An overview of the opportunity in digital health for the telecoms industry and how telcos should address the healthcare market
Our overview of the digital health opportunity gives you some of our current thinking around healthcare and the role for the telecoms industry. Read more specialist research and articles on digital health, and get in touch with our healthcare specialists, on our digital health hub.
The landscape of the healthcare industry is changing on a global scale. Populations globally are growing, ageing and, particularly within developing markets, becoming wealthier. This creates a strain on the healthcare industry not only due to the increasing number of patients who need access to medical services, but also because older and wealthier populations bring a corresponding rise in chronic/non-communicable diseases (NCDs). The focus of health systems is therefore moving from the treatment of acute, one-off, illnesses towards the routine management of longer-term diseases and health issues (e.g. diabetes, COPD). These patients require more constant care, leading to a significant rise in demand on medical professionals and medical infrastructure.
The healthcare industry remains, even in developed or high-income markets, one of the least digitised sectors globally. Many hospitals still run manual, paper-based operations. In order to address the growing demands of patients, the healthcare industry must transform, adopting technology to drive efficiencies within the sector.
Digital health is the development and implementation of solutions across the four pillars of technology laid out above, which will help support the industry in addressing its resource issues. Trends around big data, machine learning/artificial intelligence (ML/AI), the IoT, edge computing, and 5G will help the industry move towards better, more preventative and more tailored care.
Telcos globally are facing big challenges. Connectivity services are becoming increasingly commoditised and operators are seeing a steady decline in core revenues. Across both consumer and enterprise markets, telcos are at risk of becoming seen as only utilities.
There has been a lot of hype around new network technologies such as 5G, edge computing, the IoT, and the new revenues they could bring to the telecoms industry. However, even with these new technologies, providing connectivity alone will not drive sustainable growth for operators. With a connectivity only approach, even if average revenue per user (ARPUs) for new services start higher initially, they are unlikely to remain high and will face the same commoditisation as seen with 4G services.
At STL Partners, we are therefore urging the operators to move beyond their core connectivity offerings and play further up the value chain, exploring the vertical opportunities within application enablement and solutions and applications. This will enable them to build stickier, value add offerings, and capture a larger share of wallet.
Healthcare offers a strong opportunity to do just this. We see the reason as twofold:
1. The healthcare industry is one of the least digitised sectors worldwide: There are many opportunities for digitisation across the healthcare market where other industries have existing capabilities. Partners can therefore introduce a wealth of potential new technologies, applications, and services to help drive efficiency.
2. The healthcare industry has a limited amount of IT/technology expertise: The industry is therefore ripe for a partner with strong technological capabilities to deliver end-to-end services to the healthcare providers. Most providers do not have the internal skills to develop, implement, and manage new technological services – this is an opportunity to provide professional, education, and integration services beyond traditional offerings.
Not only does the healthcare market therefore offer a lot of potential opportunities for IT transformation and the introduction of digital services, but also, we believe that operators are well positioned to seize and capture this opportunity.
In the majority of circumstances, telcos with a well-defined and committed strategy can build a strong right to play in the healthcare space, even versus the internet giants and hyperscalers such as Google and Amazon. This is because:
• The operator is a regional brand: operators have a strong local presence in their respective regions – this brings a level of trust, credibility in understanding local needs, trends, and regulations, and often existing relationships with key government and regulatory bodies. Competition from global players will therefore be limited given lack of local presence and expertise. The operators’ regional brand also brings market access and reach to smaller more niche solutions providers who see the operators as potential channel partners to enter new markets.
• The operator has a local workforce: Because the healthcare industry has a relative lack of technical maturity and IT expertise, co-development and end-to-end implementation of solutions will be essential in driving adoption. The regional field force of the operators can work directly with healthcare providers to develop bespoke end-to-end solutions and educate clinicians on how to use/manage the new infrastructure. This is something which the healthcare industry needs from its partners and is something which, due to their productised business models, the hyperscalers cannot deliver.
• The operator is heavily regulated: operators are regulated by local governing bodies. A key issue in addressing healthcare is the perception of reliability, security, and data privacy – a perception which telcos live up to. This also gives operators a rare advantage over hyperscale/global internet players (e.g. GAFA), who are often under fire for the data security and are perceived as being relatively unregulated in comparison to operators.
• The operator has longevity: Given their size, ties with governing and regulatory bodies, and integration into daily life, telcos can give healthcare providers a high level of confidence that they will be around for the long haul. Healthcare providers do not want to invest resources into building and implementing a solution with an enterprise that won’t be there in a few years – they need the security that the solution and support will be around for the many years that they are using it. This is especially true in healthcare, due to the relatively slower pace of change in the industry.
As well as operators providing a sense of reliability to healthcare providers, the healthcare industry offers operators a more stable opportunity relative to other verticals. Healthcare spending per capita is increasing globally and governments are unlikely to cut this spending – healthcare is a universal need and, as populations grow and increase in wealth, there is little to no scope to reduce total spend. Furthermore, given that in many markets healthcare sits within the public sector, the industry faces fewer external capitalist pressures. There is therefore less potential volatility in the sector and within the ecosystem, contributing to the stability and longevity of the opportunity for telcos.
