Broadcom received a “red” status from the European Cloud Competition Observatory (ECCO) for the vendor’s most recent handling of legacy VMware licensing changes, which ECCO claims could be violating European Union (EU) competition regulations.
ECCO in its latest report claims that Broadcom has been successful in transitioning legacy VMware customers to Broadcom’s new licensing model. These includes a “majority” of the Cloud Infrastructure Services Providers in Europe (CISPE) trade group, however ECCO noted that “these agreements were often signed under significant pressure, influenced by a lack alternatives, abrupt contract terminations, and financial incentives such as rebates for longer-term commitments.”
“Consequently, while Broadcom has succeeded in transitioning VMware customers to its new licensing framework, these customers continue to face substantial financial burdens and operational disadvantages due to the imposed terms,” the ECCO report states.
The report specifically points to changes Broadcom has made this year, including alterations to the reward structure of its partnership program that “force partners to choose between being a service provider or a reseller. It is common in Europe for CPS to play both roles, thus these new requirements are a further harmful restriction on European cloud service providers’ ability to compete and serve European customers.”
ECCO added that Broadcom further clouded the ecosystem’s licensing paradigm earlier this month with a not-so-subtle blog post pointed at legacy VMware channel partners that have so far resisted Broadcom’s numerous attempts to get them on board with its new program, and has reportedly initiated legal proceedings against some legacy VMware customers over the new licensing terms.
“CISPE members fear that these actions speak to the overall behavior of Broadcom in the market, and that they too will soon face litigation if they do not accept imposed terms,” the ECCO report states.
This path was trodden last year in a high-profile case against AT&T, in which the US-based telecom giant slammed Broadcom as a “bully” in attempting to get AT&T to sign a new contract based on new terms.
Despite the drama, Broadcom’s management has repeatedly touted its success in transitioning legacy VMware customers to the new licensing structure. CEO Hock Tan noted during Broadcom’s most recent earnings call that 70% of its largest 10,000 customers have now adopted the newly evolved VCF platform. That was considerable progress from the 4,500 large customers Tan said had signed on for the VCF platform at the end of the previous quarter.
Tan also noted during Broadcom’s previous earnings call that the vendor had booked 21 million total CPU cores during compared to 19 million cores posted in the preceding quarter. More significantly, Tan said that 70% of those new booked cores were on its VCF platform, “virtualizing the entire data center.”
The ECCO report acknowledges that while many of the CISPE members have indeed signed up for new deals, Broadcom has used heavy handed tactics in getting those signatures and should be hit with new regulations.
“ECCO consider the software licensing terms imposed by Broadcom remain unfair and anticompetitive,” the report concludes. “Irrespective of the numbers of CISPE members (and those in the wider cloud sector) that have now signed new contracts, ECCO believes that regulatory action is necessary.”
EU’s ongoing claims against Broadcom
The ECCO report follows on extended European-based pressure toward Broadcom’s VMware plans.
CISPE last year requested that European regulators impose rules on Broadcom tied to its enforcement of the VMware license changes.
“Several CISPE members have stated that without the ability to license and use VMware products they will quickly go bankrupt and out of business,” CISPE noted at that time. “Some state that over 75% of their revenues depend on VMware software virtualization technologies. End customers, ranging from large national champions and public sector services to SMEs and start-ups, report that they will not be able to deliver some or all of their online services if this licensing issue is not resolved. In some cases, these include vital medical services.”
The group explained that VMware controlled almost 45% of the virtualization market in 2023, which put Broadcom in a position to dictate contract terms, the availability of products, and which third-party vendors are allowed to offer those services.
“Hundreds of products have been removed with no notice, and the remaining ones re-bundled through new contract terms, without any technical modifications or software developments in ways that unfairly increase costs for customers,” CISPE added. “In addition, vendors are unsure if they will even be invited to participate in Broadcom’s new partner programs. Those that are invited feel pressured into accepting unfair licensing terms by the short deadlines imposed to sign. New terms include minimum commitments amounting to tens of millions of Euros over three-year periods. Costs for licenses have increased by a factor of 12 (i.e. 1,200%) in some cases.”
EU regulators reportedly did ask Broadcom about those changes, though any changes did not appear to impact the market as Broadcom shortly after that reported exchange was touting European adoption progress.
