While the EU debates telco infrastructure competition and cross border mergers, many bottlenecks remain in cloud services
Several jurisdictions across Europe are already investigating the hyperscaler cloud services market and while Mobile Europe’s concern is infrastructure, one particular cloud service issue could ironically be impacting the overall telecom services market – and as a result, investment. A few years ago, after the acquisition of VMware – which can be described as an industry de facto cloud standard – Broadcom unilaterally modified the licensing terms of essential VMware software, leading to an “exponential increase” in prices for users.
The European Cloud Competition Observatory (ECCO) has published a new report on Broadcom, with a juicy appendix, which finds that while Broadcom has succeeded in transitioning VMware customers to its new licensing framework, these customers continue to face substantial financial burdens and operational disadvantages.
Independent monitoring body ECCO was established as part of the Cloud Infrastructure Services Providers in Europe’s (CISPE) agreement with Microsoft to resolve CISPE’s competition complaints. It comprises CISPE members, with the support, acting as observers, of European customer organisations such as Cigref (France) and Beltug (Belgium).
Impacting thousands of businesses
ECCO doesn’t hold back on what it sees as conditions that have led to an “exponential increase in prices for users”. Thousands of European businesses, including critical sectors such as hospitals and public services, are raising alarms over what they describe as “abusive and anti-competitive behaviour”. The company has discontinued the ability for customers to purchase only the VMware software they need, instead forcing them into bundled offers without introducing any new technical enhancements.
The long-standing perpetual licences and flexible monthly “pay-as-you-go” models have been replaced by inflexible three-year subscriptions with fixed annual pricing, regardless of actual usage. Critics liken the move to an electricity provider billing customers as if their heaters run 24/7 at full power, regardless of real consumption, and demanding payment upfront for the entire year.
ECCO found that Broadcom reportedly terminated existing licensing agreements – some in place for over a decade – without adequate notice, effectively leaving customers with no choice but to accept the new terms. The impact has been dramatic, with licensing costs for some CISPE members reportedly rising between 800% and 1,500%. One major US customer, AT&T, cited an increase of approximately 1,050%, according to ECCO.
Even where firms agree to the new three-year contracts, Broadcom only partially offsets the surge with discounts of up to 50%. The result, according to ECCO, is that the financial viability of some businesses and cloud providers has been jeopardised, with certain firms anticipating their EBITDA to fall to zero.
To minimise the financial impact of these abuses, some CISPE members have been forced to massively restructure their infrastructures and purchase new equipment. These costs have been absorbed internally (at the expense of innovation) and externally (at the expense of consumers).
“Unlike Microsoft, Broadcom shows no interest in finding solutions, or even of working with European cloud infrastructure providers. Broadcom can report that most have signed new contracts, but we know that these are punitive and threaten the viability of service providers locked-in to the VMware ecosystem,” said CISPE secretary general Francisco Mingorance. “Urgent action is needed.”
What’s to be done?
ECCO believes that regulatory action remains necessary and should include measures, including the reinstating of previous contract, the suspension of ongoing litigations should be considered by the regulator. It asserts that, unless Broadcom promptly implements a set of critical changes and adaptations to its licensing terms the company’s financial model “remains legally and ethically flawed”.
It added that the recently reported filing with the European Commission of a formal complaint by German IT customer association, VOICE, against Broadcom further “emphasises the need for definitive action to end these harmful practices”.
CISPE is urging Broadcom to adopt a series of immediate reforms to restore fair licensing terms for VMware software, particularly for cloud service providers (CSPs). One key demand is the reinstatement of predictable business relationships, including a commitment from Broadcom to provide at least six months’ notice before implementing any changes to contract terms, pricing, or renewal conditions. Additionally, CISPE calls for sustained dialogue between Broadcom and cloud stakeholders through a dedicated communication channel with the ECCO, aimed at fostering transparency and collaboration.
CISPE also wants Broadcom to introduce a pricing model that reflects usage variability typical of cloud environments. This includes setting charges for peak usage at contractually agreed rates and avoiding penalties for under- or over-usage. Licensing should be flexible, allowing for reductions in committed volumes and pricing structures that reflect the scalable nature of cloud infrastructure.
To ensure broader access to Broadcom’s partner programs, CISPE recommends lowering barriers for smaller CSPs to attain higher partner tiers and maintaining the ability for providers to operate as both resellers and service providers. This is especially important for those offering hybrid services like colocation and private cloud. For new white-label CSPs, Broadcom should allow at least six months for onboarding to facilitate smooth integration and avoid sudden business disruption or legal risks.
Finally, CISPE stresses the importance of privacy and data protection, urging Broadcom to allow CSPs to pay for services without revealing the identities of their end-customers. Usage reporting should be anonymised to safeguard customer privacy while maintaining billing transparency.
