On eve of trial on Time Warner deal, AT&T, U.S. government lay out cases

By Diane Bartz

WASHINGTON (Reuters) - In a preview of arguments in a trial over AT&T's deal to buy Time Warner Inc , government lawyers said on Tuesday the deal will raise prices for consumers while AT&T's lawyer argued the company has no reason to withhold programming from competitors as feared.

U.S. District Judge Richard Leon, who will decide the case, delayed opening arguments until Thursday because of bad weather in Washington. The government has asked Leon to rule that the $85 billion deal is illegal because it would hurt cable television rivals and, by extension, their consumers.

The government estimates that the deal would hike an average subscriber's monthly cable bill by 45 cents. It filed its lawsuit in November.

At a hearing to discuss how to handle sensitive business information in the trial, AT&T lawyer Daniel Petrocelli said it would be "catastrophic" for Time Warner to withhold programming in hopes that disgruntled customers would drop their cable company and sign up with AT&T's DirecTV, as the government has said they could do.

Petrocelli argued that Time Warner would lose millions of dollars a month in fees and advertising, and that the few subscribers that DirecTV could gain would not make up the difference.

He also pointed to a voluntary commitment that AT&T made to distributors to refrain from withholding programming if there is an impasse in licensing talks. Twenty of its 1,000 distributors signed on.

Justice Department lawyer Craig Conrath said the government's first two witnesses, whom he did not identify, would discuss their companies' negotiations in buying Time Warner content.

"What drives these customers to have concerns is that their negotiating partner (Time Warner) is being acquired by someone they compete with," said Conrath.

An official from Google's YouTube will testify on the importance of Time Warner's Turner family of stations, which includes CNN, to DirecTV's rivals, a government lawyer said previously.

AT&T's Petrocelli also noted the role of big technology companies such as Facebook , Amazon , Apple, Netflix and Google in transforming how people watch television and, more to the point, winning away advertisers from the pay TV companies.

"They are running away with the industry," said Petrocelli, noting the internet companies' skill at targeting ads to the right consumer. "Cable bills can't go up any more because people won't pay any more."

Conrath indicated that an expert on advertising, whom he did not identify, would testify on this issue.

AT&T Chief Executive Randall Stephenson and Time Warner Chief Executive Jeff Bewkes are also expected to testify. The trial is expected to last six to eight weeks.

Justice Department lawyer Don Kempf urged the judge to reject AT&T's arguments that some government evidence was nothing more than draft reports written by junior executives, and not indicative of the thinking of top executives.

At issue, was a document that appeared to show that AT&T's business people saw the merger as a way to prevent market changes that would encourage cord-cutting.

Kempf said the preliminary documents show the "real truth" of AT&T's thinking. "The final version isn't the thoughts of the business people. It's the cover story of the lawyers," he said.

Looming over the trial is the question of whether U.S. President Donald Trump, who criticized the deal on the campaign trail and again as president, may have influenced the Justice Department's decision to oppose the transaction.

AT&T lawyers have said the Time Warner deal may have been singled out for enforcement, citing Trump's statements that the deal was bad for consumers and the country.

(Reporting by Diane Bartz; Editing by Cynthia Osterman and Grant McCool)

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