CISPE claims European Commission gave Broadcom a ‘blank cheque to raise prices, lock-in, and squeeze customers’ with VMware deal

A trade body representing European cloud providers is continuing its fight against Broadcom’s acquisition of VMware.

Cloud Infrastructure Services Providers in Europe (CISPE) has made a formal statement to the General Court of the European Union, outlining its concerns.

The complaint argues that by approving the merger, the European Commission (EC) enabled Broadcom to monetize VMware’s pre-existing dominance in server virtualization software.

Moreover, CISPE argued the EC ignored the known risks presented by the deal, allowing the firm to exploit its dominant position and massively increase pricing.

In a statement, CISPE pointed out that Broadcom’s CEO publicly committed to lifting VMware’s standalone earnings before interest, taxes, depreciation, and amortization (EBITDA) from between $4.7 and $5.0 billion to $8.5 billion within three years of closing.

This increase of 60 to 80% in a market growing at only 5% to 8% annually couldn't realistically come from organic growth or efficiencies, the trade body noted, but only from the aggressive monetization of VMware’s locked-in customer base through steep price rises and forced bundling.

CISPE is also unhappy about the way the deal is being financed, with Broadcom having raised $28.4 billion in new debt and assuming around $8 billion of VMware’s existing debt to fund the acquisition.

This, CISPE added, created a powerful financial incentive to extract cash rapidly from VMware’s installed base, reinforcing the provider’s market power and incentivizing aggressive pricing strategies.

CISPE claims EC ignored warnings

Notably, CISPE claims the EC ignored repeated warnings from customers and industry associations, failing to examine - or even mention - the risk that Broadcom would use VMware’s dominance to drive substantial price increases and tighten contractual lock-in.

Since the acquisition, prices have skyrocketed, in some cases by as much 1,500%.

Meanwhile, the trade body noted that multi-year subscriptions and bundling of VMware products have been forced on users - with significant cost consequences for European cloud providers and their customers.

“The Commission looked at this merger through half-closed eyes and declared it safe. By rubber stamping the deal, Brussels handed Broadcom a blank cheque to raise prices, lock-in and squeeze customers. Broadcom has, predictably cashed this cheque with interest," said Francisco Mingorence, secretary general of CISPE.

"This was a failure of oversight by the regulator with real world costs for Europe’s cloud sector, and every organization that depends upon it.”

The statement comes in response to the European Commission’s defence of its 2023 decision approving the $61 billion deal.

If CISPE succeeds in persuading the court to annul the acquisition, the Commission will be forced to re-examine it - creating significant legal uncertainty for Broadcom’s shareholders, creditors, customers, suppliers and investors, CISPE pointed out.

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