INSIGHT. Mobile Operator Machine- to- Machine Solutions Add Value to the Health Industry IDC OPINION IN THIS INSIGHT

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1 INSIGHT Mobile Operator Machine- to- Machine Solutions Add Value to the Health Industry Suzanne Hopkins Carrie MacGillivray IDC OPINION Global Headquarters: 5 Speen Street Framingham, MA USA P F As mobile operators investigate growth strategies, machine-to-machine (M2M) solutions are emerging as a focus for future opportunities within their B2B organizations. Monetizing the opportunity of M2M solutions across verticals is a challenge operators are attempting to overcome. At the same time, the health industry is confronted with stark challenges including cost constraints, federal approval cycles, regulation changes, and health delivery models. As a result, the industry has increasingly looked toward M2M solutions to help drive efficiencies and better quality patient care. The prospect for widespread deployments of cellular M2M solutions is limited, but opportunities do exist in the select pockets of the healthcare segment. IDC examines these trends and presents the following highlights from its analysis: IDC expects M2M (cellular) connection revenue from the health sector to reach $67.9 million in 2012, an increase of 80% from Revenue for the healthcare M2M segment is expected to grow at a five-year CAGR of 67.3% to reach $493 million in The aging population is putting increased pressure on the healthcare system, especially as more people are surviving with chronic diseases and the importance of preventive care is increasing. Solutions to manage this phenomenon are key items on the agendas of healthcare providers. These providers are increasingly looking at cellular M2M solutions as a viable solution to some of these issues. Conversely, for many M2M use cases within the health industry, alternative technologies can be used. Most notable are smartphone applications, which can communicate similar information but can be introduced into market faster. IN THIS INSIGHT This IDC Insight examines the role machine to machine (M2M) plays in the health sector and the opportunity that exists for mobile operators in the United States. It evaluates current market conditions, considering the demands of health providers and health professionals while looking at the implementation of solutions and the impact of alternative technologies. The analysis in this document provides a snapshot of the existing landscape and outlines the future trajectory of M2M connections within the health industry. Filing Information: August 2012, IDC #236365, Volume: 1 United States Mobile Enterprise Services: Insight

2 Methodology The research and analysis in this document are based on both primary and secondary research sources. IDC sized the M2M market by analyzing mobile operator financial statements, quarterly and annual results by the mobile operator community, and IDC analyst conversations with mobile operators, solutions providers, device manufacturers, vertical pure-play vendors, end users, and other key players in the M2M ecosystem throughout the year. Note: All numbers in this document may not be exact due to rounding. SITUATION OVERVIEW Adopters of M2M solutions range across a variety of industries, including (but not limited to) automotive, transportation, health, energy, and manufacturing. Certain verticals have been labeled as high-growth opportunities, including health. The number of prospective M2M applications within the health industry appears to be endless; however, in reality, IDC has a bearish outlook on the future trajectory of cellular M2M connections in this industry. Massive spending in healthcare is expected over the next few years; however, mobile operators will generate a very small portion of this spending in this sector from M2M cellular connectivity. This document examines the M2M market as the connection of machines using a cellular connection (2G, 3G, or 4G). Within the M2M market, a variety of other technologies can be used to connect machines, including WiFi, Bluetooth, ZigBee, and even wired connections. This document limits its scope to B2B connections as opposed to B2C M2M opportunities (focused on the consumer market). In the past few years, mobile operators have investigated new sources of revenue as they are confronted with the decline of their legacy markets (voice revenue) and challenged by how to monetize increasing levels of data traffic. The smartphone market continues to be the leading cause for the growth in data consumption. In the past few years, most IT markets were negatively impacted by the economic recession. However, when compared with other IT markets, the smartphone market was largely insulated. In 1Q12, nearly 54% 41.2 million of AT&T's postpaid subscriber base were smartphones. Similarly, nearly 47% 41.2 million of Verizon's postpaid subscriber base were smartphones. The increase in smartphone adoption, which has higher ARPU rates than traditional voice connections, has helped operator revenue continues to grow. However, there are high costs associated with increased data traffic on the mobile network (i.e., limited spectrum, network buildout costs, acquisition costs). As a result, operators are investigating alternative revenue opportunities, such as M2M, to supplement their growth strategies. There are several reasons why a mobile operator would want to support M2M connections over its network. For example, M2M connections have low acquisition costs, typically longer contract periods, and low bandwidth requirements (in the majority of instances) to name a few. There is expected to be an unprecedented number of M2M connections in the future. IDC forecasts there will be approximately 85.2 million wireless M2M connections in the United States by For an operator, 2 # IDC

