CMA deepens probe into VMware-Broadcom merger over concerns it could hike server prices in UK

The Competition & Markets Authority (CMA) is deepening its investigation into the VMWare-Broadcom merger, after concluding the $61bn deal could hamper innovation and drive up the price of servers to UK authorities departments, banking corporations and telcos.

The CMA gave Broadcom 5 working days to problem an endeavor to deal with these concerns on 22 March 2023, however the Authority has now confirmed in a press release that the corporate declined, that means its investigation into the deal is now getting into its second section.

This section of the investigation might be overseen by a four-strong crew, headed up by CMA inquiry chair Richard Feasey, appointed by the Authority on Wednesday 29 March.

This group has till 12 September to research and report on whether or not the merger is prone to consequence in a “substantial lessening of competition within any market or markets in the United Kingdom for goods and services”, mentioned the CMA, in its Phase Two terms of reference document.

The first section of the investigation checked out how the deal could affect the provision of VMware software program and {hardware}, in addition to its compatibility with server {hardware} elements bought by Broadcom’s rivals.

“The CMA is concerned that the deal could enable Broadcom to harm its rivals by preventing it from being able to supply VMware-compatible hardware components – such as [network interface cards] and storage adapters – reducing competition and ultimately choice for customers,” mentioned the CMA in its 22 March assertion.

“The investigation also found the merger may result in Broadcom obtaining commercially sensitive information (such as details of new planned products) that its hardware rivals currently supply to VMware. The CMA is concerned this could damage innovation and leave customers worse off, [as it will result in] fewer product updates or new features.”

Alex Haffner, competitors accomplice at regulation agency Fladgate, mentioned the CMA’s motion in this case is critical as it marks it out as the primary competitors regulator to precise antitrust concerns concerning the deal.

“The CMA’s decision on the proposed tie-up between Broadcom and VMWare is the first one by a competition regulator to express concerns about its impact on competition on any relevant market – it has to date received clearances from Australia, Brazil and Canada,” he mentioned. “As such, it is a crucial reference level and prone to be scrutinised rigorously by different competitors regulators ([including] the EU Commission) who’re nonetheless assessing the deal.

“The CMA’s decision … is notable because it is based on theories of harm that involve the merging parties leveraging market power in one market (server operability) to harm competitors in a vertically related market (components),” mentioned Haffner. “If these theories of harm are to stick, it is likely the parties will need to be creative to come up with remedies to assuage the CMA’s concerns.”

The VMware-Broadcom deal was first introduced in late May 2022, following days of hypothesis that information of a merger between the 2 entities was on the right track to interrupt imminently.

It was not till six months later the CMA introduced that it was inviting remark from “any interested party” concerning the potential for competitors points to come up in the wake of the deal. And, on 25 January, the Authority confirmed it could be launching an inquiry into the merger on account of the suggestions gained.  

During the interim interval, between the merger being first introduced and the CMA getting concerned, VMware’s CEO, Raghu Raghuram, has repeatedly spoken out in defence of the deal, together with throughout an interview with Computer Weekly in early August 2022, the place he mentioned Broadcom needed to purchase VMware to “build and grow” the corporate and assist obtain its objective of changing into one of many “leaders in infrastructure software”.   

Several weeks later, through the VMware Explore person convention in San Francisco, Raghuram went on file to say the merger was on monitor and issues had been working on a “business-as-usual” foundation inside the partitions at VMware. “Our employees know what the roadmap ahead is, and we have continuous communication with our employees in understanding what’s going on, and so they’re all kept up to date all the time,” he mentioned. “They are more or less focused on the job at hand.”