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These Broadcom Delights: AT&T recently filed a lawsuit against Broadcom over its VMware licensing agreement, asserting that it is entitled to two more years of guaranteed support. According to redacted emails presented as evidence, Broadcom, led by CEO Hock Tan, demanded a substantial price increase to maintain the agreement.
AT&T is resorting to legal action in an effort to compel Broadcom to comply with the service agreement it signed for using VMware products. The technology company, now functioning more like a private equity fund, has made it clear that it aims to transition its recently acquired virtualization products into a subscription-only model. This new approach would require large companies to spend significantly more to access premium cloud-based tools and technology.
While AT&T could have been an ideal partner in Broadcom's vision for VMware's future, the telecom giant was presented with financial terms that were impossible to accept. In a redacted email, seemingly addressed to Broadcom CEO Hock Tan, AT&T executive Susan Johnson remarked that their "10-plus-year" strategic partnership was likely to end on a disappointing note.
The latest offer AT&T received for a new five-year deal reportedly included an astronomical +1,050% annual price increase. Johnson described the proposed hike as "extreme and certainly not how we expect strategic partners to engage in business with AT&T." She further confirmed that AT&T planned to pursue a "legal strategy" against Broadcom, accusing the company of attempting to prevent AT&T from exercising its right to two more years of support beyond September 9, 2024.
"We have reviewed our licensing agreement. We believe we both have enough licenses to cover our current usage and that it does legally protect us to preclude Broadcom from discontinuing contractually agreed upon support," the email continued.
Johnson also noted that AT&T is organizing a full migration away from VMware's virtualization technology – an operation expected to cost between $40 million and $50 million. However, she emphasized that this investment would provide a "very quick" payback, given the extreme price hike proposed by Broadcom.
According to Johnson, Broadcom left AT&T with no reasonable alternative, though AT&T's management remained open to discussions with Tan's team. AT&T's vice president of global technology planning, Gordon Mansfield, explained that replacing the entire VMware stack would likely require substantial investment and involve a great deal of costly, time-consuming engineering work.
VMware software is deeply integrated into products purchased by AT&T from its vendors, and it remains essential for keeping the company's network running. AT&T cannot unilaterally replace VMware products without collaborating with these vendors, although a complete replacement has been under investigation since December 2023.
To complicate matters further, Mansfield added that Broadcom is now actively preventing some vendors from selling certain VMware products to AT&T.