AT&T INC. — Call Transcript 2016

Oct 26, 2016

Filed by AT&T Inc.

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a–12

of the Securities Exchange Act of 1934

Subject Company: Time Warner Inc.

Commission File No.: 1-15062

The following is a transcript of a live interview with AT&T CEO Randall Stephenson and Time Warner Inc. CEO Jeff Bewkes posted on the website of the Wall Street Journal on October 25, 2016:

1 P R O C E E D I N G S

2 INTRODUCTORY SPEAKER: All

3 right, what would you buy if I

4 gave you 85 billion dollars? AT&T

5 just bought Bugs Bunny, Batman,

6 and the Baratheon family, it's the

7 deal of the fall, and I'm sure

8 you've got a lot of questions, and

9 we've built in some time for that

10 today.

11 To get things started let's

12 bring out the deputy editor in

13 chief, Rebecca Blumenstein, also

14 the CEO of AT&T, Randall

15 Stephenson, and the chairman and

16 CEO of Time Warner, Jeff Bewkes.

17 MS. BLUMENSTEIN: Well,

18 thanks so much to you both for

19 coming all the way, after

20 announcing the biggest media deal

21 in years.

22 I -- I want to cut to the

Page 1

1 chase: Time Warner was bought

2 once before, tell me why it's

3 going to turn out better this

4 time.

5 MR. STEPHENSON: Well, we

6 didn't try before, all right?

7 I'll start there.

8 But this -- this deal was

9 about one thing, and that was, how

10 could we change the game in this

11 ecosystem, because if there was

12 ever an environment that was

13 begging for innovation it is this

14 environment.

15 And if you think about

16 what's happened in this system

17 literally you have 20 million

18 households now who have left the

19 premium content system. They're

20 not buying a bundle of premium

21 content, they're gone, they're not

22 around, and this is one of the

Page 2

1 things we're trying to do, how do

2 you begin to do something to

3 access that -- that segment of the

4 market.

5 MS. BLUMENSTEIN: So they've

6 kind of cut the cord?

7 MR. STEPHENSON: Yeah,

8 they've cut the cord. They're not

9 even engaged in the premium

10 ecosystem anymore.

11 And then so we're going to

12 launch, at the end of next month,

13 November, a product that we think

14 does this, and that's what this

15 deal is about, and I think it's

16 important to understand it, it's

17 Direct TV Now is what we're

18 calling it, but this is, for the

19 first time, a hundred plus premium

20 channels, all right? This isn't

21 the junk nobody wants. This is a

22 hundred plus premium channels,

Page 3

1 purely over the top, a mobile

2 centric platform for $35 a month,

3 all right? It has all of Jeff's

4 content, it has all the premium

5 content that you know and love,

6 you like to watch, $35 a month,

7 and that includes your mobile

8 streaming costs, all right?

9 Streaming it over the mobile

10 internet. So 35 bucks pretty much

11 all in, we think this is big. We

12 think it's a game changer.

13 MS. BLUMENSTEIN: So you're

14 making more news now by announcing

15 the price point.

16 MR. STEPHENSON: We haven't

17 announced the price point before

18 but we're announcing it right now.

19 And as you think about people

20 saying this is nothing but a way

21 to increase prices, no, this is a

22 way to drive pricing down in the

Page 4

1 marketplace. We think this is

2 really important.

3 And I think there's

4 something else that's important,

5 and it's instructive to how you

6 consider this deal, and that is:

7 That would not be possible, we

8 started trying to develop this

9 product over a year ago, it would

10 not be possible had we not done

11 the Direct TV deal, it would be

12 impossible, because we had been

13 trying to do this for the last

14 three years.

15 We cannot get the media

16 companies to participate in this

17 until we have scale, in fact,

18 interestingly enough, one of the

19 last companies to finally come in

20 to this hundred channel package

21 was Fox. They were the last ones

22 to come in.

Page 5

1 And I think what's equally

2 instructive is one of the first

3 ones in was NBC Universal, which I

4 think is ironic, when you think

5 that the one company that is

6 vertically integrated, like we're

7 talking about doing, is one of the

8 first ones in doing the innovation

9 in the marketplace.

10 And I would tell you one of

11 the other first ones in was this

12 guy, we got TBS, TNT, all of those

13 channels we got in early in the

14 game. And -- and I think that's a

15 really important observation, that

16 if you want to innovate you're

17 going to have to have scale,

18 you're going to have to have

19 content that will allow you to

20 innovate.

21 And so to that end, just

22 considering that, there was a lot

Page 6

1 of noise yesterday around what

2 this new company looks like, and

3 -- and what people should be

4 concerned with.

5 And we have, internally, at

6 AT&T, that Jeff's team will be

7 introduced to, we call it our

8 Magna Carta: What are the guiding

9 principles as you put these two

10 companies together. And it starts

11 with, "Dear AT&T executives, with

12 distribution assets, Direct TV,

13 our mobility company, number one

14 principle of the Magna Carta is:

15 Recognize, Time Warner will

16 continue to distribute their

17 content widely and broadly.

18 You're now going to get exclusive

19 access to Time Warner content.

