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AT&T, Time Warner CEOs Say Mega-Merger Is All About Speed and Mobility

"Why put the two companies together?" said AT&T Chairman and CEO Randall Stephenson. "Speed." He said the deal is a natural evolution of the industry.
AT&T Inc. CEO Randall Stephenson announces his company's proposal to buy T-Mobile from Deutsche Telekom in New York
AT&T Chief Executive Officer Randall Stephenson. REUTERS/Brendan McDermidREUTERS
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AT&T Chairman and CEO Randall Stephenson told CNBC on Monday that the telecommunications giant's mega-deal to buy Time Warner is a "pure vertical integration."

The companies do not compete anywhere, Stephenson said, adding mergers of this nature usually get done by making concessions to regulators.

Stephenson said content and distribution are converging, and he argued that this deal is a natural evolution of the industry.

"The world of distribution and content is converging and we need to move fast and if we want to do something truly unique, begin to curate content differently, begin to format content differently for these mobile environments, and this is all about mobility," he said.

Any innovation will be available to the entire marketplace, Stephenson added. "We are not talking about changing how the content is made available to other people or customers or distributors.

Better choices for consumers

Time Warner Chairman and CEO Jeff Bewkes told "Squawk Box" in the same interview that consumers will end up with more choices because of the deal.

"They don't actually have to do anything, nor did we. That's why we didn't consolidate with the other media companies," he said, referring to Time Warner's rejection in 2014 of an $80 billion bid from Twenty-First Century Fox.

Bewkes said he plans to stay on at the new company for one or two years after the close of the transaction.

AT&T on Saturday officially announced plans to buy Time Warner for more than $85 billion, or $107.50 per share, in a cash-and-stock deal, bringing together a wireless, broadband and satellite TV giant with a content powerhouse in movies and television.

Washington will step in

The AT&T-Time Warner merger is expected to face a tough road with regulators, with the rise of populist fervor on the campaign trail and in Washington. Over the weekend, Republican presidential nominee Donald Trump said he opposes the deal.

The timing of the deal had nothing to do with politics, Stephenson said. He said leaks are really bad for these type of moves, so once there's conviction, it's best to announce it right away.

If Time Warner were to back out of the deal, the media giant agreed to pay AT&T a $1.7 billion termination fee. AT&T, in turn, would pay Time Warner $500 million if the deal doesn't go through under certain conditions.

More mega-mergers on the way?

Famed value investor Mario Gabelli, a major shareholder of both AT&T and Time Warner, told CNBC on Monday the proposed mega-merger is a move to prepare for the next decade, and could spark a flurry of similar deals.

"To the extent that our strategy succeeds," Stephenson said, "I think other companies will try to look like us. And if our strategy doesn't succeed, other companies won't bother. So it's a function of how well we do together in pulling the strategy off."

Stephenson also talked about AT&T's "mobile-centric," mini-bundle of television channels, set to be launched next month. "It's a purely over-the-top video product," he said. "DirecTV Now is what we're calling it."

It's going to be "100 premium channels," he said. There was no announcement on pricing yet, but he said he expects the service to be "radically lower" than similar offerings.

Last year, AT&T bought DirecTV for $48.5 billion, adding satellite TV to its wireless and broadband subscribers.

AT&T plans to roll out a 5G mobile network, Stephenson said, explaining 5G would bring 1 GB speeds delivered wirelessly. The deal would accelerate these efforts, he said.

Analysts drew comparisons with Comcast's acquisition of CNBC parent NBCUniversal, which was finalized in 2011 after more than a year of regulatory review.

AOL is the elephant in the room

Others questioned whether an AT&T-Time Warner combination would work any better than the 2000 Time Warner-AOL mega-deal, which ended in failure.

Bewkes said the AT&T deal is nothing like the Time Warner-AOL deal.

Time Warner boasts an entertainment portfolio of television networks including HBO, CNN, TBS and TNT, as well as the Warner Bros. film studio. The company also owns a 10 percent stake in video streaming site Hulu.

There were reports that Apple may have been interested in buying Time Warner.

But Bewkes said that's an overstatement, using the analogy that someone can kick the tires of your car on the street and you'd never know about it. He added Apple is busy with smartphones and devices.

"We do a lot of business with Apple at CNN, at HBO ... and so we talk to them all the time about a lot of things, [but] not about merging the companies," Bewkes added.

Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.