Q&A with Massimo Fatato, VP Telco Vertical EMEA at Red Hat

Red Hat is an enterprise open-source software company that you wouldn’t necessarily associate explicitly with telecoms. But as telecoms moves into the cloud these two worlds are increasingly colliding, so Red Hat has created a business unit specifically to address that vertical and recently appointed tech and networking industry veteran Massimo Fatato to head it up for the EMEA region. Telecoms.com caught up with him to find out more about Red Hat’s telecoms plans.

Q: Why did you join Red Hat?

Red Hat holds a unique position in transforming the IT industry, especially the telco carrier part of the industry. Telcos at the moment are going through an epochal transformation, which requires an open approach in such a fast moving and fluid market – open in terms of organisation and technology. Red Hat is extremely well positioned to address this transformation. We are hiring telecom professionals who, like me, bring deep and wide knowledge of the industry. This knowledge, combined with Red Hat’s capabilities, creates the foundations for Red Hat to successfully address the ICT market.

Q: Why has Red Hat created a new division to focus on the telco vertical?

Red Hat has clearly identified the telco vertical as a unique opportunity to not just support telcos in this transformation, but to lead such a transformation. The carrier market is extremely fluid today – by fluid, I mean it is going through an evolution whereby it is not always clear who is supplying which part or component of a carrier’s infrastructure, of it processes, of its organisation. In such a fluid market, service providers will require an open approach – one where it is open between functions, with open APIs, or open in the way it operates.

Today’s organisations are clearly separated between the CIO and the CTO, but with the “cloudification” of the network this boundary is no longer as clear. It requires a type of osmosis between the IT and the network world. This osmosis can only be supported if there is an open mind, and an open approach to the way these two functions work together.

Both in terms of an open mind set and working with the open community, Red Hat has a very significant say in this transformation. Hence Red Hat decided to structure and invest in the vertical.

Q: Beyond making open source software, Red Hat defines itself as an ‘open organisation’.  Do you advocate this approach for telcos and what does it mean in this context?

Absolutely. Telcos are facing yet another new challenge. They are confronted by non-traditional competitors. Until very recently these companies had nothing to do with communications; companies such as Amazon, Google, Apple and Microsoft.

This means they need to be able to provide services faster and in a more competitive way to their end users. Unfortunately, telcos’ operations are fractured into silos today in terms of their infrastructure, their management system, their processes and their organisation.

They need to completely redesign their overall framework for management, processes and organisation. And they need to do this while managing the free flow of information between the different components. So yes, they need to have an open organisation mentality.

Q: What role do you see open source technologies playing in the telco of the future?

Open source is going to be absolutely central to the future success of telcos. There are three key reasons. First, today when a carrier wants a service, it goes to a vendor and the vendor builds the service. Whereas if it were to take advantage of the community it would gain access to a much wider pool of resources.

Second, why spend time and resources developing something that someone else has already done when you could spend time developing something that is specific to your core function? The level of maturity of open source today along with the capabilities of a company like Red Hat to take open source and make it enterprise or carrier-grade is pretty powerful. It means that telcos can leverage open source to fulfil, say, 80 percent of their infrastructure service management requirements and dedicate their resources to developing services on top of this commoditised capability. Services to really differentiate themselves from the pack.

Finally, in the alternative scenario of using only one single vendor the telco has created a difficult situation – it has cornered itself and become locked-in. The whole idea of open source is to avoid that lock-in, which telcos can now do.

Q: Is there a place for proprietary technologies in mobile networks?

While we believe open source is the future of the industry, this does not mean that everything will be open and that every large software vendor will transform into an open provider in the future. This is because they would have to dramatically change their business model at the risk of disappearing. So there is a practical element here.

However, at the same time there is an element connected to something I mentioned earlier. Within the open source community – whether carriers, network equipment vendors or software providers – you still have to maintain a certain level of competitiveness by creating new intellectual property.

Take, for example, the pharmaceutical industry. Pharmas sometimes spend millions creating a new drug and naturally they want to recover this investment, so for the first five years it is sold at a premium. It then becomes a generic drug which is open to everyone and benefits a wider society. I envisage something like this happening in the software industry.