20 They've built a franchise on wide

21 and broad distribution that's

22 going to continue.

Page 7

1 Time Warner, when you come

2 in, point number two, our

3 distribution businesses are going

4 to continue to distribute a wide

5 variety of content. That's what

6 the customers expect and want, a

7 hundred channels of premium

8 content, that will not change.

9 Time Warner don't expect that to

10 be premium.

11 MS. BLUMENSTEIN: So you're

12 vowing you're not going to take

13 any price advantage?

14 MR. STEPHENSON: We're

15 actually trying to bring prices

16 down, $35, you know, find that in

17 the marketplace with wireless

18 streaming, right?

19 Principle number three, and

20 this is to the AT&T board, when

21 you own a news company

22 independence is sacrosanct. You

Page 8

1 must protect the independent

2 editorial privileges of that news

3 organization. And to the extent

4 your customers deem otherwise you

5 damage the brand of a CNN,

6 specifically.

7 Fourth is, Time Warner is

8 going to become the launching pad

9 for innovation. Time Warner is

10 what we're going to try to touch

11 these third rails that the

12 industry will not and has not

13 touched. It's where we're going

14 to begin to experiment and test,

15 how can you bring a la carte

16 pricing into the ecosystem? How

17 can you do that?

18 I think this is going to be

19 a really important innovation.

20 It's also the place where we'll

21 begin to develop new ad support

22 models, where you can net $35

Page 9

1 price point, these content costs

2 are not going to be flat. So how

3 can we develop new ad models that

4 will allow us to keep the price

5 point in check offsetting the

6 price increases on content?

7 I think that's really,

8 really important. And then last

9 element of our Magna Carta is: We

10 are going to be a head-to-head

11 nationwide competitor with the

12 cable ecosystem.

13 And 5G deployment is a game

14 changer. We will be a new

15 competitor nationwide with 5G.

16 And so the intent is to bring Time

17 Warner and AT&T together and

18 create a very new and a very

19 different kind of competitor,

20 nationwide, in the cable

21 ecosystem.

22 So that's how we're framing

Page 10

1 this, this is what we're trying to

2 become as a company.

3 MS. BLUMENSTEIN: So Jeff,

4 are you trying to right the

5 historical wrong of AOL, in part,

6 here? You have come out

7 previously against the

8 distribution coming together.

9 MR. BEWKES: No, no, no,

10 we're way past that. I've got to

11 add an example, if I could, and I

12 think it will resonate with

13 everybody here: It was about

14 seven years ago that we at Time

15 Warner we saw that the world

16 wanted to go to VOD. We already

17 had it at HBO. Richard's here, he

18 talked this morning, we had done

19 at VOD at HBO 15 or 20 years ago,

20 but we knew people wanted it on

21 every channel.

22 So we want and literally

Page 11

1 unilaterally at Time Warner we put

2 all our channels out on VOD. We

3 gave a contract with no

4 negotiation, no change, any

5 distributor, large or small, could

6 take it, and what did it say? It

7 said: "You can have the right,

8 cable, telco, satellite, anybody,

9 you can have the right to have all

10 our channels on VOD, if you didn't

11 have it before, you don't pay us

12 for this, provided, really, one

13 thing, you don't charge consumers

14 for it, you don't create a package

15 where if you pay extra you get it,

16 another guy doesn't pay he doesn't

17 get it, it's got to be go -- got

18 to go to everybody."

19 And we also said: "You

20 can't tie your broadband service

21 to your video service, because

22 anybody that's got a video

Page 12

1 service, anybody who's paid for"

2 -- which we all know 80 percent,

3 90 percent of the people have paid

4 for CNN, Fox News, et cetera, you

5 get it, what happened? Seven

6 years ago.

7 So we waited, year after

8 year we've talked about this, the

9 old media business, the other

10 media companies, the distributors,

11 they didn't offer this to

12 consumers, even though it was

13 sitting there for no charge. Why

14 not? Because the old distribution

15 company they -- some of them did,

16 we can go through who did it

17 better than others, but basically

18 they didn't want to make the plan

19 investments in what you have to do

20 to provide that, they didn't have

21 either the skill or the scale to

22 do the interfaces, which everybody

Page 13

1 out here knows so well is

2 important when you have more and

3 more volume of programming you

4 need a better interface to find it

5 and recommend it and share it, et

6 cetera.

7 So that was on the

8 distributor side. But then you look

9 at the other network companies, they

10 didn't offer it, either. Why not?

11 They were waiting for years for this

12 renewal negotiation or that renewal

13 negotiation. That's not how you

14 change consumer behavior.

15 What you want, and we wanted

16 this seven years ago, we want you to

17 go to your TV dial or your tablet or

18 your mobile device and you should be

19 able to get any network on that, on

20 demand, because the originators of the

21 program, whether it's NBC or TNT, or

22 HBO, we paid for the program. You

Page 14

1 paid for it, you ought to have it,

2 there's no cost to doing it on DOD.

3 So now we come to this

4 stitch, we've made some progress,

5 there, but you all know what did it

6 force consumers to do in this interim

7 period? They all had to go out and

8 pay extra money to get library SVOD

9 services, for the very same

10 programming that should have been

11 available on VOD all along.

