What is digital health worth to telcos? Modelling the Japanese market
There’s a variety of business models available to operators to play in the healthcare market – but what is each one worth? Looking at the Japanese market for two key digital health use cases, delivered over a private 5G/MEC platform, we forecast the potential value for telcos across three different business models.
STL Partners has previously written about how new technologies like 5G and edge computing could impact the healthcare industry by enabling a suite of new, transformative use cases. In this article we dive into the revenue opportunity associated with these technologies when combined to create a 5G plus MEC private mobility solution.
We model the opportunity based on two use cases in the Japanese market (indicative of a large and affluent market with high healthcare spend/capita) to show how value is spread across the ecosystem and the proportion of this value, across different business models, that telcos could derive.
We discuss the opportunity in more detail in our upcoming report, sponsored by Dell Technologies, titled “Combining private 5G & edge computing: the revenue opportunity”. This includes:
- a full technological stack for the proposition
- the benefits of a 5G plus MEC private mobility solution
- the revenue opportunity in other verticals – retail and architecture, construction, and engineering (ACE)
A $0.5 billion wallet: The total opportunity
In this forecast, we estimated the total spend associated with delivering in-hospital patient monitoring and virtual desktop infrastructure services via an on-premise 5G plus MEC private mobility solution. In Japan, we estimate a total annual wallet, across our two use cases, of $474 million by 2025 (see Figure 1). We have calculated this from the bottom up, looking at the cost per user to deliver the solutions across each of the value chain segments (e.g. application, devices, managed services, connectivity). We then scale up based on forecasted addressable market and total number of users.
Figure 1: A $0.5 billion market
Source: STL Partners
Note that the $474m therefore represents only a subsegment of spend within these two use cases as, although the 5G/MEC platform brings significant benefits in terms of performance, reliability, and security, these use cases could be delivered over existing connectivity solutions (such as 4G, private LTE, WiFi). In our forecast, we have therefore assumed that by 2025 c. 5-15% of hospitals in Japan will have adopted an on-premise 5G/MEC solution to deliver one of our two use cases. This is evidenced by a survey conducted to IT professionals in the Japanese formal healthcare system1.
As shown in Figure 1, there is significant acceleration in growth from 2022 onwards. This reflects the 5G and edge computing deployment landscape – as the technologies develop through 2021, standards are set, and scaled and proven deployments increase, adoption of use cases delivered over 5G/MEC solutions will grow.
It also reflects the relatively high healthcare spend per capita and growth of the Japanese market. In 2017, Japan’s healthcare spend per capita was >$4000 – putting it in the top 20 countries in terms of spend worldwide, and second only to the Australian market in Asia Pacific. The consistently high spend, as well as sustained growth through 2020, mean adoption of leading digital health solutions will be high.
Distribution across the value chain
However, the share of the $0.5 billion wallet is not distributed evenly across the value chain (see Figure 2). We estimate that the largest share is held within the application and solutions layer of the ecosystem – this includes the application, the end device, and a slice of ongoing professional services revenues.
What is evident from Figure 2 is that only a small portion of value is captured in the connectivity layer. We estimate that, in the case of in-hospital patient monitoring and virtual desktop infrastructure, connectivity revenues (e.g. from the device to telco infrastructure) account for c. 3-5% of share of wallet. We therefore estimate that telcos who invest in edge computing infrastructure for delivery of new services could increase share of wallet from <5% to c. 25-35%. This is by deriving revenues from edge cloud hosting and connectivity (data ingress and egress) from telco edge real estate. We explore this in more detail in the section below.
Figure 2: value is not distributed equally across the value chain
Source: STL Partners
 More detail on the methodology can be found in the full report “Combining private 5G & edge computing: the revenue opportunity”
A c. 125% revenue increase: Telcos should consider playing further up the value chain
At STL Partners, we have categorised three broad business models for playing in the healthcare market (see our Overview of the digital health opportunity for telcos). They span from the telco providing solely the connectivity piece of the solution (network as a service), through to the telco delivering and managing highly customised end-to-end solutions (solutions and applications). Telcos must carefully consider the appropriate business model strategy to enter the market as, although significantly more investment is required to play in the applications layer, the majority of value is held there.
