Open source software vendor company Red Hat revealed in its recent Q4/FY earnings that telecoms was its top vertical.

To find out why this sector has become so prominent for a company more associated with enterprise Linux and middleware Telecoms.com spoke to Darrell Jordan-Smith, VP of global telecoms and ICT at Red Hat. He explained that while software is of increasing strategic importance to CSPs, they don’t consider enterprise software development to be a core competence and thus need outside help.

“Many CSPs are looking to open source solutions to reduce costs via software but also to reap the promised benefits of innovation and the speed at which innovation can be delivered,” said Jordan-Smith. “Telcos don’t typically have large R&D budgets but with open source they can access developers in the software-defined world. They see open source as a strategic area.”

The software-ization of telecoms stuff, including things like NFV and SDN, is viewed as inevitable. But one thing CSPs are acutely aware of is how damn complicated it is – especially making sure all the various chunks of software all work with each other, which is where Red Hat comes in.

“This stuff isn’t easy, it’s complex,” said Jordan-Smith. “Having a partner ecosystem to support operators in stitching it all together in a scalable and predictable way is particularly important.  That’s what we also provide – we partner with the likes of Ericsson, Nokia, Huawei and Cisco to address the complex networking issues operators have today and where they can evolve in the future.”

The big kit vendors are all keen to help out their CSP customers with their emerging software needs – not just traditional areas like BSS/OSS but virtualization and all the cleverness that will be required to make 5G, IoT, etc work. Red Hat’s business model as an open source specialist is essentially to give its software away for free to the open source community and then use its expert position to provide services to users of that software.

“Where Red Hat fits is in building technologies upstream that support telcos as they move to the software-defined world,” said Jordan-Smith. “We are among the largest contributors of many of these upstream projects, such as OpenStack for cloud computing, KVM for virtualization, Kubernetes for containers, JBoss for middleware and software toolsets.

“Because we are upstream-first, we do not create proprietary versions of software, which means operators can choose the tech that most closely delivers against their needs at any given time, helping them be agile and flexible. And upstream-first means everyone has access to the technology and can download and use it.”

All of this has been Red Hat’s model for a while, but it seems to be in the right place at the right time regarding the needs CSPs have for partners to guide them through the increasingly convoluted software labyrinth. Red Hat has positioned itself as one of the companies that will do a lot of the software dirty work for them and this seems to be paying dividends, including its first $100 million deal with a CSP.

In his prepared remarks for the Q4 earnings, Red Hat CEO Jim Whitehurst said “Similar to Q4 last year, the top vertical for the quarter was telecom where we closed a number of new, large deals with several global telecom providers. Part of our overall investment strategy was to position our portfolio of technologies and expand our “go to market” capabilities to further address this market. Our Q4 wins clearly demonstrate the success of our efforts, including the approximately $100 million agreement that I noted a moment ago.”

The status of telecoms as the single biggest vertical for an enterprise Linux and middleware company is a great illustration of the convergence of telecoms and IT that defines the current technological era. Red Hat’s telecoms revenues not only provide an indication of how much is being invested in that transition, but may increasingly offer a barometer of how well that process is going.