The telecoms industry is getting to grips with quality and performance. The current system has a weak control over quality, and many pricing mismatches. As a result, there are arbitrage opportunities everywhere. This presentation for a global telco proposed a new business unit to take advantage of them.

1. PROPOSAL SUMMARY:
THE ‘PERCEPTION GAP’
AND A NEW DISRUPTIVE
‘QUALITY ARBITRAGE’
BUSINESS UNIT
Globaltelco,
2nd July 2015
MARTIN GEDDES
FOUNDER & PRINCIPAL
MARTIN GEDDES CONSULTING LTD

2. EXECUTIVE SUMMARY
The Network Innovation Council process faces both serious challenges and a remarkable opportunity:
• Moving from voice to data, changing copper to fibre, and trying to move “up the stack” are incremental
and create a culture of improvement through good execution, not disruptive change.
• Fortunately, we see a huge gap between what Globaltelco currently believes can be done, and the
reality: that highly differentiated new services can be delivered, and at a far lower cost base.
• This new demand-led approach is set to disrupt markets that Globaltelco has been slowly developing. It
requires an opportunistic mind-set, more like an OTT player (if you don’t want to be disrupted yourself).
• You can either become a commodity component of a new supply chain, or you can manage the change
by becoming the ‘resource trading’ broker function. That is the BIG choice facing Globaltelco right
now.
So what does senior management need to do in order to engage with the change in business model?
• The first step is to assess the potential for a demand-led approach, given Globaltelco’s scale and
structure. We propose sizing the ‘quality arbitrage’ opportunity inherent in IP networks.
• The next step is to attack the market incrementally, and prove the effectiveness and scalability of the
new approach. We describe specific new services, which offer clear and measurable of success criteria.
• To execute this successfully requires a new business unit that can develop the demand-led ‘dynamic
trading’ approach. This learning can then be transferred into the more transactional group companies.
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3. 3Globaltelco is following an incremental course
The Network Innovation Council is tasked with boosting Globaltelco’s ability to meet and exceed its
promises to investors. We have engaged with this process, with a view to initiating disruptive change based
on network performance science. This has surfaced a deep difference in perception between us as to what is
possible. We see Globaltelco’s implicit position to be that only incremental improvements can be made,
led by existing equipment vendors. Why so?
The recent investor update states that the improvements planned largely involve catching up with
competitors and matching general industry innovation trends. Examples include the shift from voice to
data, LTE, FTTH, leveraging ‘full stack’, and optimising legacy networks. As a result, both internal and
external expectations in terms of disruption have been set low (at least when compared to what we know to
be possible).
From our perspective, the current approach (and hence attitudes and behaviour of the technology teams)
are summed up by the limited ambition of a ‘steady roll out of a differential future proof network’. While
this may be a sensible approach to implementation, it is not disruptive.
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4. 4
We believe Globaltelco can succeed
with a bold and disruptive alternative
The problem is that differentiation does not exist in the network per se; it is just a costly means to an end.
Real market differentiation requires a different service to be provided to the end user, ideally one which
cannot be replicated by competitors, and which has a fundamentally different cost structure to today’s
services.
The current technology and commercial trajectory does not offer this. We feel that at best it will lift
Globaltelco’s position a few places in the rankings of international operators. It reinforces the commodity
nature of the service, rather than reinventing it for a more Google-like model of matching buyers and sellers.
As a result, we believe the senior management should embrace a bold ‘break out’ approach that will
create a new kind of network that can supply genuinely differentiated services. Yet this must be
implemented in an organisation with huge inertia, as is the norm with any large institution.
This means overcoming the ‘perception gap’ between what we know is achievable, and what Globaltelco
company culture currently believes is the case. A by-product of achieving this goal is a huge opportunity to
reduce capex and opex within the existing business by applying new skills, processes and mechanisms.
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5. 5
The ‘perception gap’ that we see
as network performance scientists
State of
play
State of the
art
State of the
possible
State of
play
State of the
art
Globaltelco’s
perception
of what’s possible
Our perception
Huge untapped
scope for
disruption
State of the
possible
GAP!

6. 6
We propose a switch from a
supply-centric to a demand-centric model
A demand aware network is one that both creates genuine quality of experience differentiation for users,
and also maximises the use of the underlying network resources, hence making it cost effective. (SDN/NFV is
an early and incomplete step in this direction.)
The challenge is that our industry as a whole is supply-centric, with ‘one size fits all’ products
characterised by ‘bandwidth’. There is a widespread implicit belief that network service quality is a matter of
a lack of capacity of the ‘pipes’, and hence detecting and rectifying ‘faults’. This limits the sense of
possibility of where profit opportunities lie. For instance, by their actions, operators show that they believe
the delivery mechanisms can only be highly profitable if they can also get revenue from the applications
being delivered (e.g. IPTV, UC, VoLTE, RCS).
There is an alternative paradigm, which is to see networks as application performance delivery platforms
(just like so-called ‘OTT’ players do). This requires treating networks as resource trading platforms, not
‘pipes’. They match supply to demand for ‘quantities of quality’ of information delivery.
When you take this alternative viewpoint, new business opportunities open up.
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7. Efficiency
saving
worth €bns
Polyservice
Polyservice
Monoservice
capacity
Today’s networks must over-deliver quality:
this creates a valuable arbitrage opportunity
Throughput
Quality
Throughput
Quality
Application
requirements
Different quality
needs, but all
delivered at high cost
Efficiently tailor
services to
requirements
Cost aligned to
demand for
quality
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8. 8A polyservice network exploits the arbitrage
Monoservice
network
Polyservice
network
Efficiency
Effectiveness
Good
ΔQ
Poor
ΔQ
High
cost
Low
cost EfficiencyEffectiveness
Good
ΔQ
Poor
ΔQ
High
cost
Low
cost
Hard to improve
‘state of play’
Economy class
for bulk data
Superior class
for real-time
Standard class
for interactive use