12 So we would say, and we've

13 been saying this since 1995, every

14 channel in the country, every network

15 should look like HBO or Netflix.

16 There's no reason it can't.

17 And now we have a

18 distribution platform where we can,

19 together, put out a launching pad of

20 services. And do we want it to be

21 just our channels? No. We want it to

22 be all the most important channels,

Page 15

1 just this way I've described just now.

2 MS. BLUMENSTEIN: A question

3 for both of you: How much of this

4 is offense and how much is

5 defense? I mean, Randall, your

6 core business wireless subscribers

7 are down, ATT subscribers are

8 down, I mean, is this, in a sense,

9 almost to vet the company deal?

10 MR. STEPHENSON: I don't

11 know how you characterize it, vet

12 the company deal, when you buy an

13 asset like this that is EPS

14 accretive, cash flow accretive,

15 enhances dividend coverages, keep

16 credit metrics that are credit

17 quality, talk great credit

18 quality.

19 So I don't see how you can

20 characterize that as defensive.

21 It's just something where you have

22 customers, you have a known demand

Page 16

1 that customers have, this isn't

2 one of those that you have to do a

3 lot of guessing and swing for the

4 fences and hope for the best.

5 We know what the customers

6 want. It's really, really

7 obvious. They want premium

8 content in a mobile environment.

9 We have had a really difficult

10 time getting that put together.

11 It's been really hard.

12 This is a way where we can

13 actually begin to move much, much

14 faster at bringing bundled premium

15 content over a mobile environment

16 to our customer. It's no more

17 complicated than that.

18 MS. BLUMENSTEIN: Regulators

19 and politicians have come up to me

20 against the deal. Donald Trump

21 has said he would nix it, and

22 actually went further and said

Page 17

1 that he would try to do -- undo

2 Comcast NBC Universal. Tim Kaine

3 has said he has concerns that it

4 would raise consumer prices.

5 And there seems to be a

6 growing sense at the Department of

7 Justice and the FCC about this

8 state of mega deals and true

9 antitrust concerns.

10 What is -- what is your

11 response, are you surprised by

12 this?

13 MR. STEPHENSON: Not

14 surprised. They're uninformed

15 comments.

16 ...(APPLAUSE)...

17 MR. STEPHENSON: Anybody --

18 anybody who characterizes this as

19 a means to raise prices is

20 ignoring the basic premise of what

21 we're trying do here.

22 Again, a $35 product we

Page 18

1 bring into the market to innovate

2 on and find new ways of bringing

3 content to customers, that's not a

4 medium for raising prices.

5 Also, vertical integrations

6 are rarely a means for raising

7 prices. You're not changing the

8 market structure in any way,

9 shape, or form. You're not

10 changing the broadband market,

11 you're not changing the wireless

12 market.

13 When we wake up, after this

14 deal is approved, the wireless

15 market will look exactly the same

16 as it does today and the media

17 market will look the same as it

18 does today.

19 So this is not -- this is

20 not a combination that typically,

21 you know, gains that kind of

22 horizontal type merger scrutiny,

Page 19

1 in fact, it's really important to

2 know it is a, by every technical

3 definition, a vertical merger

4 integration. And vertical merger

5 integrations are historically

6 approved.

7 Now, it doesn't mean they're

8 approved carte blanche. Regulators

9 will have some concerns with this, I'm

10 quite confident they will. Those

11 concerns are invariably remedied with

12 conditions.

13 So we anticipate there will

14 be a good, fulsome review and

15 discussion about this.

16 MR. BEWKES: You know, we

17 ought to talk about advertising,

18 because if you're looking into

19 competition this is going to be

20 extremely helpful to increase

21 competition in advertising. And I

22 think, since we are west of the

Page 20

1 mountains, at least where I live,

2 we all need more competition in

3 advertising because what we've

4 been seeing is growing

5 concentration to a duopoly and

6 digital enabled advertising.

7 MS. BLUMENSTEIN: You're

8 talking Facebook and Google?

9 MR. BEWKES: Yes, I am. And

10 I hope some of you -- I know that

11 the Google and Facebook people,

12 because we work with them and know

13 them well, there's one thing they

14 love and that's innovation and

15 competition. And we are here to

16 help. We are. We're going to

17 bring more of that, and that's

18 good not only for -- that's

19 basically a very good development

20 for all media companies, because

21 when you create the ability to

22 have the same kind of digitally

Page 21

1 powered advertising you get so

2 many benefits, you know,

3 competition always helps

4 consumers, and it gives

5 advertisers better choices.

6 But it, most important,

7 allows the consumer experience

8 watching video to have more

9 relevant ads, less intrusive and

10 interruptive ads. Therefore,

11 they're more valuable. Therefore,

12 more of the burden of cost of

13 content goes to advertising rather

14 than to people.

15 Again, more competition,

16 lower prices, better for consumers.

