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.
A strong right to play for telcos in healthcare
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.
Healthcare offers telcos a sustainable role for lasting growth
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.
How to address the digital health opportunity
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.
1. A well-defined mergers and acquisitions (M&A) strategy will be essential
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.
2. Taking a connectivity “plus plus” approach may leave value uncaptured
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.