A&T is precisely the kind of enterprise customer that Broadcom desires. According to recently filed court documents (PDF), AT&T has deployed Broadcom’s VMware software across approximately 8,600 servers, supporting over 75,000 virtual machines. AT&T says these VMs are essential for running various applications that underpin its operations, including telecommunications, customer service, and emergency response systems.
Given the scope of its business, it was surprising to see AT&T Services, Inc. file suit against Broadcom, Inc., alleging that the tech giant breached contractual agreements related to the support of VMware software, which Broadcom acquired in a $61 billion deal in November 2023. The lawsuit claims that Broadcom is demanding AT&T purchase “hundreds of millions of dollars worth” of bundled subscription software and services as part of their dispute over VMware licenses
The lawsuit, filed in the New York State Supreme Court, highlights escalating tensions between the two companies following Broadcom’s acquisition of VMware and marks one of the most high-profile challenges to Broadcom’s post-acquisition business strategies.
The Core of the Dispute: Subscription Licensing Shift
At the heart of the lawsuit is Broadcom’s decision to shift VMware’s business model from selling perpetual software licenses to more expensive subscription-based services. AT&T alleges that Broadcom is attempting to retroactively change the terms of its existing agreements with VMware, a move the telecom company says violates contractual obligations. According to the lawsuit, Broadcom has threatened to cut off essential support services for AT&T’s fleet of virtual machines.
These servers are critical to AT&T’s operations, supporting millions of customers worldwide, including emergency communication services for U.S. government agencies, public safety organizations, and national security entities. AT&T claims that without the necessary software support—such as security patches, updates, and troubleshooting—the stability of these virtual environments is at serious risk, potentially affecting public safety and national security operations.
Broadcom is allegedly demanding that AT&T purchase “hundreds of millions of dollars’ worth” of bundled subscription software and services. The court filing says that “Broadcom’s attempt to bully AT&T into paying a king’s ransom for subscriptions AT&T does not want or need, or risk widespread network outages that could cripple the operations of millions of AT&T customers worldwide, is precluded by the express terms of the parties’ written agreement. Accordingly, refusing to be extorted, AT&T brings this action for breach of contract…”
AT&T isn’t asking for damages. The company is only asking for “injunctive relief to prevent Broadcom from reneging on AT&T’s option [to continue support] in breach of the parties’ agreement.”
Broadcom’s Post-Acquisition Strategy: Customer Backlash
Broadcom’s aggressive shift towards subscription-based licensing has been a central concern for VMware customers since the acquisition was first announced. Many industry analysts predicted that the acquisition would lead to higher costs and fewer options for companies reliant on VMware’s virtualization software.
The customer backlash following Broadcom’s acquisition of VMware was fueled by rising costs, a loss of flexibility, and aggressive sales tactics. Many longtime VMware customers felt alienated by the abrupt changes, leading to strained relationships and calls for regulatory intervention.
Broadcom’s post-acquisition policies have also drawn criticism for pushing customers towards more expensive bundles of services with limited flexibility to retain perpetual licenses. This has led many organizations to look for alternatives to VMware’s services, though transitioning away from VMware can be a long and complicated process.
Broadcom also faced backlash for threatening to end support for VMware’s existing perpetual licenses unless customers transitioned to the new subscription model. This caused significant anxiety, particularly among large enterprises and government organizations that relied on VMware for mission-critical operations.
Customers feared that their systems’ stability and security could be compromised without the necessary support services, such as software updates, security patches, and technical assistance. This is precisely the case for AT&T.
AT&T claims Broadcom is leveraging its dominant position to “strong-arm” customers into unfavorable subscription agreements. Broadcom’s alleged threat to discontinue support unless AT&T agrees to purchase additional products and services emphasizes what many industry insiders see as an attempt to maximize revenue from VMware’s established customer base.
Analyst’s Take
Despite the concern over Broadcom’s apparent business practices, the company continues to deliver a compelling set of offerings that underpin business-critical workloads for enterprises across industries. At its recent VMware Explore customer event, for example, Broadcom’s introduction of its VMware Cloud Foundation 9 was well-received by press, analysts and customers.
In its most recent earnings report, Broadcom disclosed that VMware that VMware Cloud Foundation accounted for “over 80%” of VMware bookings during the quarter. This contributed to 32% quarter-over-quarter growth in VMware’s annualized booking value to $2.5 billion.
What’s unknown, and the AT&T lawsuit calls into question, is whether the increase in VMware bookings is from acquiring net new business or from increasing revenue from existing customers with Broadcom’s bundling and pricing moves. License changes can fuel short-term revenue gains, but Broadcom needs new customers to sustain that growth.
The outcome of the AT&T lawsuit against Broadcom has wide-reaching implications for enterprise software customers and the broader tech industry. Other VMware clients, many of whom share similar concerns about rising costs and reduced flexibility in the post-acquisition era, will be closely watched as this case unfolds. Similarly, other mergers of this size and significance will face the same scrutiny.
As the legal battle unfolds, AT&T is seeking injunctive relief to prevent Broadcom from terminating the support services critical to its operations. The stakes are high, not only for the two companies involved but also for millions of AT&T’s customers.
It’s important to note that Broadcom has not yet publicly responded to the lawsuit. Until that happens, this is a one-sided story. AT&T’s court filings only tell AT&T’s version of events. Despite how closely AT&T’s narrative aligns with public perception, we still need to hear from Broadcom. That should happen soon, as New York’s Supreme Court has instructed Broadcom to reply to AT&T’s complaint “within 20 days” of its August 28 filing date.
No matter how this lawsuit resolves, it highlights the tensions that can arise when corporate strategies shift in the wake of major acquisitions. It also highlights the importance of honoring long-standing customer agreements, even if only as the customer perceives those agreements, in a market where IT infrastructure is critical to an enterprise’s ability to operate.