17 MS. BLUMENSTEIN: Randall,

18 explain how these less intrusive

19 ads are going to work, because

20 they seem a bit intrusive, I have

21 to say. You're going to be able

22 to target homes? You're going to

Page 22

1 be able to pretty much know what

2 people are watching and then use

3 that data to --

4 MR. BEWKES: I think we

5 should get the Google and Facebook

6 people come up.

7 MS. BLUMENSTEIN: The last

8 question is in a bit.

9 MR. STEPHENSON: How that

10 works? So we have in the market

11 today an addressable advertising

12 platform. And we do have some

13 unique viewership data on our

14 platform. You know, we have the

15 largest video distribution

16 platform in US right now. So we

17 have some unique viewership data.

18 We anonymized that data. We

19 would never say, Rebecca, send

20 Rebecca an ad. But there are, you

21 know, 25, 50 Rebeccas out there

22 who have a certain viewership

Page 23

1 pattern. And that viewership

2 pattern informs what type of

3 advertising that individual would

4 find interesting and relevant to

5 them, and so literally begin to

6 direct and address advertising to

7 a segment of the market that has a

8 known viewing pattern or

9 discernible viewing pattern.

10 MS. BLUMENSTEIN: And you

11 think this will allow you to

12 compete better with Facebook and

13 Google, specifically.

14 MR. STEPHENSON: I think it

15 will allow us to do a lot of

16 things, specifically provide

17 advertising that's more relevant

18 to the user. I think that's

19 really, really important, and I

20 think also it will allow us to

21 defray the content cost ensuing,

22 because content costs, in spite of

Page 24

1 what people write about this

2 industry, they're not going down.

3 The content costs continue to

4 escalate.

5 And if we really want to

6 keep that retail price point in

7 check and keep 20 million homes

8 that are not on the system from

9 growing dramatically over time we

10 have to find ways to keep those

11 prices down.

12 MS. BLUMENSTEIN: Jeff, I

13 can't let you off the hook too

14 quickly about the regulators.

15 There seems to be a sense that

16 maybe they erred in not attaching

17 enough conditions to the Comcast

18 merger. And that's something that

19 there's a sense out there that

20 that's something that's going to

21 hurt this merger.

22 What's your view of this?

Page 25

1 MR. BEWKES: I'm not an

2 expert in that merger. I think,

3 if I understand this, and I may be

4 not exactly right, the reporting,

5 at that time, much of the

6 condition on what they thought --

7 what NBC or the content-side

8 should should do in terms of

9 making content available, that may

10 be as much on what the distributor

11 should do, I'm not sure about

12 that.

13 Do you know?

14 MR. STEPHENSON: Yeah, they

15 actually -- well, the

16 distributors, they were going

17 after two things. They were

18 trying to remedy the vertical

19 integration. There were two

20 concerns they had, that neutrality

21 was a big one, there is.

22 MR. BEWKES: Yeah.

Page 26

1 MR. STEPHENSON: And so they

2 put conditions all over that thing

3 to ensure that they preserved the

4 principals of that neutrality.

5 And the second was they wanted to

6 protect the introduction of

7 over-the-top content players.

8 And so net neutrality, you

9 guys from Google, you won, right?

10 It's done. We don't have to worry

11 about that one, anymore. The

12 boogieman's gone, he's in a box,

13 you won't have to worry about that

14 neutrality anymore.

15 As it relates to OTT, Jeff

16 and I have talked and we've

17 concluded that Netflix is probably

18 going to be okay now. They might

19 make it. We don't think it's

20 necessary to protect the OTT guys

21 that much anymore.

22 So the two issues that were

Page 27

1 really relevant and critical six

2 years ago are largely they're kind

3 of matured and they've aged and

4 they're kind of not as relevant

5 now.

6 MR. BEWKES: If you don't

7 take it from us, Reed was here

8 last month and he said he was

9 fine.

10 MR. STEPHENSON: He said he

11 was fine as long as the broadband

12 connection was the same for him as

13 for everybody else, and that's net

14 neutrality, that's what net

15 neutrality is.

16 MS. BLUMENSTEIN: In the

17 options market this morning placed

18 a 29 percent chance of this deal

19 going through. Are the markets

20 just pessimistic?

21 MR. BEWKES: Obviously we

22 think so or else would we still be

Page 28

1 sitting here?

2 MR. STEPHENSON: I think the

3 markets are too pessimistic. I

4 wish I could buy Time Warner stock

5 in advance, I would probably buy

6 some. I feel pretty good about --

7 about this deal. Once it gets

8 into the hands of the regulators

9 the filings are done, the

10 professionals, who actually do

11 these things for a living, get

12 into it, I think the data and the

13 law will dictate how this deal was

14 handled.

15 MS. BLUMENSTEIN: You made a

16 call that didn't go so well with

17 T-Mobile. Does this -- I mean,

18 would you say that --

19 MR. STEPHENSON: You're just

20 bringing all kinds of pleasant

21 issues up, aren't you?

22 MS. BLUMENSTEIN: It's my

Page 29

1 job.

