By David Shepardson and Anjali Athavaley
WASHINGTON/NEW YORK (Reuters) - AT&T Inc will not sell cable network CNN to win antitrust approval of its proposed $85.4 billion purchase of media company Time Warner Inc and will fight the government in court if a negotiated settlement is not reached, the wireless company's chief executive said on Thursday.
Justice Department staff 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 on approving the deal, which was announced in October 2016, but have disagreed on whether asset sales are necessary to gain approval.
"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.
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. AT&T has said it wants to disrupt "entrenched pay TV models."
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Stephenson said several times on Thursday that a combined AT&T and Time Warner will create a data and advertising company whose competitors will be the newest and most disruptive entrants into the media sector, Amazon.com Inc , Facebook Inc , Netflix Inc and Alphabet Inc's Google, not other wireless phone companies.
The Justice Department's desire for asset sales has raised concerns about political influence on the $85.4 billion 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.
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 were down nearly 1 percent in afternoon trading at $87.85. AT&T shares rose 1.6 percent to $33.97.
(Reporting by David Shepardson and Anjali Athavaley; Additional reporting by Subrat Patnaik and Aishwarya Venugopal; Writing by Anna Driver; Editing by Bill Rigby)