AT&T-VMware Fight: ‘At an Impasse’ Over 1,050% Price Increase

The squabble between AT&T and VMware, under Broadcom, continues to escalate.

Legal filings from Sept. 27 include an affidavit and evidence that indicate VMware by Broadcom intended to raise A&T’s contract pricing by 1,050%.

And AT&T was not having it.

“This proposed annual increase … in one year is extreme and certainly not how we expect strategic partners to engage in doing business with AT&T,” Susan Johnson, executive vice president and general manager of wireline transformation and global supply chain at AT&T, wrote in an Aug. 19 email to Broadcom CEO Hock Tan. The subject line reads, “Disappointing Status of Our Conversations.”

AT&T and VMware by Broadcom ‘At an Impasse’

The filings in New York’s State Supreme Court come as AT&T pursues its case against Broadcom. It all started last month when AT&T alleged that Broadcom seeks to breach its VMware contracts by withdrawing services support. That initially was to happen on Sept. 8; the companies so far have agreed to keep working together until Judge Jennifer G. Schecter makes any rulings. 

AT&T has yet to renew its VMware rights; it claims Broadcom is trying to force it into subscription licensing early, rather than letting the telco’s perpetual licensing deal reach its term. But Broadcom is forcing AT&T into premature decision-making, the telco asserts. 

Related:The Broadcom VMware Acquisition: A Complete Timeline

Now, new filings from AT&T reveal that VMware by Broadcom seeks to ratchet up the telco’s pricing by the aforementioned 1,050%.

AT&T's Susan Johnson

That, Johnson told Tan in the Aug. 19 email, puts AT&T “at an impasse on our VMware deal.”

AT&T-VMware Battle: Moving to New Virtualization Vendor Means ‘Significant Efforts,’ ‘Great Expense’

In addition, Johnson told the court in her affidavit, Broadcom, in its rebuttal to AT&T, “mischaracterizes” what she said to Tan about leaving VMware if terms could not be reached.

“Nothing in my August 19 [e]mail to Mr. Tan suggested that migrating away from the VMware software would be easy, quick, or inexpensive,” she wrote. “And at no point have I ever made that statement to Mr. Tan. In fact, none of those would be accurate statements. My understanding is that migrating away from the VMware software would be a time-consuming process − taking years − and would involve significant efforts by AT&T at great expense.”

Rather, Johnson noted, “My email to Mr. Tan recognized that because [d]efendants were asking for exorbitant licensing rates for VMware, there is a quick payback or return on our investment to migrate off all VMware licenses. My point was that although it is not easy, cheap, or quick to migrate off VMware, [d]efendants’ high fees will incentivize us to migrate to another solution.”

Related:‘Bait and Switched’: Broadcom Blames AT&T in VMware Support Fight

Leaving VMware would cost AT&T between $40 million and $50 million, the carrier's filings have said.

AT&T and VMware: ‘This Decision Will Impact the Future of Our Overall Relationship’

Johnson also pushed back on VMware by Broadcom’s claims that AT&T waited until the last minute to consider whether to change virtualization vendors.

“To the contrary, AT&T began to explore the option to migrate away from the VMware software since at least the time [d]efendants announced in December 2023 that they would be moving customers to more costly subscription-based licensing deals in the future,” she testified in the affidavit. “But while exploring that option, which I understood could take years, we understood we had time to migrate if we needed to because [d]efendants were contractually committed to honor AT&T's renewal rights for [s]upport [s]ervices until at least September 2026, at AT&T's sole option.”

In the meantime, even as AT&T “has been exploring the option to move away from [VMware] diligently,” the telco has tried to reach mutually favorable terms with Broadcom.

“I continued to negotiate with [d]efendants through Mr. Tan in efforts to reach a resolution without resorting to litigation,” Johnson said. “AT&T would have preferred to avoid litigation if it could have and we worked hard for many months in an effort to do so.”

Related:AT&T Sues Broadcom Over VMware Contracts ‘Bullying’

However, around Aug. 19, she explained, “it became clear to me that [d]efendants would not budge from their position which refused to recognize AT&T's renewal rights under its contract … and that AT&T would be forced to file a lawsuit … to enforce its contractual rights.”

That lawsuit popped up 10 days later.

AT&T and VMware: ‘We Are Running Out of Time’

If one business group within AT&T leaves VMware, the telco, via Johnson’s email, warned that it will evaluate how it proceeds with Broadcom altogether. 

“Unfortunately, this decision will impact the future of our overall relationship and how we manage spend in other Broadcom areas,” Johnson wrote.

That may not matter much to Broadcom, whose market cap surpasses $800 billion. AT&T’s reaches a little more than $157 billion.

Regardless, Johnson called Broadcom’s position “unreasonable.”

“We are running out of time,” she told Tan in the Aug. 19 email. 

And because Broadcom refuses to let AT&T use its option, agreed upon in August 2022, to extend services under its existing contract to September 2026, the telco has little choice to but to sue, Johnson said. Furthermore, she added, AT&T has “a disciplined plan to invest to migrate away, all of which will quickly become public,” noting, “I truly wish we had another option.”