For the purpose of this modelling exercise, we have defined three specific business models for delivering a 5G plus MEC private mobility solution2, using the same framework outlined above:
- Model A: the telco provides only the connectivity and the edge computing infrastructure (including the edge platform) to run the application
- Model B: Model A plus upfront professional services for systems integration
- Model C: Model B plus the telco delivers (potentially through resale partnerships) the application, device, and a level of ongoing professional/managed services)
Revenues vary significantly across these models and so telcos should think carefully about where they want to play (see Figure 3). There is a c. 125% increase in revenues between model A and model C. Therefore, although networks as a service/connectivity is a natural playing field for operators, these solutions cannot work without the other elements, and if telcos don’t provide them then other players, such as the hyperscalers/internet giants, will fill that need. If telcos want to play successfully within model C, they should act now. 5G and MEC technology is advancing and telcos should start to build the strategies, partnerships, expertise etc. to position themselves as credible providers in the space.
Figure 3: Telco revenues derived across the three viable models (2025)
Source: STL Partners analysis
2 For more information on these business models, please read the full report “Combining private 5G & edge computing: the revenue opportunity”
Through the on premise 5G & MEC platform, the telco can derive revenues from private mobility services. In Figure 4 we estimate the total addressable revenues for a telco (across our three business models and our two use cases) by year, including revenues derived from private mobility specifically.
In the model, we assume that only 50% of customers who implement one of the two key use cases using on-premise 5G & MEC also purchase a private mobility solution. This is based on a survey to IT professionals in the Japanese healthcare market.
Figure 4: Forecasted telco revenues by year across the three business models
Source: STL Partners analysis
What will digital health be worth to you?
In this article, we have highlighted a significant opportunity for the telecoms industry to drive enterprise revenue growth. However, we have only looked at two key digital health use cases and the associated revenues for delivering the service via a 5G/MEC platform. Not only would the addressable revenues increase significantly for those use cases if other connectivity solutions were considered, but there are a number of other viable digital health use cases that the telecoms industry could and should have a role in. We continue to cover the realistic use cases for digital health in our use cases article series:
- 5 application areas telcos should focus on
- 10 5G healthcare use cases transforming digital health
- 5 blockchain healthcare use case in digital health
- Digital health at the edge: 3 use cases for the healthcare industry
Furthermore, we have used the Japanese market to forecast the opportunity and highlight the pockets of value across business models. The Japanese market is affluent with a high healthcare spend per capita – how might the opportunity vary in a developing or more privately managed healthcare system?
We believe that telcos should begin to answer these questions now, building vertical specific strategies and portfolios, defining the viable business models for their market, and identifying the core partnerships they need to play successfully within the healthcare industry.
If you’re interested to learn more about this article, or the underlying research sponsored by Dell Technologies (access the full report here), do please get in touch using the information below.
STL Partners is continuously researching the opportunity for telecoms in digital health, including the viable strategies for success and the scale of the opportunity. Details on our upcoming healthcare research can be found below:
Assessing the post-COVID digital health market value
During the pandemic, nearly every country has embraced digital health solutions to manage increasing pressures on healthcare systems
This has created a digital health boom and a resurgence in interest in this vertical among telcos
In this report STL aims to assess:
- the change in size and nature of the digital health opportunity,
- how much, how fast and in which market segments will we see change (e.g. virtual care, remote monitoring, diagnostics & triage, data & analytics)
The model will include:
- country level analysis of the digital health market in the USA, Canada, UK, Germany, India and China
- a generic global tool assessing the potential value of different digital health segments, depending on healthcare market structure, level of maturity, etc.
You can access the recording and the slides from our free webinar, providing key highlights from the upcoming research, by following the link here.
What is digital health worth to telcos?
This report will build on the framework used in this article and the post-COVID digital health market sizing to understand what portion of the impact telcos could derive
- further breakdown the digital health opportunity by IT layer, between connectivity, enabling platforms, and applications
- explore different strategies telcos can adopt to address the opportunities at each layer and across various digital health market segments
- assess those strategies depending on telcos’ capabilities and assets, as well as their national healthcare regulatory and competitive landscape
- highlight the indicative value derived by operators across the different strategies and market segments
Author: Darius Singh is a senior consultant at STL Partners and leads our Digital Health Practice
Digital health insights pack
This 24-page document will provide you with a summary of insights from our healthcare research and consulting work:
- Key trends in the healthcare industry
- The role for telecoms: applications and business models
- Strategies for success: where to start
- How STL Partners can support you
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