LAS VEGAS--Service providers must embrace the same open source economics as their Web 2.0 rivals if they are to compete in a world where computing and telecom are merging at breakneck speed, Sun Microsystems chairman and co-founder Scott McNealy said Wednesday in a NXTcomm08 keynote address.

Calling “sharing” a fundamental precept of the connected economy, McNealy stressed that in the telecom environment “sharing is not just about open networks, it’s about having the implementation, the actual zeros and ones, of [key software elements] on the network being open source.”

Sun itself has committed to making 100 percent of its software base open source, including versions of its Solaris OS, Java development environment and applications like OpenOffice on the desktop and MySQL database in the data center.

As the telecom industry becomes increasingly software-driven, vendors and service providers must take advantage of the technical and cost advantages of free, open source software.

McNealy said when he talks to traditional companies purchasing Sun servers – including telcos – about what type of software they put on the machines, the standard answer is costly, commercial software from application companies like Oracle, Microsoft and SAP. When he asks the same question of Web 2.0 companies like Google and their brethren, McNealy said, “they said, ‘we don’t buy software.’ Not one of them would admit to buying software,” opting instead of open source solutions.

McNealy then addressed the NXTComm08 audience: “Why are you buying software?”

Sun this week announced a new version of its MySQL Cluster Carrier Edition, an open source database targeting carrier applications like HSS and HLR servers and service delivery platforms. Carriers and their vendors must take advantage of the economics of such open source software if they are to compete with their Web rivals.

“Either telcos become destination sites or the destination sites are going to become telcos,” McNealy said, and how well each camp takes advantage of the economics of open source software will help determine the winners and losers.