9. 9
The immediate threat and
opportunity is ‘quality arbitrage’
There is massive value to be gained from a ‘quality arbitrage’ that exists, but is not visible to you yet. This
arbitrage opportunity typically exists in all IP networks. It is typically possible to extract a 100%
improvement in value from the assets, with 500% (or more) possible over time as all available optimisations
are understood and exploited.
By quantifying demand for quality, and managing the QoE risks better, a new revenue model can be
created. It also allows more intensive resource usage. This is a new ‘polyservice’ form of supply that better
exploits the ‘network resource trades’, and is itself highly disruptive.
Globaltelco faces the risk that others will exploit the arbitrage opportunity, to your serious commercial
disadvantage. (This has happened before, e.g. with TDM and the rise of ISPs, and happening right now with
OTT players.)
We are proposing a process for Globaltelco to proactively initiate the disruption. The resulting resource
trading capability is also a prerequisite for a ‘digital telco’ transformation, and captures a valuable position
in the new supply chain.
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10. 10Our recommended course of action
10
Why act now?
This gives rapid and
commercially valuable
learning of the size and
‘first mover’ worth of the
quality arbitrage threat
and opportunity
Why is it important?
It starts a process of
repositioning
Globaltelco in the supply
chain using a disruptive
demand-led model that is
key to ‘digital telco’
success
Why nothing else?
It is the only viable
route that we see to
radically shift the
cost/revenue balance
on Globaltelco’s
transmission assets
Globaltelco should evaluate the costs and benefits of creating
a new ‘digital telco’ global business unit
with radical new data transport products
focused on exploiting ‘quality arbitrage’ (both on and off network)
by using polyservice network technology

11. The first step: size the opportunity
Our proposal is to evaluate the exposure and the costs and benefits of exploiting the quality arbitrage:
• (Assess) Evaluate the exposure of current mainstream products to quality arbitrage; and
• (Attack) Create an initiative to exploit the quality arbitrage, potentially against your rivals’ networks.
The assessment is done by exploiting your advantage as an incumbent operator, so you can measure the size
and worth as if you were an ‘attacker’ against your own business. The first step is to measure ΔQ on existing
networks and the resulting QoE being (under or over) delivered.
We think there is a strong case for creating a new global business unit to execute the ‘attack’. It will have
the freedom to think and act differently, and to incubate the disruptive change away from the mainstream.
The data from the full assessment phase provides the detailed business case to proceed.
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12. 12The next step: seize the opportunity
This proposed new business unit’s commercial objective is to address new uncontested markets and allow
trials of new ‘digital telco’ business models. To achieve this it will construct and sell new data transport
products that are (at present) ‘unthinkable’ in terms of cost and performance. Its technical role will be to
develop skills in network performance science and the profitable trading of resources (in time and space).
We feel that mainstream disruption in Globaltelco requires first creating in-house exemplars of ‘success’
via such a non-standard route. These exemplars stimulate acceptance of the inevitable need for change and
create credibility for adoption.
This ‘prototype’ business unit also helps to bridge the current ‘perception gap’ (between you and us) of what
is possible. The main proposal document offer a longer justification for such a new business unit and the
process to develop the detailed business case for its creation.
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13. 13
Transfer to mainstream
Establish new ‘prototype’ business unit
‘DIGITAL TELCO’ BUSINESS
TRANSFORMATION:
DEMAND-LED MODEL &
REPOSITIONED IN SUPPLY CHAIN
Rest of scoping and
validation phase
Initial commitment
DISRUPTIVE NEW
PRODUCTS
Measuring the arbitrage is the first step
on a ‘digital telco’ business transformation
BUSINESS
CASESTRATEGIC
DECISION
DATA
Measure ΔQ
and model
QoE

14. 14
A ‘digital telco’ transformation
demands a bold bet on the future
Over time I've learned, surprisingly, that it's tremendously hard to get
teams to be super ambitious. They tend to assume things are impossible,
rather than starting from real-world physics and figuring out what's
actually possible.
Because if you hire the right people and have big enough dreams, you’ll
usually get there. And even if you fail, you’ll probably learn something
important.
It’s also true that many companies get comfortable doing what they have
always done, with a few incremental changes. This kind of
incrementalism leads to irrelevance over time, especially in technology,
because change tends to be revolutionary not evolutionary.
So you need to force yourself to place big bets on the future.
— from ‘How Google Works’ (edited for brevity)
Eric Schmidt
Executive Chairman
Google
“
”

15. 15If you do not change direction,
you may end up where
you are heading.
―Lao Tzu
Martin Geddes
mail@martingeddes.com