3 there are multiple revenue streams that exist within the M2M business model. However, the revenue potential depends on the types of services offered. Simplified, revenue streams for mobile operators can be broken down into two pieces, the connection and value-added services: Connection. This is the revenue extracted from connecting devices and transmission of data over the network. Value-added services. This revenue is associated with services outside of the wireless data connection. Through partnerships or in-house projects, operators offer services related to but not limited to device enablement, consumption management, application development, business intelligence and analytics, security services, and professional services. The H ealth Opportunity f or Mobile Operators The M2M healthcare segment is labeled as having high-growth potential over the next few years. According to the U.S. Census, spending on healthcare, including services, equipment, and research, was $2.5 trillion in 2009 and is projected to grow at approximately 5% per year over the next decade. Despite the massive spending in healthcare, mobile operators will generate a very small portion of spending in this sector from M2M cellular connectivity. IDC estimates the industry will generate $67.9 million in revenue in Many mobile operators are dedicated to the health sector to ensure its success. Yet each of the operators is employing different strategies to influence the M2M healthcare market. A sampling of operator strategies incorporates vertical experts, partnerships, outsourcing, and innovation centers. In more detail: First, to understand the requirements, some mobile operators have in-house vertical experts. For example, AT&T has an in-house chief medical officer (CMO) as well as a full team of medical experts to help the operator match solutions with the diverse needs across the healthcare value chain. Second, operators understand the strategic benefits of not only using internal resources but also leveraging partnerships with vertical market leaders. Operators choose partners that offer existing solutions to the health industry, which helps reach a larger customer base and gain critical buy-in from decision makers. Third, some operators prefer to not develop deep vertical expertise and would rather outsource full solutions to partners. T-Mobile is primarily focused on the connection aspect of an M2M solution, handing off deployment and implementation components to its partners. RACO Wireless is the preferred provider for T-Mobile. Finally, to foster innovation, mobile operators have launched centers that allow developers and industry experts to experiment with solutions. For example, Sprint launched an M2M Collaboration Center in Burlingame, California, and Verizon has an M2M Innovation Center in Waltham, Massachusetts. Each of the operators incorporates some (or all) of these strategies to ensure success within the M2M healthcare market. M2M Health Solutions There is a wide range of M2M health solutions currently offered in the market. Each of the mobile operators has targeted different solutions to gain market share. To provide 2012 IDC #

4 context to the wide range of solutions, some of the most-common cellular-enabled M2M healthcare solutions today are: Remote patient monitoring Remote device diagnostics Clinical trial monitoring Home healthcare solutions Telehealth mhealth (i.e., medication reminders) Asset management of healthcare providers' inventory Medical imaging solutions Value Chain To fully understand the opportunity for M2M solutions, it is critical to understand how the healthcare industry functions. The value chain in the health industry is complicated, and with the introduction of M2M solutions, the value chain gets even more convoluted. Because the health industry is a highly regulated industry, traditionally, there has been a vast array of players required for the delivery of healthrelated products and services. The existing value chain includes the government (i.e., the FDA), associations (i.e., American Medical Associations [AMA]), medical device manufacturers, payers (i.e., insurance companies), healthcare providers (including physicians, hospitals, and healthcare systems), and the end customer/patient. With M2M solutions, the value chain expands even further to include mobile operators, application developers, service delivery providers, and other contributors to M2M solutions. As more businesses insert themselves into the mix, time to market for solutions slows and complexity increases. FUTURE OUTLOOK IDC believes the total M2M market will significantly grow over the next few years increasing at a five-year CAGR of 37% reaching $2.5 billion in The healthcare M2M market will increase from $67.9 million in 2012 to $493.4 million in Penetration and adoption rates vary across each of the M2M segments because each segment is impacted by a different set of barriers. Adoption: Drivers and Inhibitors A number of factors, discussed in the sections that follow, are impacting the adoption of M2M solutions in the health industry. 4 # IDC

