WASHINGTON (CN) — The government’s key expert witness in its antitrust lawsuit to block AT&T’s $85 billion acquisition of Time Warner had trouble Tuesday defending his analysis that the merger will raise consumer prices for pay-TV subscribers by $571 million by 2021.
Taking the stand again during rebuttal arguments, University of California, Berkeley economics professor Carl Shapiro said during direct examination that he “absolutely” stands by his analysis.
But during a testy cross-examination by AT&T defense attorney Daniel Petrocelli, Shapiro conceded that according to more recent profit-margin data from AT&T, his low-end estimates of the price increases pay-TV customers could see on their monthly bills could be as little as $0.13.
Shapiro’s original range, based on older profit-margin data, predicted a $0.27 monthly price increases for consumers on the low end and $0.45 on the high end.
Shapiro’s admission could pose problems for the government, as his analysis formed the cornerstone of its case.
Shapiro, however, said he did not have access to the more recent profit-margins in time to adequately understand and analyze them.
“Apparently, I’m suffering the consequences of being conservative,” Shapiro said.
During a tense exchange, Petrocelli said Shapiro had the data in late February, and accused him of standing by the higher estimates simply because they are higher.
“That’s completely false,” Shapiro retorted. “AT&T for months did not provide the data I would normally expect to get.”
Petrocelli shot back that Shapiro could have updated his numbers but chose not to.
Frustrated, Shapiro cited lack of clarity during trial about what he can and cannot do, saying, “Any time I add two numbers together I’m not allowed to present it to the court.”
Shapiro suggested that Petrocelli was overemphasizing the low end of the range because it’s better for AT&T’s defense, and said he prefers to study data carefully to determine its reliability before he runs with it.
According to Shapiro’s economic analysis of the deal, which he based on an academic experiment, consumer prices would rise because the merger would give AT&T unfair leverage over rival distributors that want to buy Time Warner’s popular Turner networks, including CNN, TNT and TBS.
Shapiro estimated that the value of AT&T’s existing subscribers is twice that of potential new subscribers. That’s important, Shapiro said, because during a potential Turner blackout on rival providers, AT&T would retain subscribers who might otherwise switch to a different provider. That, he said, is where the increased bargaining leverage over rivals would come from.
That increased leverage could lead to blackouts of Turner content, the government has argued through six weeks of trial.
In support of the government’s position, Shapiro relied heavily on a $700,000 study conducted by Altman Vilandrie & Co. and commissioned by Charter Communications ahead of negotiations with Time Warner in 2016, which found that Charter could lose 9 percent of its subscribers if it lost Turner channels due to a blackout.
But that study, before a change was made, originally showed that Charter would only lose about 5 percent of its subscribers. According to testimony from the study’s lead author Stefan Bewley, he made the change because Turner’s data was an outlier from other programmers the study analyzed.
On Tuesday, Petrocelli presented documents in court showing that another key figure from the Altman study, which projected that 10 percent of DirecTV subscribers who might switch to Charter would be deterred by a Turner blackout, had also been changed in different versions of the study.
Shapiro, unaware of the change and unable to say how Charter arrived at that number, said it appears he made a mistake in his earlier testimony when he said that number had not been changed.
Petrocelli scolded Shapiro for failing to realize this after 16 months spent working on the case.
An agitated Shapiro grew so upset during the exchange that U.S. District Judge Richard Leon had to intervene, drawing an apology from Shapiro.
Shapiro is the final witness in the rebuttal phase of the trial. The government may call him back to the witness stand Thursday afternoon for a brief re-direct examination, after which Judge Leon will provide logistics for closing arguments.