Broadcom's VMware takeover: EU cloud providers sue the Commission

The European approval of the takeover of the market-dominating virtualization software VMware by the US technology giant Broadcom is becoming a case for the General Court of the EU (EGC). The industry association Cloud Infrastructure Service Providers in Europe (CISPE) announced on Thursday that it had filed a lawsuit against the corresponding approval by the EU Commission with the General Court in The Hague. The association of cloud providers such as Oxya, Leaseweb, UpCloud and Serverplan wants the court to overturn the approval of the deal by the Brussels competition authorities.

The Commission gave the green light in principle for the takeover of VMware back in July 2023. At the time, around ten other competition authorities around the world, including those in the UK, the USA and China, sent the same signals. Broadcom ultimately paid 59 billion euros for the deal. The official summary of the relevant Commission decision has only been public since May 13, meaning that the complaint has now been filed within the stipulated deadline.

In its plea, the Brussels government institution acknowledged that the takeover posed considerable risks to competition. Nevertheless, it did not impose any obligations or conditions on Broadcom in order to prevent a dominant market position or curb its abuse. The CISPE therefore claims "legal errors and serious omissions in the competition law assessment", which justify a challenge to the decision.

"Brutal" price increases

Since completing the purchase, Broadcom has unilaterally terminated existing contracts, often with only a few weeks' notice, and introduced "new, extremely onerous license conditions", the association claims in support of its complaint. These included drastic cost increases- in some cases tenfold - as well as mandatory multi-year contracts for access to essential VMware software. In May, the CISPE accused Broadcom of having caused price increases of 800 to 1500 percent for member companies with license changes. This was "brutal".

In July, the US company further exacerbated the situation, the association complained, by announcing new restrictive licensing conditions. These could effectively exclude smaller cloud providers - including many CISPE members. These service providers would be prevented from purchasing or reselling VMware-based cloud services. However, these are "central components for secure, flexible and European cloud solutions".

According to CISPE, it has been warning the Commission –, and in particular the Directorate General for Competition –, about Broadcom's unfair licensing practices for over two years. Despite numerous discussions and detailed information, nothing has happened. Repeated attempts to "enter into a constructive dialog with Broadcom and negotiate fair access conditions" for members have also come to nothing. The local IT user association Voice has now also complained to the Commission about Broadcom.

Antitrust complaint against Microsoft settled

In 2022, the CISPE also submitted a competition complaint to the Commission against Microsoft for its bundling practices of its Teams conferencing software with its own Azure cloud service. Last year , it surprisingly withdrew this complaint with reference to the results of the negotiations. At the same time, the US software giant joined the CISPE as a member without voting rights.

"VMware's dominant position in the virtualization market means that Broadcom's unilaterally tightened licensing conditions affect almost all European organizations that use cloud technologies," emphasizes CISPE Secretary General Francisco Mingorance. "Hospitals, universities and local authorities" are also facing "unaffordable bills and rigid long-term contracts that jeopardize the flexibility and cost-effectiveness of their digital infrastructure unplanned and through no fault of their own". The Commission expressed its willingness to defend Broadcom's decision in court. The US company has repeatedly relied on a simplified licensing model. The customer retention rate had remained constant.

(vbr)