Judge rejects U.S. demand to exclude AT&T argument in Time Warner merger trial

By David Shepardson

WASHINGTON (Reuters) - AT&T Inc can cite a voluntary commitment not to withhold content in licensing talks as a key part of its defense when an antitrust trial begins next week over the fate of the company's planned $85 billion merger with Time Warner Inc , U.S. District Judge Richard Leon said on Tuesday.

The Justice Department filed a lawsuit in November to stop AT&T, which owns DirecTV and other products with 25 million subscribers, from buying movie and TV show maker Time Warner, which owns HBO and CNN, among many other channels. A trial is set to start on Monday.

The government argues the merger would hike pay TV subscribers bills by 45 cents a month, citing an expert analysis.

AT&T contends that analysis is fatally flawed because it does not include its commitment for seven years to agree to binding arbitration over disputes with distributors like DISH Network Corp or Comcast Corp over licensing terms.

The commitment, AT&T and Time Warner said in a legal filing released on Tuesday, "is a concrete assurance that this merger has never been about raising the price of Turner content."

Time Warner's Turner owns CNN, TBS, TNT and other networks that air news, sports and other programming. Last year, the government demanded AT&T agree to divest Turner as one offer to approve the merger.

The Justice Department had urged Leon to exclude the commitment, arguing the AT&T commitment was a "unilateral promise" that was not relevant to whether the transaction lessens competition. Leon rejected the Justice Department's argument that the issue would "waste the court's limited time and confuse the proceedings."

John Stankey, the head of AT&T's entertainment group who is set to head the combined company's media business, said in a deposition that the company would not withdraw the commitment.

The government's analysis assumed the combined AT&T Time Warner would have "bargaining leverage" that it could use to compel distributors to pay higher prices for Turner networks, citing a model by an economist, AT&T said.

The Justice Department said 20 of 1,000 distributors had agreed to the arbitration offer made in November. AT&T said it modeled the commitment on a provision of the terms of the Comcast acquisition of NBCUniversal.

Leon also denied a request by 11 former Justice Department officials to reconsider his refusal to allow AT&T to demand communications between the White House and Justice Department about the merger probe.

(Reporting by David Shepardson; Editing by Rosalba O'Brien and Lisa Shumaker)

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