Carriers will use the open community for 80 percent of their needs that do not generate a competitive advantage for them; for the other 20 percent they need to maintain a differentiator. Some of this might come from the open community with added service capabilities, and some will be proprietary.

So proprietary software will be around for the foreseeable future. But it will decrease in terms of volume and increase in terms of value.

Q: To what degree do CSPs need to reorganise their business in order to innovate, evolve and survive?

This is related to the virtualisation of network functions, as we move into the cloudification of the network. Moving away from extremely specialised hardware, we’ll go to generic industry standard servers with network function software running in the cloud. Naturally, the CTO of an organisation who today has a huge budget and control will see that power diminish. The new set-up will resemble how things are done in an IT environment. So the predominance of the CTO is becoming less as the transformation happens, and the CIO, who until recently was relegated to a secondary role, will become more important than before.

Realistically things cannot change in a day, but carriers are going to have to restructure their organisations to make sure they fit with the infrastructure and services transformation they are going to go through. The organisation has to be addressed now, and some carriers are already doing it.

Q: What about company culture, does that need rethinking?

The good news is that some of the giant operators are already making a cultural change. For good reason, carriers are risk averse; they are monolithic and slow moving. But we’re seeing changes being made in large operations. Some carriers have set up a new role – that of the chief digital officer – which is an embryonic way to bring together the CIO and the CTO in a single line of business. In this way, you can merge network best practice on one side and IT on the other side and give life to virtualisation in the organisation.

There is another cultural element in the way a carrier goes to market. To go back to its competitiveness and the need to offer services faster, it also has to mimic the classic IT approach, where you have a platform on top of which you can build applications faster. This is possible to achieve in an IT environment because it is very much define-and-control.

In a telco environment, this has many ramifications for network infrastructure, organisation and processes. With the implementation of platform-as-a-service (PaaS) it becomes extremely challenging for carriers to translate applications that can be built on such a platform into effective services that they can monetize when they offer them to customers.

This is also where carriers have to revisit their organisation. Not only should they build PaaS and software-as-a-service (SaaS) capabilities and gather a community of application providers that can build faster than today, but they also have to create the conditions internally in terms of organisation and workflow. They need to decrease manual intervention to translate those applications into services that can be monetized.

So that’s two major organisational transformations. The merger of IT and network capabilities into this chief digital officer.  And creating a mechanism to translate PaaS/SaaS into services more quickly, more reliably, and in a more profitable way.

Q: Are you seeing a move from telcos to emulate an open approach, or is there still a long way to go?

Some have started already.  When I said before that this was an epochal change, I meant it. Today carriers are not just confronting other carriers, so it is not a battle of equals. They are competing with   companies that are structured very differently. Some of their competitors are sitting on a pile of cash that is the equivalent of the GDP of a small country and have very deep pockets to be able to enter into this business – in fact some of them are already have.

It is not a matter of competitiveness, it is a matter of survivability. If carriers cannot transform in the next five to 10 years they are at risk of disappearing. Hence the desire to change. As with natural selection only the fittest will survive. Those who continue acting as though nothing has happened run the risk of becoming extinct.

Q: How much of a threat are disruptive players like Google to CSPs?

This goes beyond Google or Amazon exploiting the communications pipes of telecoms providers to create profitable services while the telcos meet the cost of maintaining the network – this is already an issue.

If I ask myself what is the most important asset of a carrier, there are two elements. The first is its infrastructure; the second is its customer intimacy. By intimacy I don’t just mean the bill, I mean the fact that it physically reaches out to customers over copper, fibre or radio waves. It gains phenomenal insight into customer behaviour in terms of assessing what types of services they buy, what the buying patterns are. So simply having this intimacy means it can leverage the technology for service management, big data analytics and more.

So the moment that Google starts digging roads and putting fibre to houses, carriers are at risk of losing the most important asset they have. The customer intimacy. The bad news for operators is Google has already started cabling a number of cities in the US.

Why Google and not others, why now? Because digging roads is probably one of the most expensive elements in the carrier’s capex – about 30 or 40 percent of capex. So companies that have cash to invest and the capabilities to build customer intimacy are threatening telcos’ extinction as all they will be left with is infrastructure.

In Europe perhaps the networks will go back to the governments and Google will supply services, but telcos will no longer be what they are today unless they become more competitive and able to offer services.