WASHINGTON (CN) – The federal judge overseeing the government’s antitrust case to block the $85 billion AT&T-Time Warner merger cautioned attorneys on both sides Monday, after it was revealed that a government witness received transcripts of opening arguments and prior witness testimony before he testified.
Despite the violation of witness rules, U.S. District Judge Richard Leon allowed the witness, president of Dish Network’s internet streaming service Sling TV Group Warren Schlichting, to proceed with his testimony. But not before several hours of grappling with what to do.
Before the testimony began, Leon huddled with attorneys from both sides at the bench for roughly 90 minutes while white noise filled the courtroom to prevent those present from hearing the conversation.
It wasn’t until the bench trial resumed in the afternoon after a two-hour lunch break that Leon explained what had happened.
“The situation we had here today was a violation of the rule against witnesses,” he said.
Leon said he reviewed emails and talked to participants in the matter before deciding that Schlichting’s testimony could proceed.
“There was a mess-up by counsel,” Leon said. “It shouldn’t have occurred. They have apologized.”
Witnesses are not allowed to receive advance notice of other testimony before they testify, unless they are experts or representatives of involved parties. Leon issued a firm warning to attorneys for both sides over the transgression, reminding them that they must keep tabs on attorneys for third party witnesses in the case, who are mostly competitors of AT&T and Time Warner.
“Should this happen again – hopefully it will not – the witness will be struck,” Leon said. The responsible lawyer could also be held in contempt, he added.
Schlichting took the witness after Leon’s explanation, answering questions about his role at Dish and his perception of how the merger could impact his company. According to Schlichting, Dish’s business model is structured around consumer complaints about pay-TV providers that only offer cable packages with lots of channels.
Dish keeps its prices down, he said, and doesn’t require consumers to enter contracts, buy equipment or pay for a bunch of channels they don’t actually watch or want.
But to maintain its satellite and internet TV model it must reach deals with programmers to be able to offer what he called “must-have” channels, like TNT, TBS, HBO and CNN.
Negotiations with programmers like Turner, for example, were already tough before the merger, he said. And while the parties engage in a “mutual headlock” during negotiations, Schlichting said they have until now been motivated to reach a deal.
The merger could change that, he said.
“I just don’t see them having any incentive to move,” Schlichting said during his testimony. He added he fears the merger would also allow programmers to force onerous terms upon Dish, which he said could include being forced to offer all eight Turner channels instead of the four they offer now.
“That would break what we think is a unique model,” he said.
He also cautioned Dish could lose subscribers if Turner networks were pulled from Dish, which he said could be the other possible outcome of the merger. Schlichting said many customers who leave Dish go to DirecTV, a subsidiary of AT&T.
“It’s a Hobson’s choice for us,” he said.
The government claims AT&T’s acquisition of Time Warner will give it the power to raise prices on other pay-TV distributors, and that the cost – which it estimates to be $400 million annually – will get passed on to consumers.
The Justice Department says the merger would stifle emerging competition from online TV services such as Dish’s Sling TV.
AT&T rejects that argument and says the merger would benefit consumers by allowing the newly merged company to offer new products that can compete with Netflix and Amazon.
Attorneys for AT&T and Time Warner did not have a chance to cross-examine Schlichting Monday, but Leon assured them they would have complete freedom to question him.
The government is expected to call John Martin, the CEO of Time Warner’s Turner Broadcasting as the next witness.