2 MR. STEPHENSON: Let's go

3 back to AOL. Let's go back to

4 AOL, okay?

5 (Laughter)

6 MS. BLUMENSTEIN: Would you

7 say the regulatory risk of this

8 deal, you talked about it, I guess

9 it came together quickly, but for

10 a couple of months was that the

11 biggest call you had to make, is

12 your lawyer the person who this

13 came down to, is this something

14 that you would say is a close

15 call?

16 MR. STEPHENSON: Look, this

17 is not T-Mobile close. T-Mobile

18 was a classic horizontal merger.

19 We actually thought, based on the

20 way the DOJ had defined the market

21 in multiple transaction, before,

22 that even that horizontal merger

Page 30

1 would be good, but that was -- we

2 knew, going in, that one was a

3 high-risk deal, that's why they

4 had such a breakup deal because

5 the company was requiring high

6 risk.

7 So we knew going in that

8 that one had a lot of risk around

9 it, because it was a classic

10 horizontal merger. You were

11 taking a competitor, a nationwide

12 competitor, out of the

13 marketplace.

14 Recognize, this one, you

15 can't even compare the two. This

16 is, once again, a vertical merger.

17 No -- no competitive environment

18 is changing, in the least, here.

19 The media competitive environment

20 is not changing, the Telecom

21 market is not changing.

22 MS. BLUMENSTEIN: I want to

Page 31

1 talk a bit about how the deal came

2 together. Apparently, you both

3 had lunch and you brought it up to

4 Jeff. You were a bit surprised.

5 You both come from very different

6 cultures and companies and, Jeff,

7 I guess the question is to you, I

8 mean, obviously 20th Century Fox

9 tried to -- tried to buy you a

10 couple years ago and you said no.

11 What -- what was different

12 when Randall asked?

13 MR. BEWKES: Well, what we

14 were -- you know, time got us on,

15 first of all. Secondly, the Fox,

16 Time Warner or any kind of media

17 horizontal, that's a horizontal

18 merger, it has not only different

19 issues, including regulatory ones

20 involved in it, it also, because

21 of that, doesn't provide the kind

22 of resource and capabilities

Page 32

1 changes either to Fox or to us

2 that something like this would.

3 So I think the difference,

4 now, is -- and you could do this

5 in light of our Time Warner Cable

6 spin, as well, seven/eight years

7 ago, what you have now, we all

8 know this, and it's, you know, I'm

9 -- for me, saying it to all of

10 you, you're out here living in the

11 digital world, very cleanly, you

12 got the distribution platforms or

13 the distribution pipes becoming

14 not dumb, smarter all the time.

15 And so everything needs to

16 be seamless across the in-home

17 television, the mobile device

18 going out the house, you got to

19 have that, we all know you have to

20 have much better curation,

21 navigation, recommendation, easy

22 ability to find things, because

Page 33

1 with that you need full view ID of

2 broadband enables you to have, and

3 all of that in the evolution of

4 the distribution platform means

5 that there's much more ability to

6 customize off for us, either what

7 you offer to subscribe to, what

8 product, individually, you might

9 want to look at, because there's

10 more and more of it all the time,

11 how the advertising works to

12 support it, which is no longer

13 point to mass, you know, you buy a

14 30 and a -- you know, for five

15 million people watching something

16 when some advertisers can do it

17 for the advertiser for particular

18 people that are interested in that

19 product.

20 So with all of those changes

21 what we all needed in the media

22 business, and I think it's true of

Page 34

1 all media network companies, is we

2 need the distribution industry to

3 be more capable in bringing those

4 benefits to network TV and even

5 movie releases and all of that,

6 and that's what AT&T offers, that

7 huge scale of direct selling

8 platform, direct customer

9 relationships, consumer data about

10 what people want, for both content

11 origination and delivery, and also

12 for advertising support, all

13 better for consumers, you all know

14 that, that's what occurs at

15 Google, Facebook, YouTube,

16 Netflix, et cetera.

17 So that's what the advantage

18 of this is, that time has come.

19 Now, that doesn't mean that every

20 media network company needs to be

21 co-owned and operated with

22 distribution plants, because if

Page 35

1 you have this kind of change in

2 the distribution ecosystem what we

3 think is going to happen, and

4 Randall said at the beginning, we

5 don't want network packages that

6 are reduced to our networks and

7 not -- there's people that are

8 interested in T&T are interested

9 in FX. They tend to like those

10 shows. If they like HBO they like

11 Netflix and Showtime.

12 So we want the right

13 packages for consumers. And we

14 think what this will do is cause

15 adoption of other network

16 companies to do what we've tried

17 to do, we didn't get followed in

18 terms of consumer benefits as much

19 as we'd hoped, and it will have

20 the other distribution platforms

21 make the same innovations because

22 if they don't the consumers are

Page 36

1 the ones who are in charge of all

2 this, and they're going to get

3 what they want.

4 And if the media business,

5 with its distribution, doesn't

6 give it then they are going to get

7 it through the next industry.

8 And, you know, that's the, quote,

9 tech industry also very helpful in

10 terms of the innovations that

11 they've brought to this, but we

12 all know they're all coming

13 together. I mean, that's why

14 we're doing it.

