Open Sores: Are Telcos on a Collision Course With Vendors?
These days, it takes a brave executive to stick up for proprietary technology. Developed inside the hulking fortresses of the mightiest vendors, it can easily be depicted as enslaving the many while enriching the few. Contrast that with the typical representation of the open source movement: Communal, democratic, redistributive. What's not to love?
The narrative surrounding open source is as tough to dispute as the image is to dislike. Sick of supplier "lock-in" and the "vendor prison," a few redoubtable telco heroes have stolen the keys and are freeing their fellow inmates. Their former jailers will have to adapt by similarly embracing openness, they say. (See DT: Telcos Must Escape Vendor Prison.)
As difficult as that may be, it is hard to find a vendor that is openly critical of open source. Most claim to have bought into the vision. A few software companies, including Mirantis Inc. and Red Hat Inc. (NYSE: RHT), even have business models based entirely around the open source premise. "Open source does not mean free," points out Sandra Rivera, the general manager of network platforms for semiconductor giant Intel Corp. (Nasdaq: INTC), which also says it backs open source.
The trick is in moving "up the stack," in industry jargon. That essentially means deriving revenues from providing support and services around open source technology. Red Hat has demonstrated this is achievable. Its sales were up 17.5% last year, to about $2.4 billion, and its net profit soared 27.3%, to more than $250 million. Its share price has risen 14% in the last 12 months.
But companies that have thrived by selling proprietary technology have much to lose from this transition. And not all accept that open source will inevitably run riot. "I find it hard to see that very large portions of software in the telco industry will be open sourced because, ultimately, if there are no vendors then every operator has to build its own system," said Ulf Ewaldsson, the head of digital services for Sweden's Ericsson AB (Nasdaq: ERIC), during a recent conversation with Light Reading. "There is a tendency to think about doing that, but for the majority it is not close to being an option." (See Ericsson's Ewaldsson Takes Aim at Telco 'Conservatism'.)
Ewaldsson's comments have to be taken very seriously for three reasons: first, he is a senior executive at the world's biggest network equipment vendor after China's Huawei; second, he evidently regards open source as an existential threat; and third, he implies that open source would shift the balance of network power from the world's largest vendors to its leading operators, and leave smaller telcos in limbo.
Chief among those leading operators is US giant AT&T Inc. (NYSE: T). Just as Ericsson straddles the global equipment market, so AT&T looks all-powerful across much of the service provider landscape. Having already pioneered the rollout of software and virtualization technologies, AT&T has more recently become the biggest cheerleader for open source in the telecom industry.
ECOMP, a software platform it developed in-house, was this year released into the open source community under the auspices of the Linux Foundation. It is now a part of ONAP, an open source group that features several other big-name operators, including ECOMP partners Orange (NYSE: FTE) and BCE Inc. (Bell Canada) (NYSE/Toronto: BCE) as well as China's three national players. (See ONAP Makes Splashy ONS Debut.)
Next page: Operators as vendors