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

AT&T is resorting to “sensationalism” in an attempt to generate press and “distract the court” from the real story behind Broadcom’s move to end VMware support inside the telco’s environment.

That’s according to a Sept. 20 filing in New York State Supreme Court by Broadcom, which met the deadline Judge Jennifer G. Schecter had imposed for the chipmaker to reply to AT&T’s Aug. 29 lawsuit. Schecter must decide whether to institute a preliminary injunction that would bar Broadcom from pulling VMware support from AT&T.

The “simpler” explanation for AT&T’s complaint, per Broadcom, boils down to the telco not wanting to lose out on favorable terms.

“For years, AT&T enjoyed heavily discounted pricing from VMware and derived enormous value from the parties' agreement,” the company’s lawyer’s wrote in the response. 

But the contract contained an “unambiguous” provision giving VMware the right to retire products and services “at any time upon notice,” the filing continues.

What’s more, the lawyers add, “a year ago, AT&T opted not to purchase the very support services it now asks the court to force VMware to provide. AT&T did so despite knowing [Broadcom was] implementing a long-planned and well-known business model transition and would soon no longer be selling the support services in question.”

Related:Broadcom, AT&T Reach Temporary VMware Support Deal

Broadcom’s attorneys were referring to the chipmaker’s decision right after closing the $61 billion VMware acquisition to streamline the VMware portfolio, and switch from perpetual to subscription licensing.

“Although AT&T apparently regrets its decision to not renew support services … [redacted] … defendants are not responsible for AT&T's choices,” Broadcom’s legal counsel wrote.

AT&T maintains that it did indeed choose the right to renew VMware support for up to two more years, per an amendment the telco and VMware, prior to the Broadcom purchase, signed in August 2022. 

AT&T further has argued that if Broadcom retracts VMware support, first responders, other critical government services and national security, including at the White House, will be at risk.

Broadcom pooh-poohs each of those assertions.

Broadcom: ’Good Faith’ Negotiations Have Failed Because of AT&T 

First, Broadcom says it has “negotiated in good faith with AT&T for months,” after CEO Hock Tan implemented the sweeping changes to VMware’s portfolio. 

AT&T, though “has rejected every proposal despite favorable pricing it has been offered and the situation it has created (and which it can still avoid),” Broadcom stated in the Sept. 20 filing.

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

AT&T could have started migrating away from VMware, “which it has admitted it intends to do,” upon learning of the changes at VMware, Broadcom said. 

“But AT&T chooses instead to wait until a week before its support services were set to expire to file its motion," the filing reads.

VMware support at AT&T originally was slated to end on Sept. 8. 

In a Sept. 17 filing to Schecter, attorneys for both AT&T and Broadcom noted that oral arguments concerning AT&T’s request for a preliminary injunction are scheduled to take place after Oct. 9 — the date Broadcom has agreed to extend its VMware support to, after previously saying it would cut off that support in September. 

As such, the letter reads, Broadcom will continue VMware support within AT&T until Oct. 21, unless the court issues a decision earlier.

Because of that, AT&T also has agreed not to seek a temporary restraining order — yet. The telco’s legal counsel say the company “reserves the right” to pursue such a measure to keep Broadcom from terminating VMware support before Schecter makes any rulings.

Schecter has signed off on that update.

‘Parade of Horribles’

Meanwhile, Broadcom is pushing back on AT&T’s allegations that national security will come under fire should the telco lose access to VMware support. In August, AT&T told the court that “damage to AT&T, its customers, and the American public would likely be disastrous.”

Related:The Broadcom VMware Acquisition: A Complete Timeline

Broadcom disagrees.

“AT&T cannot satisfy its showing of irreparable harm,” the VMware owner’s lawyers wrote. “Though AT&T spends most of its motion illustrating the parade of horribles that will allegedly ensue if the retired support services are not reinstated, this presumes AT&T has no other options.”

The telco has known for more than eight months that Broadcom was shaking up VMware’s business model, the attorneys added, yet it failed “to take any measures to prevent its purported harm,” including switching to the new VMware subscription licensing or going with a new vendor, Broadcom said.

That’s not fair to Broadcom-VMware, the lawyers added.

“It would be inequitable to alter defendants' current business offerings and force defendants to sell a product that has been discontinued,” they wrote.

Finally, Broadcom asked Schecter to deny AT&T’s request for a preliminary injunction. Courts in New York rarely grant such interventions, the company said, and doing so would give AT&T exactly what it wants.

“AT&T's desired renewed license would expire on Sept. 8, 2025. If this action proceeds for longer than a year (which is likely), AT&T will obtain what it ultimately seeks. No extraordinary circumstances are presented here to merit such a result. For these reasons, defendants respectfully request that the court deny the motion,” Broadcom’s lawyers concluded.

‘AT&T Bait and Switched VMware’

Of interest is that Broadcom’s legal team included a lengthy filing from Randall Gressett recounting all of VMware’s product, portfolio, licensing and channel program changes over the last several years, and providing evidence against AT&T’s stances.

