AT&T has filed a lawsuit against Broadcom in New York’s Supreme Court, alleging that the chip giant is violating contractual obligations following its $61 billion acquisition of VMware.
The telecommunications giant accused Broadcom of attempting to retroactively alter existing VMware agreements and force AT&T to buy expensive subscription-based services.
According to the complaint, Broadcom is pressuring AT&T to purchase hundreds of millions of dollars worth of bundled subscription services that the telecom company neither wants nor needs.
AT&T claimed these aggressive tactics are jeopardizing vital support services for VMware software that powers its operations, including services essential to national security and emergency response.
“Broadcom is attempting to retroactively alter existing agreements, forcing us into purchasing hundreds of millions of dollars in bundled services,” AT&T stated in its complaint, adding that Broadcom’s actions could severely disrupt AT&T’s operations and even threaten national security. “Without the support services, AT&T cannot prevent software errors, security vulnerabilities, or system outages that routinely occur,” the company added.
The legal approach by AT&T makes complete sense here, as the changes suggested by Broadcom will lead to complications at multiple levels for AT&T – technical, organizational, legal, and procurement, said Mukesh Ranjan, vice president at Everest Group. “Sectors such as telecommunications and government often sign very long-term contracts because of the complexities and multi-step processes involved in onboarding vendors. This will be true for many other telecommunication and government sector companies. It will not be surprising if we see multiple law firms filing similar cases on behalf of their clients in the near future.”
In its complaint, AT&T said Broadcom’s threat poses a risk not only to critical government services but also potentially to national security and public safety. The telecommunications company emphasized that millions of its customers, including police, firefighters, and government agencies, rely on VMware’s software to ensure seamless communication during emergencies.
The lawsuit highlights the importance of VMware’s software in AT&T’s infrastructure, which runs across 75,000 virtual machines on 8,600 servers. This technology underpins services for millions of AT&T customers daily, including emergency responders and federal agencies. Without continued support, AT&T argued, the software could fail, leading to widespread service disruptions.
In the complaint, AT&T stressed that Broadcom’s support services include daily maintenance, security patches, and upgrades critical to AT&T’s continued functionality. “Without support services, the software and, by extension, AT&T’s critical operations, are just a glitch away from failure,” the lawsuit added.
Broadcom’s alleged strong-arm tactics
The legal filing follows growing concerns in the tech industry over Broadcom’s aggressive post-acquisition strategies. AT&T claimed that Broadcom’s actions are part of a broader pattern of “bullying tactics,” designed to pressure customers into costly subscription models.
“Broadcom is attempting 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,” the company stated in the filing.
AT&T argued that it has the contractual right to renew support services under its existing agreement, which was signed before Broadcom acquired VMware. However, Broadcom is allegedly refusing to honor these renewal terms unless AT&T agrees to purchase bundled subscription services, adding millions to AT&T’s operational costs.
“Most acquisitions in the tech industry generally try not to disrupt the customer relationship and let the acquired company function as it is, until the merger smoothens out,” Ranjan said. “If legal implications hold in this case, the focus on not disrupting customer relationships while acquiring will be further strengthened.”
“This situation highlights a common challenge when companies make large acquisitions — they often need to integrate the technology into their broader offerings and upsell to recoup the investment,” said Neil Shah, VP for research and partner at Counterpoint Research. “However, it’s crucial for the acquiring company to honor previous contracts and relationships, making strategic moves rather than rushing the upsell. This is particularly important for critical sectors like defense, telecom, and public services, where both CAPEX and OPEX are heavy.”
Broader implications
“Broadcom’s attempt to bundle multiple VMware services under subscription in the name of portfolio simplification has not flown well with customers,” said Everest Group’s Ranjan. “Most enterprises we speak to are unhappy with Broadcom and are trying to understand the alternatives available to their current VMware estates.”
This lawsuit follows growing regulatory scrutiny of Broadcom’s business practices. Recently, the EU launched an investigation into Broadcom’s alleged anticompetitive conduct related to its licensing terms for VMware customers. AT&T’s complaint highlights these broader concerns, claiming Broadcom’s actions are part of a pattern of “bullying tactics” aimed at forcing customers into unfair deals.
AT&T is seeking injunctive relief to prevent Broadcom from terminating its software support services, stating that the termination would lead to irreparable harm for millions of AT&T customers.
Moving forward
With this lawsuit, AT&T is drawing attention to the critical role VMware software plays in supporting essential services and national security. The case is expected to be closely watched, as it could set a precedent for how large tech acquisitions impact existing contracts and customers reliant on perpetual software licenses.
AT&T’s complaint underscores the stakes: “The consequences of Broadcom’s termination of support services would likely be devastating to AT&T, its customers, and the public at large.”
“For Broadcom, which has built a strong portfolio through R&D and acquisitions, flexibility is key,” Shah pointed out. “The company may need to initially forego some opportunities to prove the value of the overall solution in a way that benefits both the company and its customers.”
Ranjan echoed a similar sentiment. “VMware was well known for being a very customer friendly organization and being very flexible to accommodate different requests. This did lead to portfolio proliferation and a more complex SKU structure. However, customers got what they wanted and were quite happy.”
This legal battle raises significant questions about how much power major tech companies wield over critical infrastructure when they acquire key software providers, and whether they can leverage that power to impose unfavorable terms on existing customers.
“This case could add a further layer of due diligence while making acquisitions that go beyond just the financial playbooks. While profitability matters, synergies are driven when cultures align,” Ranjan stated.
Source:: Network World