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U.S. senators quiz AT&T, Time Warner executives over how planned merger would affect consumers

U.S. senators quiz AT&T, Time Warner executives over how planned merger would affect consumers
AT&T CEO Randall Stephenson, left, and Time Warner CEO Jeffrey Bewkes are sworn in on Capitol Hill prior to testifying before a Senate Judiciary subcommittee hearing on the proposed merger between AT&T and Time Warner. (Evan Vucci / Associated Press)

U.S. senators launched the government's review of AT&T's proposed takeover of Time Warner Inc. on Wednesday, quizzing company executives on a host of concerns, including whether consumers' monthly TV bills would continue to climb if the mega-media marriage is approved.

The merger review comes amid a charged atmosphere in Washington. President-elect Donald Trump has said his administration would block the proposed $85.4-billion AT&T-Time Warner combination because it would mean “too much concentration of power in the hands of too few.”  Now, Trump’s Department of Justice will decide whether the government will approve the combination — or try to block it.

Although lawmakers won't decide the outcome, the issues raised Wednesday on Capitol Hill will be central to the Justice Department’s scrutiny of the deal.

Critics worry that combining AT&T — the nation's largest pay-TV company and second-largest cellphone service provider — with Time Warner — an entertainment colossus that  owns CNN, HBO and the Warner Bros. film and TV studio —  could hinder development of the online streaming market, which competes with traditional TV.

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“Speaking bluntly, what I think, what any of my colleagues thinks, may make no difference whatsoever because Donald Trump has said he’s going to block this merger, and I take him at his word,” Sen. Richard Blumenthal (D-Conn.) said, eliciting snickers from the audience in the hearing room.

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Blumenthal said that while he tended to agree with Trump's antitrust analysis, he expressed deep concerns over whether Trump would use the power of the presidency to punish news outlets, in this case CNN, if he doesn't like the coverage.

"For a public official to use the blunt and heavy instrument of law enforcement to try to silence or change coverage by a news department of any company, for me, is absolutely abhorrent," Blumenthal said.

The senator asked AT&T Chief Executive Randall Stephenson and Time Warner CEO Jeffrey Bewkes, who both were testifying before the committee, if they shared his concerns about the importance of preserving 1st Amendment protections.

Bewkes replied that Time Warner has long defended its journalistic independence. Stephenson labeled himself "a political novice," and stopped short of criticizing Trump.

"The Department of Justice will be the one reviewing this transaction and making a determination of whether it is competitive or not," Stephenson said. "We actually believe the facts are going to be very compelling and very good, that this is pro-competitive and pro-consumer."

The bulk of the 2 1/2-hour hearing delved into whether AT&T would have too much power if it swallowed Time Warner, which also owns TBS, TNT, Cartoon Network and Turner Classic Movies.

While buying Time Warner would not wipe out a direct competitor, AT&T would become more influential because it would own both the programming and the delivery systems used by more than a quarter of Americans.

The Federal Communications Commission already has raised concerns about AT&T’s decision to enable its cell phone customers to stream DirecTV content without having it count against their monthly data caps, which leads to higher fees. AT&T bought DirecTV last year.

Critics say the move by AT&T to keep DirecTV content exempt from data caps shows that AT&T would favor its own programming at the expense of content provided by a rival such as Netflix.

“The solution for less competition is not even less competition,” Sen. Amy Klobuchar (D-Minn.) said.

Sen. Michael S. Lee (R-Utah), chairman of the Senate subcommittee on antitrust issues, added: "The potential antitrust favoritism the combined firm could bestow on its own products is not limited to price or access, but extends to the quality of the offerings as well,” 

But Stephenson said the Time Warner acquisition would ensure more vibrant competition — not less.

The AT&T chief was joined by an unexpected ally: billionaire Mark Cuban, who owns the Dallas Mavericks basketball team. Cuban, who struggled to get wide distribution for his cable-TV channels, argued that lawmakers should have a more expansive view of the competitive landscape.

"The media world has changed," Cuban said. "It used to be that TV was the best alternative to boredom." adding that now millions of Americans turn to an app on their phone when they want to be entertained.

Facebook, Google and Apple, which control many of the apps that consumers use, have become more influential than AT&T and Time Warner in determining what content consumers will watch, Cuban argued.

Consumer group Public Knowledge's Chief Executive Gene Kimmelman countered that consumers do not pay more than $200 a month to Google and Facebook as they do for their pay-TV and Internet service.

AT&T and Time Warner executives maintain that they need to combine to better adapt to the dramatic changes in media consumption.

Stephenson said AT&T would become more innovative and design better offerings if it controls the rights to Time Warner's content, rather having to engage in lengthy and complicated negotiations for those rights.

He pointed to DirecTV Now, AT&T's new streaming service, which offers traditional TV channels for $35 a month. AT&T was able to create the service to watch TV on computers, tablets and phones because it bought DirecTV last year.

The CEOs also said their union would improve advertising for consumers. Because the company would have access to data about what products viewers would be inclined to buy, ads would be more relevant.

But there were dissident voices, including from independent programmers who struggle to get carriage on pay-TV systems, such as DirecTV.

"Further consolidation would be catastrophic to diversity," said filmmaker Daphna Edwards Ziman, president of independent movie channel Cinemoi.

For several of the lawmakers, the chief concern was the cost of pay-TV service — and unfulfilled promises from past mergers.

A Consumer Federation of America study released Wednesday showed that households pay about $2,700 a year for phones, Internet and pay-TV service and are overcharged by about $45 a month for those services.

"We have seen this plot before, like a tired movie franchise," Klobuchar said. "We can predict the ending before it begins: the promise of thriving competition collapses, replaced by dominant firms with monopoly power."

But Stephenson, the AT&T chief, promised: "This will drive consumer costs down."

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