McNealy: Telcos falling behind in Internet race

by Agam Shah

February 27, 2008 —

Telecommunication companies need to go beyond just providing bandwidth and
look into acquiring Internet destination sites that are heavily trafficked,
says Sun Microsystems Chairman
Scott McNealy.

"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.

IDG News Service