AT&T Sues Broadcom Over VMware Contracts ‘Bullying’

AT&T is suing Broadcom, alleging that the chipmaker seeks to breach its VMware contracts with the telco in a move that puts first responders, other critical government services and national security at risk.

Filed in New York County Supreme Court on Aug. 29, AT&T’s lawsuit states that Broadcom is “threatening to withhold essential support services for previously purchased VMware perpetually licensed software unless AT&T capitulates to Broadcom’s demands that AT&T purchase hundreds of millions of dollars’ worth of bundled subscription software and services, which AT&T does not want.”

It added, “Many predicted these sorts of bullying tactics when Broadcom first announced the VMware deal in May 2022.”

Broadcom closed its $61 billion acquisition of VMware last November. Immediately afterward, it narrowed VMware’s product lines from 8,000 SKUs to four product bundles and instituted subscription licensing. 

But many customers, AT&T included, remained on pre-acquisition VMware contracts that featured perpetual licensing. Now, though, things are coming down to the wire. Broadcom’s contractual obligation to provide support services to AT&T applies through Sept. 8 — four days from now. 

And yet, AT&T says, “under an amendment the parties signed in August 2022, AT&T obtained the right to renew the support services for ‘up to’ two more years at its ‘sole option’ as long as it does so prior to the end of the current term.”

AT&T is exercising that option for at least one more year but Broadcom, it alleges, “is refusing to honor AT&T’s renewal.”

No stranger itself to M&A, AT&T said it takes no issue with Broadcom changing VMware’s business model “prospectively,” the telco states in its complaint. 

“As [VMware’s] new owner, Broadcom has every right” to do just that, AT&T said.

Rather, the problem lies in Broadcom’s efforts to retroactively change existing VMware contracts “to match its new corporate strategy,” AT&T said.

‘Disastrous’ Consequences If Broadcom Won’t Support AT&T’s VMware Contracts

If Broadcom reneges because AT&T refuses to switch its current VMware contracts to subscription licensing, AT&T says, the outcomes look dire.

“[T]he damage to AT&T, its customers, and the American public would likely be disastrous,” the communications giant said.

That’s because AT&T provisions a range of voice, data and internet services to public safety entities (including emergency first responders), the U.S. government and the Office of the President, according to the company’s complaint. If Broadcom fails to support AT&T’s VMware contracts, “AT&T has no way to ensure the VMware software installed on approximately 8,600 AT&T servers that deliver services to millions of AT&T customers worldwide will continue to operate.”

Plus, it would “take years” for AT&T to “devise alternative solutions” to its reliance on VMware. In other words, AT&T has no expedient way to ditch VMware.

What’s Next in the AT&T-Broadcom VMware Contracts Saga

New York’s Supreme Court has instructed Broadcom to reply to AT&T’s complaint within 20 days of the filing. That date will fall near the middle of this month.

A Broadcom spokesperson told Channel Futures that the company “strongly disagrees with the allegations and is confident we will prevail in the legal process. VMware has been moving to a subscription model, the standard for the software industry, for several years — beginning before the acquisition by Broadcom. Our focus will continue to be providing our customers choice and flexibility while helping them address their most complex technology challenges.”

Loeb & Loeb's Benjamin Kabak

Indeed, writes Benjamin B. Kabak, partner at Loeb & Loeb LLP in New York who practices in technology and outsourcing, “Broadcom has informed AT&T that AT&T does not have the right to renew based on Broadcom’s interpretation of the renewal provision. AT&T alleges it has various options regarding renewal that it has rightfully exercised, and based on the complaint, Broadcom alleges that AT&T did not properly exercise the rights. Additionally, according to the complaint, Broadcom has asserted the right under its support policies to cease providing support for existing policies, which AT&T alleges Broadcom claimed trumps AT&T’s renewal rights. In this case, it appears there are multiple documents involved, and resolution of the dispute will require interpretation as to which clauses prevail.”

Representatives for AT&T had not responded to a request for comment by time of publication.

AT&T is asking the court to prevent Broadcom from terminating support services around AT&T's VMware contracts, as well as requesting a declaration that AT&T may renew its support services as laid out in its August 2022 agreement with VMware. It also seeks "further relief as the court deems necessary and just."