IBM Builds Telco Muscle With $34B Red Hat Acquisition

Mitch Wagner
7/9/2019

IBM's $34 billion Red Hat acquisition, which closed Tuesday, gives the combined organization a full stack of software and services to help telcos and other service providers transition their networks to cloud platforms, executives for the two companies say.

"Together, we're pretty sure we can do a lot more than we have been doing in the past," Mike Ferris, Red Hat VP product and technology strategy, tells Light Reading.

Red Hat strategic technologies that IBM gets with the deal include its OpenShift platform for running Kubernetes containers on public, hybrid and private clouds, as well as OpenStack. Both Kubernetes and OpenStack have been fundamental to 5G and network functions virtualization (NFV) deployments, Ferris says.

Much of the appeal of Red Hat to IBM are Red Hat's agreements to integrate OpenShift with major public cloud providers, as well as OpenShift's integration with Red Hat Enterprise Linux, Steve Robinson, general manager for Red Hat synergy at IBM, who led the merger for IBM, tells Light Reading. Red Hat also provides Cloudforms cloud management service and containerized storage.

IBM brings its middleware and extended software portfolio and services to the deal. The company has a $9 billion-plus middleware portfolio, including data, analytics, Watson, blockchain, security, transaction processing, and business process engineering. IBM has been containerizing that software to run on top of Kubernetes, which makes it OpenShift-ready.

That integration creates a "top to bottom stack" for service providers and enterprises building technology from on-premises to the public cloud, Robinson says.

IBM intends to disclose further information about Red Hat integration later this summer.

IBM has a strong service provider business -- IBM inked an ambitious, $550 million partnership with Vodafone this year, with Vodafone handing over management and development of its cloud and hosting business. IBM will provide cloud capabilities to enterprise customers, while Vodafone provides fixed and wireless connectivity. IBM also partnered with Vodafone Idea to improve customer experience for the Indian communications provider.

IBM counts every major telco as a customer, Robinson says.

Red Hat has its own service provider business, including a recent deal with Turkcell, Turkey's leading service provider, which is virtualizing a network with 35 million subscribers. Red Hat has partnerships with telco equipment manufacturers and NFV providers.

IBM and Red Hat are both pursuing similar hybrid cloud strategies, seeing telcos and enterprises moving workloads to multiple public and on-premises clouds, while also integrating mission-critical existing workloads running on legacy system. That's in opposition to early predictions by cloud advocates that all workloads would quickly move to the public cloud, on a single public cloud platform. Organizations making the transition to hybrid cloud need an integrated stack that offers complete service level guarantees, and IBM believes Red Hat can help provide that. "Otherwise you're building things on shifting sand," Robinson says.

Red Hat's experience working with major enterprises, such as banks, and major public cloud platforms, helps the company deliver the reliability and quality of services that telcos need as they move their networks to the edge and cloud, replacing hardware with software, Ferris says.

IBM has a deep history in the service provider industry, as my colleague Ray Le Maistre wrote in November. IBM said last year that 83% of the world's largest communications service provider are customers. It provides systems integration services and OSS systems; invested more than $3 billion in IoT platforms and tools; provides CSPs with analytics, AI and automation; is working with CSPs on blockchain strategies; and has multiple NFV partnerships and initiatives. It's a leading contributor to both OPNFV and ONAP.

Sizing up the competition
IBM's hybrid cloud strategy puts it in competition with Cisco, which, like IBM, is primarily an enterprise vendor but is looking to build its service provider business. And Cisco, like IBM, sees enterprises migrating to multiple public and private clouds.

But IBM's biggest competitor here is the combination of VMware and Dell, which owns a controlling stake in VMware. As with the IBM-Red Hat combination, Dell and VMware are sending a message to customers that they're partners but also independent, willing and eager to make deals with competitors if that's what it takes to close the deal with a customer.

VMware's support for telcos and service providers starts at the highest level of the company. In a keynote at the company's annual VMware conference in August 2018, CEO Pat Gelsinger said that telcos are an "enormous opportunity." VMware acquired SD-WAN provider VeloCloud in 2017 and SD-WAN has subsequently become vital to VMware's business, as has NFV.

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