15 MS. BLUMENSTEIN: Randall,

16 before we go to questions I just

17 have to ask you about culture and

18 some execution. You have come up

19 from your very working days to a

20 phone company. You have

21 installers, and you have calling

22 centers, and Time Warner is a very

Page 37

1 different culture.

2 MR. BEWKES: We have a call

3 center. We have a call center.

4 MS. BLUMENSTEIN: How are

5 you -- how are you -- I mean, Time

6 Warner's creative, are you going

7 to be committed to keeping it a

8 separate unit? You're -- you're

9 not going to interfere with calls

10 and Game of Thrones and CNN?

11 You're going to --

12 MR. STEPHENSON: He does

13 want to do the casting on Game of

14 Thrones. He told me that.

15 JEFF; I know Richard's

16 here, this is going to be a little

17 awkward. We have a guy that runs

18 the network that I think would be

19 great at running HBO. And so I

20 think --

21 MS. BLUMENSTEIN: You mean

22 the phone network, then?

Page 38

1 MR. STEPHENSON: No, look, I

2 understand, I'll be the first to

3 tell you, I've never run a movie

4 studio. I don't know the first

5 thing about it, and I've never run

6 a premium content delivery

7 company, like HBO. I don't know

8 the first thing about it.

9 And so we will be conscious

10 and thoughtful about how we

11 organize this, and the way it will

12 be organized is Time Warner will

13 be a wholly-owned, separate

14 subsidiary of AT&T, that's just --

15 that's how we'll structure it, and

16 we'll have the experts that know

17 how to run these businesses

18 running these businesses.

19 We'll have to figure out the

20 management art and even the

21 management science on how to

22 affect these issues that we're

Page 39

1 talking about, how do we allow our

2 viewership data to begin to

3 influence content creation,

4 Richard? And how do we begin to

5 use that data on content that has

6 been created? How do we direct it

7 and promote it to the right

8 audiences and so forth? How do we

9 use that data to begin to inform

10 and actually affect the

11 advertising avails that are within

12 the Turner Network?

13 I mean, there's so many

14 advertising avails in there that

15 as we get really good and targeted

16 at addressable advertising we

17 think we can change the yield on

18 advertising within Turner

19 Networks.

20 And so there's going to be a

21 management challenge on how do you

22 affect that, right? And how do

Page 40

1 you put mechanisms in place to

2 cause that to happen.

3 I feel really confident

4 that's a logistical -- we've done

5 harder logistical issues than

6 that, before, with difficult

7 organizational challenges.

8 So I -- look, I know there

9 are different cultures and we'll

10 be protective of the cultures to

11 ensure we don't destroy the

12 business. But I am not that

13 concerned that we can't manage

14 through it.

15 MS. BLUMENSTEIN: And I

16 think you're heading over to the

17 movie studio, after this, I

18 understand?

19 MR. STEPHENSON: That's

20 right. I'm going to unbutton my

21 shirt, like Richards, over there.

22 MS. BLUMENSTEIN: I would

Page 41

1 like to open it up to questions,

2 if there are any. I see one right

3 here in the front. There's a mic.

4 Please identify yourself.

5 MR. SANDS: Hi, my name is

6 Christian Sands, I'm the strategy

7 of Sky Catch. I think the

8 strategy is sound, very simple,

9 very smart, premium content for

10 mobile, excellent.

11 What is Time Warner and AT&T

12 going to do to amplify their

13 infrastructure or to get to more

14 homes more places?

15 MR. STEPHENSON: So I'll

16 take that, Jeff. You can add on.

17 But look, one of the

18 fundamental underpinnings of this

19 deal, the reasons I can get so

20 enthusiastic about it, this is

21 three, five years downstream, but

22 we are in an all-out push of

Page 42

1 getting the standard set around

2 5G, around getting the vendor

3 community going on 5G.

4 Where our software defined

5 networking technology is ramping

6 and is scaling, which is critical

7 for scaling content delivery at

8 the level we're talking about

9 doing here, when 5G is up and

10 deployed it becomes a nationwide

11 platform of video delivery,

12 period. Hear me on this. This is

13 a one gig network capability --

14 MS. BLUMENSTEIN: When is

15 that?

16 MR. STEPHENSON: -- that is

17 wireless and mobile.

18 What is that?

19 MS. BLUMENSTEIN: When is 5G

20 up?

21 MR. STEPHENSON: We'll be

22 deploying in 2018. And they'll

Page 43

1 scale, probably, in the 2019, 2020

2 time horizon. But this is

3 exciting, all right? And it's

4 exciting for content, it's

5 exciting for video delivery, but

6 it's exciting for autonomous

7 cards.

8 The guys at Zooks need 5G to

9 get autonomous cars on the roads

10 in San Francisco by 2020. It's

11 really important. Virtual

12 reality, you guys working on

13 virtual reality and augmented

14 reality, you need this for that,

15 you guys working on health care

16 applications, and so forth, you

17 need 5G, low latency, really fast

18 networks with high capacity,

19 that's -- I got to tell you,

20 that's one of the reasons I get

21 most enthusiastic about what we're

22 trying to put together here.

Page 44

1 MS. BLUMENSTEIN: Any other

2 questions? Right in the back,

3 there.

