The fate of AT&T Inc.'s proposed $85.4-billion purchase of Time Warner Inc. — a deal that would reshape the media landscape — now rests in the hands of a federal judge after closing arguments Monday in the government's antitrust lawsuit to block the merger.
The Justice Department made its final plea to U.S. District Judge Richard Leon to halt the combination or significantly scale it back, arguing that the merged company would be so powerful it would hinder competition and raise pay-TV prices for consumers.
"This merger is a big deal…. It would have a massive impact on the structure of the pay-TV industry," Justice Department lawyer Craig Conrath said in his closing arguments in the six-week antitrust trial. "This is not just a big deal for the companies involved. It is a big deal to consumers."
But Daniel Petrocelli, the lead attorney for AT&T and Time Warner, said in his closing arguments that the Justice Department "did not come close" to meeting its burden of proving that the deal would harm competition.
"The government has managed to string out this merger for 18 months … based on a case that never should have been brought in the first place," he said. "We have a complete failure of proof."
Leon, who listened intently to the closing arguments, will determine whether the companies will be able to combine AT&T's telecommunications empire with Time Warner's stable of must-have content to form a media colossus.
AT&T Chief Executive Randall Stephenson and Time Warner CEO Jeffrey Bewkes, who both testified this month, watched the trial's final day from the second row in the packed Washington courtroom.
They smiled during breaks and appeared pleased with their defense, heartily congratulating Petrocelli after his closing arguments.
A major focus of the trial was whether consumer prices would be driven up because of the clout of a bulked-up AT&T to demand distributors pay more for Time Warner's high-demand content, including HBO, CNN, TNT and Hollywood's largest movie and TV studio, Warner Bros.
"They'd be a gatekeeper for the content their rivals need," Conrath said. "AT&T will be able to push up its prices and consumers will pay the bill."
AT&T would have incentive to threaten to withhold Time Warner content from rivals because its DirecTV unit could gain customers who cancel subscriptions with those rivals because they lack that content, Conrath said.
A government expert, UC Berkeley economist Carl Shapiro, testified earlier that prices would rise by hundreds of millions of dollars a year. An expert for AT&T and Time Warner said those calculations were faulty.
Petrocelli spent much of his 90-minute closing argument critiquing Shapiro's analysis and methodology.
Conrath urged Leon to nix the deal or provide significant structural remedies to preserve competition. He said Leon could force AT&T to sell Time Warner's Turner networks, which include CNN, TNT, TBS and Cartoon Network, or divest its DirecTV unit.
Those divestitures were similar to ones proposed by the Justice Department and rejected by AT&T before the government filed its lawsuit.
Leon said he would rule by June 12 to give time for the losing party to pursue a stay in the decision before the June 21 deadline the companies have set to complete the deal. The sides could still settle the suit if they can agree to conditions for a merger.
Makan Delrahim, the Justice Department's antitrust chief, told reporters last week that his "line is always open," suggesting a settlement was possible.
Speaking on an antitrust panel Monday at the Milken Institute Global Conference in Beverly Hills, Delrahim said a lot of the evidence in the trial involved the potential harms of combining AT&T's DirecTV distribution with Turner's content.
The "competitive harm" of the deal could be "resolved through other means," he said. "They could allow the deal to go through, as long as the injunction is for the Turner assets."
Delrahim rejected the idea that such an offer represented an admission that the government's lawsuit might fail.
"We wouldn't bring a case we didn't expect to win," he said.
Petrocelli dismissed divestitures.
"That is an effort to kill the deal because [if] you take away the pieces from one another, there is no deal," he said.
The Justice Department was stymied several times during the trial by Leon in its attempts to introduce evidence to bolster its case. But some confidential evidence has been submitted, making it difficult to determine which side has the upper hand.
AT&T, which purchased DirecTV three years ago, 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.
The deal, announced in October 2016, would give AT&T control of Time Warner's media empire.
The companies argued they need to merge to compete in a rapidly changing media landscape. Stephenson testified this month that his company needed "premium content" to compete with Netflix, Amazon.com, Facebook and Google in the battle to engage consumers and target advertising.
But the Justice Department sued, alleging that AT&T would use its expanded size to demand higher distribution fees and freeze out new TV entrants.
AT&T's lawyers have argued that if it acquired Time Warner, it would want to sell the programming to as many services as possible.
Petrocelli on Monday dismissed the contention that AT&T would threaten to withhold Time Warner content from distributors, a move known as a blackout. He noted that Turner has promised it would not blackout a distributor for seven years if the deal goes through.
Conrath argued in his rebuttal that the threat of blackouts was real.
"Isn't it a bit of a Kabuki dance where everybody threatens to go dark … and it never ends up happening?" Leon asked.
Conrath responded, "That doesn't mean it doesn't affect the bargaining."
AT&T 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 noted 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 with some conditions.
Times staff writer Michael Hiltzik contributed to this report.
4:25 p.m.:This article was updated with closing arguments by Daniel Petrocelli, the lawyer for AT&T and Time Warner, as well as comments by Mahik Delrahim, the Justice Department's antitrust chief.