You can count telecom giant AT&T as one of VMware’s long-standing cloud platform customers not enthralled with Broadcom’s recent changes to VMware’s licensing model.

The carrier recently filed a lawsuit in New York against Broadcom claiming the new VMware parent has 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 need 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 does bring to light the complexity of VMware’s legacy pricing model, citing numerous renegotiations and amendments to a partnership that dates back more than 20 years. This includes the most recent amendment that was signed in August 2022, that 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 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.”

Broadcom has claimed VMware cost savings Broadcom’s management has repeatedly attempted to counter such claims, noting that customers signing up to the new VMware licensing program will actually save money.

Prashanth Shenoy, VP of cloud platform, infrastructure and solutions marketing at VMware, spent considerable time during a press briefing on updates to the VMware Cloud Foundation (VCF) platform attempting to counter some “of the FUD [fear, uncertainty and doubt] and noise in the market saying, ‘hey, when we became part of Broadcom we increased the prices and we really cut down on the offers.’”

Shenoy said that on the first accusation, “nothing can be further from the truth.”

“We cut the price by half for our VMware Cloud Foundation subscription offer,” Shenoy explained, adding that the price has dropped from $700 per core, per year, to $350 per core, per year, as part of the new subscription offering.

“What we did was move completely from a perpetual CPU-based model that we had in the previous world to a core-based subscription pricing model,” Shenoy stated of the FUD-inducing move.

Shenoy then reiterated previous comments that VMware was late in moving toward this subscription model, which “frankly for those of you who follow the cloud infrastructure industry pretty closely, this is the industry standard that every other infrastructure and enterprise software vendor has brought in for the last several years.”

Despite the boast, Shenoy did admit that long-time VMware customers with perpetual licenses and renewals of support and services for those licenses were seeing “pricing challenges.”

“Since we sunset the perpetual and the SNS renewals on them, they don’t have the choice and the only choice that they have is subscription and that’s where you see the price increase when they’re comparing an SNS renewal price to a full-stack subscription price. … And that had to be done for us,” Shenoy said, referring to his claim of subscription now being the industry standard.

Analysts have warned VMware customers of Broadcom’s impact Shenoy did note during the briefing that Broadcom’s VMware platform changes do make it more challenging to conduct a true one-for-one cost comparison, something that analysts have also jumped on.

Naveen Chhabra, principal analyst at Forrester Research, told SDxCentral in an interview that the previous VMware licensing model would allow customers to buy just a shirt if that’s all they needed, but now Broadcom is pushing customers to buy a whole suit.

“You can argue that, yes, you can save money in that model, but is that what you were looking for? No, I was just looking for a shirt,” Chhabra said, adding that customers are being upsold on larger packages like VCF that have items they might not need. This then allows Broadcom to cut the pricing on that package to make it appear to be a deal when in the end a customer ends up spending more than if they wanted just that single item.

That upcharge then plays out longer term in that the new subscription model requires those customers to pay that price each year.

“It is not a five year [total cost of ownership],” Chhabra said. “It is a year-on-year spending that is increasing.”

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.

Chhabra 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.”

Broadcom remains mostly unbowed 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.”