Broadcom's VMware license cancellations should face scrutiny, urges cloud trade body

CISPE demands a pause on contract terminations and calls Broadcom’s actions unwarranted and threatening to EU firms

The cloud infrastructure services providers in Europe (CISPE) is calling for more scrutiny of Broadcom's actions in unilaterally cancelling license terms for essential virtualisation software.

Cloud customers, including public sector bodies, large European businesses, SMEs and start-ups are all threatened by egregious and unwarranted new contract terms and price increases, the European cloud trade association said.

It is calling for, at minimum, an immediate pause to contract terminations and the ability of customers to exit the multi-year contract imposed by Broadcom as soon as viable alternatives become available.

Several CISPE members have stated that without the ability to license and use VMware products they will quickly go bankrupt and out of business.

Some state that over 75 per cent of their revenues depend on VMware software virtualisation 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.

Ultimately, citizens will be deprived of everyday, cost-effective cloud services and Europe's digital ambitions will be severely damaged, CISPE said.

CISPE members, Europe's leading cloud infrastructure service providers, report that in many cases termination notices have been received late if at all, giving just a few weeks' notice.

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.

In addition, vendors are unsure if they will even be invited to participate in Broadcom's new partner programmes.

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 licences have increased by a factor of twelve (i.e. 1,200 per cent) in some cases.

"At a time when our members are moving to support the requirements for switching and portability between cloud services outlined in the Data Act, Broadcom is holding the sector to ransom by leveraging VMware's dominance of the virtualisation sector to enforce unfair licence terms and extract unfair rents from European cloud customers," commented Francisco Mingorance, secretary general of CISPE.

"These changes harm European customers and cloud service providers, increasing costs and reducing choice."

As the market leader in the cloud virtualisation sector (VMware held almost 45 per cent of the virtualisation market in 2023) and the only viable option in some specific cloud sector applications, Broadcom should be regarded as a Gatekeeper under the terms of the DMA.

CISPE added that the vendor's actions should be seen as those of a dominant player as it forces ‘take it or leave it' terms on customers.

CISPE said it is calling on regulators to swiftly examine Broadcom's actions and call it to account.

"As well as inflicting financial damage on the European digital economy, these actions will decimate Europe's independent cloud infrastructure sector and further reduce the diversity of choice for customers," Mingorance added.

"Dominant software providers, in any sector from productivity software to virtualisation, must not be allowed to wield life or death power over Europe's digital ecosystems."

Broadcom-VMware's first 100 days

As Broadcom recently celebrated the first 100 days since acquiring VMware, CEO and president Hock Tan shared his views.

"While much work remains, we've made substantial progress as we build the world's leading infrastructure technology company.

"In the 18-month process of evaluating and acquiring VMware, we looked at everything to identify what's needed to create more value for our customers.

"We've acted decisively to increase customer value since we closed the acquisition in late November.

"We overhauled our software portfolio, our go-to-market approach and the overall organisational structure.

"We've changed how and through whom we will sell our software. And we've completed the software business-model transition that began to accelerate in 2019, from selling perpetual software to subscription licensing only – the industry standard."

Tan said he recognised how this level of change – such as taking the top VMware accounts direct - can bring unease among customers and partners.

"But all of these moves have been with the goals of innovating faster, meeting our customers' needs more effectively, and making it easier to do business with us. We also expect these changes to provide greater profitability and improved market opportunities for our partners.

"Beyond our commitment to simplification across the organisation and portfolio, and to making our products easier to buy, deploy, and use, we've committed $1bn to invest in innovation."

CRN has approached Broadcom for comment.