companies said, “the proposed merger of AT&T and Time Warner is a pro-competitive, pro-consumer response to an intensely competitive and rapidly changing video marketplace.” The companies repeated their often stated position that “no competitor will be eliminated by this merger” and so the deal is “a classic vertical deal, combining Time Warner’s video content with AT&T’s video distribution platforms so that the merged company can compete more effectively against market-leading cable incumbents and insurgent tech giants.”
In order for the government “to challenge a vertical merger,” AT&T and Time Warner wrote, it “must prove that the merging parties enjoy sufficient market power in their respective markets to cause antitrust concern. Otherwise, the vertical combination of two companies occupying different levels of the supply chain cannot substantially lessen competition in violation of [federal antitrust law].
On this threshold issue, the government cannot meet its burden of proof.” Moreover, the companies said, for a number of reasons their proposed “transaction presents absolutely no risk of harm to competition or consumers.”
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