By David Shepardson and Anjali Athavaley
WASHINGTON/NEW YORK (Reuters) - AT&T Inc (N:T) will not sell cable network CNN to win antitrust approval of its proposed $85.4 billion purchase of media company Time Warner Inc (N:TWX) and will fight the government in court if the two sides cannot reach an agreement, the wireless company's chief executive said on Thursday.
Justice Department staff have recommended that AT&T sell either its DirecTV unit or Time Warner's Turner Broadcasting unit, which includes news company CNN, a government official told Reuters on Thursday, on the grounds that a combined company would raise costs for rival entertainment distributors and stifle innovation.
The two sides are still in talks over approval of the deal but have disagreed over the necessity of asset sales.
"If we feel like litigation is a better outcome then we will litigate," AT&T CEO Randall Stephenson told the New York Times DealBook conference on Thursday. He said the company had been ready to go to court the day the deal was announced in October 2016.
AT&T has signalled it would not agree to sell DirecTV, which it acquired for $49 billion in 2015, leaving CNN and other cable TV assets as the main sticking point in negotiations.
The antitrust regulator is worried the combined company could make it harder for rivals to deliver content to consumers using new technologies, the official said.
For its part, AT&T has said it wants to disrupt "entrenched pay TV models," most likely by making more video available on its customers' smartphones and tablets.
OVER BY APRIL
Stephenson said the deal was a classic "vertical" merger that removed no competitors from any market and denied the company would be too powerful.
He said a combined AT&T and Time Warner would create a data and advertising company competing against the newest and most disruptive entrants into the media sector: Amazon.com Inc (O:AMZN), Facebook Inc (O:FB), Netflix Inc (O:NFLX) and Alphabet Inc's (O:GOOGL) Google, not other wireless phone companies.
The Justice Department's desire for asset sales, which normally would not be required in a merger between companies that are not direct competitors, has raised concerns about political influence on the deal, given U.S. President Donald Trump's frequent criticism of CNN. As a candidate, Trump vowed to block the deal shortly after it was announced, but has not addressed the issue publicly as president.
Stephenson told the conference he has no reason to think Trump would be a factor in the deal's approval and said he hoped the matter would be settled well before the April 22, 2018 deadline when parties can walk away from a deal.
AT&T told the Justice Department on Monday that it believed it had complied with all legal requirements for the deal to be cleared, a person briefed on the matter said. That sets a deadline for the government to sue if it wants to block the merger. Officials said that detail could be as early Nov. 27.
The head of the Justice Department's antitrust division, Makan Delrahim, said in a statement late on Thursday that he has "never been instructed by the White House" on the AT&T deal.
Raj Shah, a White House spokesman, said in a separate statement that Trump "did not speak with the Attorney General about this matter, and no White House official was authorized speak with the Department of Justice on this matter."
The deal is opposed by an array of rivals and consumer groups worried that it would give the combined company too much power. Opponents are pushing for conditions that would limit AT&T's ability to charge media rivals higher prices to carry Time Warner content.
Shares of Time Warner closed down 1.6 percent at $87.05. AT&T shares rose 1.6 percent to $34.00.