4 >> (Inaudible) Now, would

5 there be an alternative to see how

6 direct TV, you wouldn't

7 necessarily need a satellite dish,

8 you would actually get the

9 content. And now you, Sterling,

10 spoke about offering $35 over 100

11 channels, it's really exciting to

12 see the portfolio of apps that you

13 have, now, bringing in HBO Go, HBO

14 Now, how do you actually look at

15 the portfolio of apps, because you

16 have so many ways to distribute

17 the content, and how will that

18 affect, certainly, pricing

19 packages as well as the

20 distribution across cities and the

21 way consumers connect as to

22 content?

Page 45

1 MR. STEPHENSON: Okay, it's

2 a good question, because -- look,

3 I -- for a long time there are

4 going to be households, like many

5 of you in this room, where you

6 need three 80-inch screens in your

7 house, streaming 4K, you know,

8 into your home. You're a heavy

9 video centric, sport centric

10 content consumer, and multiple

11 streams, satellite delivery is

12 going to be the vehicle for that,

13 for a long, long time, all right?

14 I -- just for that kind of

15 distribution it's going to be hard

16 the amounts of bandwidth, okay?

17 You start working down,

18 there's going to be different

19 segments of the market you deliver

20 that content differently, okay? I

21 do believe, you know, in the

22 future, that one of the

Page 46

1 pre-premium means for delivering

2 content will be with out set top

3 boxes, be web, all right? As the

4 web continues to get integrations

5 go down, that starts to get really

6 exciting, because take it to its

7 extreme, Direct TV Now, $35.

8 How do you get to a $35

9 price point with the prices these

10 guys charge for content, right?

11 The way you get there is you don't

12 have a satellite dish on a hooked

13 roof, you don't have a technician

14 going out and spending four hours

15 to install it, you don't have a 5,

16 6, 7 hundred dollar set top box.

17 You go to the web, you

18 download an app, you subscribe and

19 you're streaming Direct TV Now and

20 all of the content that these guys

21 provide.

22 That's a radical concept,

Page 47

1 right? That's how costs come down

2 dramatically and that's how you

3 hit a $35 price point in the

4 marketplace.

5 So it's going to be a wide

6 range of offerings, some wireless

7 only, some satellite, some in

8 between.

9 MS. BLUMENSTEIN: Jeff, how

10 do you feel about getting back

11 into the cable business?

12 MR. BEWKES: It's great.

13 We've been working with and trying

14 to evolve the cable and all the

15 other distribution businesses for

16 30 years. So we are always on

17 that game. We're always trying to

18 do that.

19 MS. BLUMENSTEIN: So you're

20 serious about forming a competitor

21 to cable, a nationwide competitor

22 to cable?

Page 48

1 MR. STEPHENSON: I can't

2 tell you -- I border on

3 evangelical about it, all right?

4 MR. BEWKES: You can hear

5 that.

6 MR. STEPHENSON: This is the

7 most exciting thing I've been a

8 part of in a long time and I can't

9 wait.

10 MS. BLUMENSTEIN: More

11 questions? This is my friend,

12 Oren. Here comes the mic.

13 OREN: Thank you, Oren

14 Michaels, from Cloudery.

15 Twenty years ago next year

16 David Eisenberg wrote The Rise of

17 the Stupid Network. He was an

18 employee of AT&T and was fired for

19 writing it, very impressions, and

20 Warren begins content company,

21 essentially, at the time, twisting

22 themselves into pretzels to

Page 49

1 optimize for the parent company's

2 network quality independence, were

3 more nimble and able to take

4 whatever network they wanted.

5 Most of the people in this

6 room are now moving to the cloud,

7 where we're getting out of the

8 business of owning our own atoms

9 and dealing with our bits.

10 Why are you guys, through --

11 going in the exact opposite

12 direction when everybody seems to

13 want to not own the hardware if

14 they're -- if they're creating the

15 -- the value on top?

16 MR. STEPHENSON: You go

17 ahead.

18 MR. BEWKES: So your premise

19 or his seems to be that at that

20 time the content companies he was

21 looking at were changing either

22 what they did or where they put it

Page 50

1 in order to serve whoever their

2 vertical, that was it.

3 OREN: The network area has

4 limitations federally in

5 distribution.

6 MR. BEWKES: Yeah, well, I

7 think the difference with that,

8 because that would be bad for the

9 content, whether it was the Fox

10 content or ours, what -- what --

11 you know, one owned or one not.

12 The problem now, and if you

13 go and look at -- and I'm sure

14 many of you in internet-based

15 companies tried to do this, when

16 you innovate with media rights you

17 encounter the fact that media

18 rights are pretty complicated in

19 video because there are Windows

20 and there's all these things that

21 you've all seen, that's why it's

22 been hard to innovate in media

Page 51

1 because it's kind of difficult to

2 get an innovation in and then have

3 it get applied essentially

4 universally, across an entire

5 suite of networks, or to break up

6 network groupings and so forth.