Broadcom's Randall Gressett

Gressett holds the title of vice president of Americas strategic sales by Broadcom. He has managed sectors including the telco vertical since last November, according to his LinkedIn profile. Gressett worked for EMC Corp. when VMware bought it in 2004, and “my knowledge regarding VMware’s business extends back to that time,” he told the court.

The ultimate aim of Gressett’s testimony seems to be to underscore VMware’s intention to implement subscription licensing even before the Broadcom acquisition, thus emphasizing the claims that AT&T should have planned ahead. 

The filing also discussed the August 2022 amendment, which Gressett says “is subject to the terms and conditions of the [end user license agreement].” In the event of a conflict, according to the legalese the filing references on VMware’s website, “the terms of the EULA shall control.”

“[T]he amendment expressly acknowledges VMware’s right to discontinue perpetual licenses … and I understand VMware rejected language proposed by AT&T during negotiations that would weaken that right,” Gressett said, via Broadcom’s lawyers.

The only reason VMware support stayed intact within AT&T was because, in the August 2022 amendment, AT&T agreed to buy VMware Cloud Foundation for its data center consolidation initiative, Broadcom asserts. 

After signing the amendment, though, “AT&T reneged on the [data center] program, never deployed the initial VCF software, and never accepted VMware’s services,” Gressett said. 

Gressett said VMware was “forced to debook $16 million in services” as a result, and that AT&T also did not follow through on its plans to buy more VCF software.

“Simply put, AT&T bait and switched VMware,” Gressett said.

Channel Futures has reached out to AT&T for comment on Broadcom-VMware’s and Gressett’s various allegations and statements, and will update this article should we receive a response.

Broadcom: AT&T’s VMware Environment Is Old

Meanwhile, Broadcom says AT&T continues to operate an aging VMware environment — and lays the blame for any interruptions or ensuing impacts on customers on the telco. Throughout its work with the telco, “VMware understood that AT&T had a disorganized at-risk portfolio with old versions of VMware software that it had licensed under different types of agreements,” Gressett said.

Some of those already were unsupported because AT&T had not upgraded, Gressett said. Now “approximately 30% of AT&T’s VMware environment is past end of support or will go past end of support next month … because AT&T has neglected to update the outdated versions of software it is running,” Gressett added.

On top of that, Broadcom says AT&T has yet to identify which of its servers and virtual machines, mentioned in the original filing, operate on software still supported by VMware.

What Irreparable Harm?

In addition, Gressett says AT&T never brought up the possibilities of irreparable harm if VMware support were cut off inside the telco. That raises the issue of whether AT&T violated internal use and other contractual terms, Gressett said, and VMware expects this to become an area of investigation.

Pushing back once more on claims of irreparable harm, Gressett discusses an email Susan Johnson, executive vice president and general manager – wireline transformation and global supply chain, sent to Broadcom CEO Tan in mid-August.

“[A]lthough AT&T now claims to be completely dependent on VMware software and describes it as critical to its operations, AT&T frequently informed VMware during the course of negotiations that it was planning to move off VMware software,” Gressett said via Broadcom’s attorneys. Referring to the aforementioned email, Gressett said that Johnson told Tan “that AT&T would not be entering into a new subscription deal with VMware because the cost to ‘migrate away from VMware (projected at $40-$50 million) has a very quick payback and strong [internal rate of return][.]’”

“If AT&T knew that it was not interested in moving to a subscription-based model and desired to migrate off VMware software, it could have prioritized that investment years ago when it first learned of VMware’s business transition,” Gressett said. “Notably, Ms. Johnson did not mention any ‘irreparable harm’ in her email to Mr. Tan.”

VMware recently offered AT&T a five-year subscription to VCF at a price “well below market,” Gressett noted. Yes, that would cost AT&T more than it has been paying for VMware support because the new software features “significant value and new technology, while also cleaning up AT&T’s messy at-risk environment.”

AT&T could save itself money and heartache by signing the five-year offer, Gressett said. The first annual fee “would be pennies for a multibillion company … and significantly less than ‘migrating away’ from VMware,” Gressett said.

Lastly, if the court does side with AT&T, VMware will suffer, Gressett said. VMware’s business model transformation efforts will be impeded because the software maker, whose focus now is pointed only at private cloud environments, will have to provide VMware support for a discontinued SKU. 

“This forced servitude and interference with defendants’ most important business decisions would have disastrous consequences not only for the defendants, but for any company that needs or wants to change its product lineup from time to time to stay competitive and drive innovation,” Gressett wrote.

What’s Next Between AT&T and Broadcom Around VMware Support

The next steps for AT&T’s case to keep its VMware support may not come to light until Oct. 15, the day Schecter will hold a hearing around the potential preliminary injunction. In the meantime, both AT&T and Broadcom have asked Schecter to seal a number of documents to protect confidential information.

Baker & Hostetler LLP is representing AT&T. Hueston Hennigan LLP is serving as Broadcom-VMware’s legal counsel.