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Watchdog: Broadcom buy of VMware may be bad for competition

Server price hikes, rival hardware makers locked out ... haven't we been warning that for a while?

Britain’s competition watchdog fears Broadcom’s proposed $61 billion purchase of VMware may lead to higher prices for servers and damage potential innovation.

The process began in November when the Competition and Markets Authority opened a preliminary inquiry into Broadcom’s purchase of the former Dell Technologies-owned virtualization and cloud biz.

Phase 1 considered if the purchase would give Broadcom an “ability to disadvantage” competitors, given VMware’s “leading position in server virtualization software” and “that compatibility with its software is critical for the server hardware components sold by Broadcom and its rivals.”

Oddly enough, the UK watchdog appears to have homed in on hardware, just as the EU has done. This is despite the potential risks it might hike prices of software, with VMware's wares by far the dominant platform in server virtualization. The Reg's virtualization desk has previously pointed out that this is probably missing a trick, as it would make sense for any regulator to look for commitments around software pricing.

“The CMA is concerned that the deal could enable Broadcom to harm its rivals by preventing them from being able to supply VMware-compatible hardware components – such as NICs and storage adapters – reducing competition and ultimately choice for customers,” the CMA said today.

The watchdog also found the merger could let Broadcom access commercially sensitive data, such as details on planned products that rivals currently supply to VMware. This, it added, may hit innovation and leave customers “worse off” with fewer product updates or features.

In a statement, David Stewart, exec director of the CMA, said it was aware that computing infrastructure props up the services that both public and private organizations rely on, “that is to say all of us.”

“Servers are a vital building block, functioning largely thanks to hardware products made by firms like Broadcom, working in unison with virtualization software from firms like VMware.

“We are concerned his deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems. It’s now up to Broadcom to respond to our concerns or face a more in-depth investigation.

Both VMware and Broadcom last month extended the deadline for the acquisition to be signed and sealed by 90 days to May 26, although the situation may be out of the corporations’ hands.

The European Commission is currently running its finger over the arrangement, after opening an in-depth probe itself in December. The EC is less worried about price hikes and more with implications for compatibility and bundles.

Customers also expressed fears about innovation and increased costs in June last year, weeks after the $61 billon offer was bid.

Broadcom now has five working days to tell the CMA how it intends to address the concerns outlined. The CMA itself then has the same amount of time to decide if those resolutions warrant a deeper, Phase II probe.

In a statement, a Broadcom spokesperson said:

"We are working constructively with the CMA as it continues its standard merger review process and are confident we will address any concerns. We will demonstrate that the transaction enhances competition and benefits businesses and consumers through increased quality, innovation and choice.

"We are making progress with our various regulatory filings around the world, having received legal merger clearance in Australia, Brazil, South Africa, and Canada. We are also pleased to have received, last week, foreign investment control clearance in the UK under the National Security and Investment Act."

A VMware PR handler said: "Broadcom's acquisition of VMware continues to move forward as expected, including with respect to the regulatory review process taking place in the UK and those across multiple other jurisdictions. VMware will continue to respond to all regulatory inquiries, as appropriate, and we continue to expect the deal to close in Broadcom's fiscal year 2023." ®

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