7 I don't think that is what

8 we're looking at, here. We're

9 certainly not, in our case, and

10 you've said it and I've said it,

11 we both know this, we would never,

12 in our media business at Time

13 Warner, and we have never did,

14 including in the AOL days,

15 restrict or change what we're

16 doing in either the innovation of

17 our distribution for our content,

18 how our content works, the form of

19 the content, we always wanted to

20 be maximally delivered by every

21 kind of distribution.

22 What this is about is

Page 52

1 catalyzing that, not restricting

2 it, it would be idiotic to

3 restrict it.

4 MR. STEPHENSON: And to

5 perhaps challenge the fundamental

6 premise of your statement, that as

7 you begin to push more and more

8 content to the cloud that it

9 requires less and less in terms of

10 smartness, if you will, out of the

11 network, it's the opposite, in

12 fact, we're experiencing just the

13 opposite.

14 The more you guys push more

15 and more into the cloud the more

16 it's requiring greater and greater

17 intelligence out of the network.

18 And one could argue, wow,

19 shouldn't you be commoditizing the

20 network the more you get into the

21 cloud? No. The more companies

22 that are putting mission critical

Page 53

1 capabilities into the cloud the

2 more it scares the hell out of

3 them on security, the more it

4 worries them about quality of

5 service, all right?

6 You just run some of these

7 mission critical applications over

8 the open internet you're not going

9 to like it.

10 We have a product, and

11 you'll see it as it relates to

12 what we're going to be doing here

13 together, called Net Bond. It was

14 created and invented and patented

15 just for this purpose, because

16 people want to put stuff in the

17 Amazon cloud, mission critical

18 information, applications, compute

19 and so forth, they say, but I'm

20 scared to death of it, I need

21 security.

22 And so we have created Net

Page 54

1 Bond and we have bonded every

2 major cloud provider, Amazon,

3 Microsoft, Azure, salesforce.com,

4 I can go on and on and on, to

5 ensure that our customers, when

6 they take a smart phone out of

7 their pocket and go to access an

8 application or data in the cloud

9 it never touches the public

10 internet, that is their number one

11 requirement.

12 That's what this product is,

13 it is exploding. Connections of

14 Net Bond are up 4X this year. The

15 traffic over Net Bond, connections

16 are up 4X, the traffic is up 8X,

17 that tells you how much people are

18 concentrating mission critical

19 applications.

20 We go to 5G and we -- that

21 -- our Direct TV Now is a

22 cloud-based platform for

Page 55

1 delivering content, all right?

2 You can't just do that over the

3 open internet. There have to be

4 elements of it that you control

5 end-to-end, the CEN has to be on

6 your control.

7 There's a sophistication in

8 delivering this, and a true what I

9 would call cable-like experience.

10 And so I would suggest to you the

11 more you push elements into the

12 cloud the more sophisticated and

13 smart the networking elements have

14 to become.

15 MS. BLUMENSTEIN: Well,

16 unfortunately we're out of time.

17 Thank you both so much for coming,

18 it's a fascinating topic.

19 MR. STEPHENSON: Thank you

20 very much.

21 MR. BEWKES: Thank you.

22 Appreciate it.

Page 56

1 (Concluded at 2:27 p.m.)

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed merger between AT&T and Time Warner, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, and actual results might differ materially from those discussed in, or implied by, the forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of AT&T and Time Warner and are subject to significant risks and uncertainties outside of our control.

Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2) the risk that Time Warner stockholders may not adopt the merger agreement, (3) the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, (4) risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner, (5) risks related to disruption of management time from ongoing business operations due to the proposed merger, (6) failure to realize the benefits expected from the proposed merger and (7) the effect of the announcement of the proposed merger on the ability of Time Warner and AT&T to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally. Discussions of additional risks and uncertainties are and will be contained in AT&T's and Time Warner's filings with the Securities and Exchange Commission. Neither AT&T nor Time Warner is under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this communication are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.

No Offer or Solicitation

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Additional Information and Where to Find It

In connection with the proposed merger, AT&T intends to file a registration statement on Form S-4, containing a proxy statement/prospectus with the Securities and Exchange Commission ("SEC"). AT&T and Time Warner will make the proxy statement/prospectus available to their respective stockholders and AT&T and Time Warner will file other documents regarding the proposed merger with the SEC. This communication is not intended to be, and is not, a substitute for such filings or for any other document that AT&T or Time Warner may file with the SEC in connection with the proposed merger. STOCKHOLDERS OF TIME WARNER ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AT&T, TIME WARNER AND THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T and Time Warner once they become available, without charge, at the SEC's website, http://www.sec.gov. Copies of documents filed with the SEC by AT&T will be made available free of charge on AT&T's investor relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=113088&p=irol-sec. Copies of documents filed with the SEC by Time Warner will be made available free of charge on Time Warner's investor relations website at http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-sec.

Participants in Solicitation

AT&T, Time Warner and certain of their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the holders of Time Warner common stock in respect to the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T's 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2016. Information about the directors and executive officers of Time Warner is set forth in the proxy statement for Time Warner's 2016 Annual Meeting of Stockholders, which was filed with the SEC on May 19, 2016. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available and other relevant materials filed with the SEC. These documents will be available free of charge from the sources indicated above.

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