This is not to say that the healthcare industry has a wealth of money to spend on IT and transformation – providers are having to do more and more with their money to make ends meet as demands on medical infrastructure increase. However, for operators who can show the value of their solutions and services in driving significant efficiency gains for providers, they will be able to create a permanent role for themselves as a partner in the healthcare ecosystem.
There are different segments of the healthcare industry and therefore different strategies telcos should adopt to address each one. We give an overview of these in our recent article – Four strategies for telcos in healthcare. However, we outline four key takeaways from across our consulting and research below.
In order to move into the healthcare industry telcos will need to build industry expertise and credibility, especially if they are looking to play further up the value chain. Telcos can solely partner to play in the healthcare sector but, if a telco wants to have a significant presence, then we believe M&A is a necessity – it enables telcos to build expertise in the industry, a better understanding of market dynamics and challenges, and credibility with healthcare providers and IT buyers.
M&A can also enable telcos to build stronger capabilities more quickly bringing solutions to market and reaching customers faster, without the dedication of internal development teams, who may have little knowledge of healthcare end-users needs and priorities.
However, telcos should take a gradual approach, taking time to learn about the market and develop a clear strategy and entry point. They should target acquisitions that can help them work towards a specific goal. Otherwise they risk buying into a part of the healthcare market where they cannot scale.
There are different models telcos could employ to capture a higher proportion of the value offered by the sector. One option is to leverage their existing strength in connectivity. Telcos could continue to offer traditional networking services (e.g. Private networks, managed LAN, IoT platforms, eventually network slicing) to healthcare providers as to build a stronger presence and customer base in the industry. From there, operators could upsell their customers, learning more about their pain points, and delivering higher value services on top of their connectivity portfolio.
However, moving up the value chain from connectivity is difficult. By taking a bottom up approach, operators lose the credibility to offer vertical specific applications and solutions – why would healthcare providers trust their broadband provider to credibly deliver a healthcare solution? The go-to-market strategy isn’t appropriate and companies such as O2 Telefónica are a good example of how this can stunt success. Read more about O2 Telefónica in our recent telcos in health case studies report.
Furthermore, specialist healthcare applications providers and the internet giants are moving the other way – from solutions and applications down. They are therefore building the expertise and credibility necessary to capture the higher share of wallet in the applications and integration layers, and either bundling in or independent of the underlying connectivity.
Although it is initially more difficult for them to do, operators should consider starting with a solutions and applications approach, and then targeting application enablement or a health data exchange as a long term strategy.
The healthcare industry lacks IT expertise. This is why it offers telcos the opportunity to move beyond connectivity and offer end-to-end services, supporting the providers in implementing and managing new digital solutions.
However, telcos who want to succeed in the healthcare space should engage healthcare providers long before it gets to the commercialisation of solutions. This is because it is the clinicians – the doctors, nurses, carers, who will be using these applications on a daily basis and if they do not understand the application, or trust that it is useful to their routine, they will not adopt it.
Having gone through decades of education and training, medical professionals do not want to feel like they are having a new process or technology forced on them against their will, changing practices they have developed over many years of specialist work. Therefore, through the development process, operators should engage healthcare providers to co-develop solutions that work for the clinicians and that clinicians understand. This will help drive credibility and adoption.
The healthcare opportunity is not a quick win. It will take time to build the necessary presence and capabilities to make a significant and lasting role. TELUS Health, an organisation which offers a benchmark for what operators could achieve in healthcare, began its journey over a decade ago. By continuously building and building expertise, following a clear and patient strategy, with strong buy-in from C-level down to the field force, TELUS Health has built a practice which now accounts for ~8% of TELUS’ total revenues. It has carved out a permanent role in Canada’s healthcare system, and so that 8% will only continue to grow. For more on TELUS Health, download our free case study here.
Telcos looking to pursue the opportunities in healthcare must define a clear strategy and stick with it, highlighting tactical opportunities along the roadmap to justify and secure investment but understanding that healthcare is a long term play for lasting revenues and growth.
At STL Partners, we have written extensively about the move of the telecoms industry into a new age. The Coordination Age, which has come about due to global challenges around resource availability and efficiency, reflects that there is a greater need for more effective coordination and sharing of data/information across governments, enterprises, consumers, the internet, processes and things. Read more on the Coordination Age and the role for telecommunications here. This is especially true in healthcare where, as we have mentioned throughout, a lack of resource coupled with growing demands is creating a need for significant efficiency gains.
Furthermore, the healthcare ecosystem is fragmented and complex – from governments to insurers to GP practices to hospitals, there are a wealth of stakeholders who need better coordination between each other, in order to share insights and drive efficiency gains for the sector. We see this as a clear opportunity for telcos to help coordinate, creating as-yet unknown opportunities and deriving lasting value.
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In this session Amy Cameron and Yesmean Luk looked at the opportunities for telcos in health. As a growing industry, with a national focus and significant digitisation challenges, healthcare is an attractive vertical for telcos seeking to build new revenues beyond core communications services.
Healthcare is an attractive vertical for telcos to address with digital solutions. Although many telcos have made attempts to capture this opportunity, TELUS stands out as an example of the value of a long-term commitment to healthcare. In this case study, we examine TELUS’ strategy in health, evidence of its success, and draw out lessons for other telcos
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