### AT&T vs. Broadcom: The Legal Clash Over VMware Licensing and Support
In the dynamic realm of enterprise IT, the interactions between large corporations and their technology suppliers are frequently intricate and filled with obstacles. A notable challenge has recently arisen between telecom heavyweight AT&T and semiconductor and software firm Broadcom, which took over VMware in 2023. The conflict revolves around a staggering 1,050 percent increase in VMware service prices that AT&T alleges Broadcom has enforced, igniting a legal confrontation that could greatly affect both firms and the wider IT industry.
#### The Background
AT&T has been a steadfast user of VMware, a premier provider of cloud computing and virtualization solutions. VMware’s software enables AT&T to operate 75,000 virtual machines (VMs) across roughly 8,600 servers, facilitating essential customer services and operational oversight. This partnership was established through a contract signed before Broadcom’s acquisition of VMware, which AT&T believes grants it access to three one-year renewals for support services.
However, post-acquisition, Broadcom implemented substantial shifts in its business strategy, including the termination of perpetual licenses and the consolidation of VMware offerings into fewer, pricier SKUs. These adjustments have prompted numerous complaints from VMware customers regarding sharp price hikes. In AT&T’s situation, the telecom giant asserts that Broadcom has declined to honor its second one-year renewal option, instead proposing an astonishing 1,050 percent price surge for ongoing support.
#### The Legal Dispute
On August 29, 2024, AT&T initiated legal proceedings against Broadcom, alleging that the company unlawfully obstructed its ability to renew support services. AT&T contends that its agreement with VMware, established prior to Broadcom’s takeover, should enable it to secure support renewals until September 2026. In a legal document submitted on September 27, AT&T EVP and GM of wireline transformation and global supply chain, Susan A. Johnson, directed an email to Broadcom CEO Hock Tan, expressing irritation regarding the price increase and labeling the situation as an “impasse.”
Johnson’s email expressed:
> “This suggested annual increment of +1,050% in just one year is excessive and certainly not in line with expectations for how strategic partners should conduct business with AT&T.”
The correspondence also alluded to potential wider ramifications for the alliance between the two firms, indicating that AT&T may curtail its expenditures on other Broadcom offerings if the conflict remains unresolved.
#### Migration Costs and Alternatives
Within the ongoing legal proceedings, AT&T has also brought up the potential of completely transitioning away from VMware. Johnson shared that the anticipated cost of shifting AT&T’s operations off VMware is between $40 million and $50 million. Although this represents a considerable expenditure, AT&T perceives that the elevated licensing fees proposed by Broadcom render migration a financially justifiable path in the long term.
Johnson’s email highlighted that the migration would yield a “very quick payback” and a “strong” internal rate of return, especially in light of the large price hikes for VMware services. Nonetheless, in a following affidavit, Johnson clarified that moving away from VMware would not be “easy, inexpensive, or rapid,” but emphasized that Broadcom’s exorbitant charges are driving AT&T to seek alternative solutions.
#### Broadcom’s Response
Broadcom has firmly refuted AT&T’s claims, expressing confidence in its ability to succeed in the legal proceedings. The company contends that AT&T forfeited its chance to renew support and that the agreement between VMware and AT&T incorporates an “End of Availability” clause, permitting VMware to discontinue products and services.
In legal submissions dated September 20, Broadcom appealed for AT&T’s petition to impede the termination of VMware support to be rejected. Broadcom also asserted that AT&T has had sufficient time to strategize a transition away from VMware, claiming that AT&T could have utilized “the last several months or even years” to prepare for the shift.
#### The Broader Impact
The contention between AT&T and Broadcom is indicative of a wider phenomenon of escalating costs for VMware clientele following Broadcom’s acquisition of the firm. Many customers have experienced significant price surges, with some smaller cloud service providers witnessing costs escalate tenfold. Broadcom’s modifications to VMware’s licensing framework, such as increased CPU core requirements and the consolidation of products into fewer SKUs, have rendered VMware more costly for numerous organizations.
For AT&T, the stakes are particularly consequential. The company has relied on VMware for over a decade, and transitioning away from the platform would involve a complicated and expensive process. AT&T anticipates that fully moving its servers away from VMware will span several years, and the company has accused Broadcom of hindering the acquisition of alternative products from other suppliers.
#### What’s Next?
As the legal confrontation unfolds, Broadcom has consented to extend VMware support for AT&T until October 9, 2024. A preliminary injunction hearing is slated for October 15,
