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Justice Department's effort to halt AT&T-Time Warner merger goes to trial as both sides spar over evidence

Justice Department's effort to halt AT&T-Time Warner merger goes to trial as both sides spar over evidence
Key players in the case are, clockwise from top left: Randall Stephenson, AT&T's chief executive; Daniel Petrocelli, AT&T's and Time Warner's lead attorney; Jeff Bewkes, Time Warner's CEO; and Makan Delrahim, President Trump's antitrust chief. (Getty Images and Associated Press)

The high-stakes antitrust showdown over AT&T Inc.'s planned $85-billion purchase of Time Warner Inc. began in a Washington courtroom Monday as both sides sparred over key issues that signaled their legal strategies.

Opening arguments will take place Wednesday in a trial that U.S. District Judge Richard Leon said could last six to eight weeks. That's twice as long as originally estimated when the Justice Department sued last fall to halt the deal out of concerns it would squelch competition and raise consumer prices.

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Each side will have 30 witnesses, with AT&T Chief Executive Randall Stephenson and Time Warner Chief Executive Jeff Bewkes expected to testify. Leon said Monday that he'd allow extra witnesses if necessary because the case is "too important" to try to stick to a rigid timetable.

AT&T's lead attorney, Daniel Petrocelli, took aim Monday at thousands of pages of emails from AT&T employees that the Justice Department wants to submit as evidence of potential competitive harms of the deal.

Petrocelli argued that the government was asserting too broad a view of what is considered a business record. As an example, he cited 18 documents produced by a lower-level AT&T employee whom Petrocelli described as "one young man who just came out of business school."

"He had absolutely nothing to do with the decision to acquire Time Warner," Petrocelli said.

But Justice Department attorney Eric D. Welsh said many of the emails and other documents from AT&T employees are relevant to the case. He said they include "some very startling statements."

"We're not talking about someone who was just hired off the streets," he said. "Some of them are from top AT&T executives."

Leon indicated he would be cautious about assuming that documents produced by lower-level employees reflected the views of top executives.

AT&T and the Justice Department also clashed over documents containing confidential business information. AT&T, Time Warner and other companies in the media industry are concerned about releasing such information in open court.

Welsh complained that AT&T had designated "millions of pages of documents" as confidential, including news releases that had been issued to the public. Petrocelli countered that the Justice Department was challenging AT&T's confidentiality designations while not raising concerns about such designations from competing companies that oppose the merger.

The Justice Department proposed allowing Leon to close the court to the public in some instances to hear testimony about confidential information. But Leon appeared skeptical about the need for much of the confidential information.

"There's a natural desire … to paint with a broad brush — everything is confidential," he said, urging both sides to cull the confidential claims.

Leon added that "trying cases of this magnitude in closed court" was inconsistent with the U.S. justice system.

"We're not in the secret-forum business," he said.

The Justice Department has sued to block AT&T's proposed purchase of Time Warner, whose media empire includes HBO, CNN, TNT, and Hollywood's largest movie and TV studio, Warner Bros.

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AT&T, which purchased DirecTV three years ago, already is the nation's largest pay-TV provider with more than 25 million customer homes. The company also has more than 100 million customers for mobile service, an increasingly important market as younger Americans prefer to watch programming on their phones.

The government alleged that AT&T would use its expanded size to freeze out new TV entrants and raise prices for customers.

To reduce the clout AT&T would get from Time Warner's extensive assets, federal antitrust officials demanded the company sell some Time Warner networks or DirecTV in exchange for approval of the purchase.

AT&T refused, setting up one of the biggest antitrust showdowns in years.

The Dallas company argued that prices would go down if the deal is approved. AT&T also noted that the purchase of Time Warner is a vertical merger, meaning the two companies do not directly compete in their primary business.

The Justice Department hasn't successfully blocked a vertical merger in nearly 50 years.

Such deals are different from horizontal mergers, which involve companies that primarily compete directly. Those deals remove competitors from the marketplace and are more frequently blocked.

AT&T said that in 2011, the Justice Department allowed a major media vertical merger when it approved Philadelphia cable-TV giant Comcast Corp.'s acquisition of NBCUniversal.

The Justice Department wants to highlight statements made by AT&T and DirecTV about the dangers to competition posed by that merger.

But Petrocelli argued Monday that comments made by DirecTV before it was acquired by AT&T in 2015 are not relevant now.

"So much has happened at warp speed to change the landscape of the industry," Petrocelli said.

Leon said there were similarities and differences between the two mergers.

The government said that the AT&T-Time Warner transaction is three times larger than the Comcast/NBCUniversal deal. And although the Justice Department under the Obama administration imposed conditions on the Comcast-NBCUniversal deal, the Trump administration antitrust chief, Makan Delrahim, has criticized the approach.

Twitter: @JimPuzzanghera

UPDATES:

1:50 p.m.: This article was updated with additional details from the hearing.

This article originally was published at 11:30 a.m.

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