McNealy: Telcos falling behind in Internet race

"I have explained to every telco that either you become a destination site, or the destination site will become a telco," McNealy said at a news conference at Sun Microsystems' Worldwide Education and Research Conference in San Francisco on Wednesday.

Internet destination sites are already gaining on telecommunication companies, McNealy said, giving as examples eBay integrating Skype's VoIP (voice over Internet Protocol) technology and Google trying to buy wireless spectrum and help build cables across the Pacific Ocean. Microsoft's attempted acquisition of Yahoo would create another behemoth that could compete with carriers, such as by combining Microsoft's technology with Yahoo's existing VoIP and messaging services.

"I think the telcos have to make sure they don't get marginalized to being just bit providers and bandwidth providers," he said. On the other hand, carriers may be able to head off Internet sites by limiting the bandwidth available to them, so destination sites may need to affiliate with the carriers, he added.

While the future relationship between telecommunication providers and destination sites is unclear, both are looking at the Internet space to reach more users and generate advertising revenue, McNealy said. "There will be some very interesting challenges of who owns the subscriber and who owns the financial and advertising rights to those individuals."

"Stay tuned, the landscape's going to change enormously here in the next 10 years," McNealy said.

While a Microsoft acquisition of Yahoo would have an impact on the Internet and telecommunications industry, one thing it wouldn't affect is the open-source community, McNealy said.

"I'm not sure Yahoo is a great driver on open-source technology. Certainly Microsoft hasn't been on the leading edge of that, so I'm not sure that will impact open source," he said.

During a speech earlier in the day, McNealy slammed the U.S. government for not being interested in adopting open-source software. McNealy said the farther he goes from Washington, the more governments get interested in open source.

Sun on Wednesday signed a memorandum of understanding with China's Ministry of Education to give university students access to a set of open-source chip designs called OpenSparc. The OpenSparc designs are based on the company's UltraSparc server chips. Sun will provide the designs to universities including Peking University, Tsinghua University and Zhejiang University so those schools can develop teaching materials.

Sun is already incorporating OpenSparc in the curricula of U.S. universities including Carnegie Mellon and the University of Texas. Sun's efforts to promote open-source technology are succeeding, McNealy said, claiming there have been 50 million downloads of Sun's open-source Java Runtime Environment per month, McNealy said.