Broadcom’s VMware-centric battle with telecom giant AT&T might be heading toward a settlement but the door remains open for hundreds of thousands of current VMware customers to eventually flee Broadcom’s grip.

Lawyers for both Broadcom and AT&T recently filed a joint letter with a New York court stating that the two companies have worked through enough issues to postpone a planned oral argument to at least next week. This is based on Broadcom agreeing to continue supplying AT&T with support services tied to the carrier’s extensive use of VMware platforms for up to 30 days.

The letter is a considerable de-escalation in what had been a contentious situation between the two giants.

AT&T initially filed a lawsuit against Broadcom claiming the new VMware parent had illegally changed existing terms of AT&T decades-long agreements to use VMware’s virtualized cloud platform. The carrier, which itself has a long history of gobbling up smaller rivals, did acknowledge that business is business, but that contract terms needed to be kept.

“As its new owner, Broadcom has every right to change VMware’s business model prospectively,” AT&T’s filing states. “What it cannot do, however, is retroactively change existing VMware contracts to match its new corporate strategy. But that is exactly what Broadcom seeks to do here.”

Specifically, AT&T claims 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.”

Those support services include “daily maintenance, security patches, upgrades, and troubleshooting” that are tied to VMware software deployed on approximately 8,600 AT&T servers that are powering more than 75,000 virtual machines (VMs). AT&T added further weight to that support need by noting the systems running on the VMware platform “are critical to AT&T’s provision of emergency communication services relied on by the U.S. government and the extended public safety community including, but not limited to, millions of police officers, firefighters, paramedics, emergency workers, and incident response team members nationwide.”

AT&T’s filing also brought to light the complexity of VMware’s legacy pricing model as it cited numerous renegotiations and amendments to a partnership that dates back more than 20 years. This included the most recent amendment that was signed in August 2022, which provided AT&T with the ability “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 claims it did advise Broadcom of its intent to exercise that option, but that “Broadcom is refusing to honor AT&T’s renewal,” and instead insisting that AT&T get onboard with VMware’s new licensing program at the cost of “tens-of-millions more than the price of the support services alone.”

“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,” AT&T’s initial filing notes. “Accordingly, refusing to be extorted, AT&T brings this action for breach of contract, declaratory judgment, breach of the implied covenant of good faith and fair dealing, and injunctive relief.”

More than 100,000 VMware customers up for grabs The Broadcom-AT&T détente is not expected to cool ongoing customer concerns.

Equity research firm William Blair in a recent report looking at VMware rival Nutanix mentioned market research firms were predicting up to 30% of VMware’s installed base of more than 400,000 customers “will eventually switch away from VMware.”

However, William Blair further noted that conversations with Nutanix’s management showed that opportunity could still be years away. This was due to VMware customers re-upping on multi-year deals prior to the Broadcom deal closing; needing to align on an enterprise’s hardware refresh cycle; how aggressive Broadcom might be in retaining the customer (see AT&T); and the desire by VMware customers to learn a new set of tools should they switch.

Broadcom has shown pricing flexibility with some of VMware larger customers.

“For their largest customers, Broadcom is going to try to be more flexible because they don’t want to lose those customers,” Nutanix CEO Rajiv Ramaswami said during a recent press question-and-answer session following that vendor’s latest earnings release. “Customers are generally not happy with the pricing, the approach of Broadcom has taken. It’s not a customer’s first mindset. I’d say it’s a Broadcom-first mindset. That’s really what’s triggering a lot of the angst among customers, and that’s why they’re coming to us and we are engaged with a lot of them.”

Despite the AT&T kerfuffle, Broadcom CEO Hock Tan noted during the vendor’s second-quarter earnings call earlier this year that it had signed up nearly 3,000 of its 10,000 largest customers to VMware’s new subscription licensing model. He added that “each of these customers typically sign up to a multi-year contract,” which when spread across an annualized booking value increased from $1.2 billion during the first quarter of this year to $1.9 billion in its latest Q2.

“We’re making good progress,” Tan said of its move to sign legacy VMware customers to the new licensing model. “The journey is not over, by any means, but it’s very much to expectation moving to subscription.”

Analysts have repeatedly talked about how Broadcom’s pricing and licensing adjustments to VMware’s services have resulted in significant cost increases for long-standing customers, which has many of those enterprises looking for alternatives.

Naveen Chhabra, principal analyst at Forrester Research, recently helmed a report that attempts to provide a template those exposed enterprises can follow as they navigate their new VMware reality. That report notes that Broadcom’s changes impact “all the classic five ‘P’s’ of product marketing – product, pricing (and packaging), place, promotion and people (partners).”

“One VMware client shared that they’re experiencing a 500% price increase based on their current use of VMware products and how it maps to the new licensing and packaging,” the report notes on the impact of those changes.

Chhabra added that these pricing changes were not unexpected and that he and his team had predicted 20% of the world’s largest enterprises “will start to exit – read these words very carefully – will start to exit the VMware stack.”

“They will not do a full replacement overnight, but in parts, they will start to move away,” Chhabra said. “I clearly see that happening right now and I don’t need to go another five months to claim that that prediction was true. It is happening.”