5 Drivers Drivers leading to the adoption of cellular M2M health applications include the following: Cost reduction initiatives. Hospitals and the overall health industry are confronted with astronomical costs. M2M can offer solutions to hospitals that monitor patients from their home instead of at the hospital, which reduces costs and opens up space in the hospital. Preventive care measures will also reduce the number of critical patients, thereby reducing costs. Patient Protection and Affordable Care Act (PPACA). The healthcare reform act was signed into law by President Barack Obama in March 2010 and upheld by the Supreme Court in June With the law, all individuals must maintain insurance coverage or pay a tax penalty. As a result, insurance companies and health providers will need to develop innovative solutions to comply with these new country regulations, offering consumers affordable health insurance plans. Demand for improved delivery services. As insurance companies are confronted with changes caused by PPACA, alternative pricing systems will be required. By leveraging M2M solutions such as pay as you drive (PAYD), which is currently used by auto insurance companies health insurance companies can customize insurance rates, offering plans that best match the needs of their customers based on the actual health data of individual consumers. Operational efficiencies needed. M2M can offer hospitals and healthcare providers a strategy to more efficiently manage their assets. For example, with the use of M2M, inventory analytics will improve a hospital's ability to refill supplies in real time, thus decreasing inventory costs. Aging population and chronic diseases. The aging population is putting increased pressure on the healthcare system, especially as more people are surviving with chronic diseases. Solutions to manage this phenomenon are being raised to the top of discussions and the agendas of healthcare providers. End-user expectations. Cellular coverage across the United States is virtually ubiquitous. Some patients need constant monitoring, thereby making other technologies (such as WiFi) inappropriate. Further, the younger generation are already comfortable and reliant on technology for other services. Thus the younger generation are more likely to adopt (and demand) remote telemedicine business models, driving market demand for new solutions in the future. Inhibitors There are a number of inhibitors affecting the market as well. Undoubtedly, interest and demand for M2M health applications will continue to rise; however, implementation of these solutions will be slow in the short term. Some of the major inhibitors within the health segment are: Payer debate: Who is responsible for paying for these solutions? As M2M solutions are developed, a debate of who pays for the solutions introduces 2012 IDC #

6 complexity into the healthcare business model. Should it be the insurance companies or the end users (consumers)? How do doctors and healthcare providers impact the types of solutions adopted? Health information requires QoS. Health information distributed via M2M solutions can be propriety and critical information related to the care of a patient. In some cases, this information is life critical. To use a cellular connection, providers must ensure that the information is delivered, within certain time constraints, and is secure. In some cases, the ability to deliver information at the necessary QoS levels inhibits adoption rates. Alternative solution: Smartphone applications. For many of the high-profile use cases of M2M within the health industry, alternative solutions can be used. For example, smartphone applications can communicate comparable information such as medication reminders and monitoring statistics. Compared with an M2M application (which would require a module/device, a connection, and an application), smartphone applications can be introduced to market much faster. Since the installed base of smartphones in the United States continues to rise, targeting customers with solutions leveraging their smartphone may prove more valuable than investing in another application and device. Regulation, policy issues, and patient security. The health industry is extremely regulated. Significant approvals from the FDA and other organizations are required before going to market with new medical devices and services. In addition to regulation and policy issues, patient security is of top concern. It is important to have the appropriate level of security to ensure patient data is not exposed. The threat and concern of this exposure will be a significant inhibitor to mass adoption. Liability concerns may inhibit some value-added solutions in the short term. The list of inhibitors outlines critical reasons for IDC's expectation of slow adoption of M2M services in the health industry. Other challenges related to this market include the following: Alternative connectivity is good enough. In many cases, a cellular connection is not required. In these situations, leveraging cheaper connections such as Bluetooth, ZigBee, WiFi, or wired connections can provide connectivity at the same level of service. Within a hospital, this is evident as a hospital will most often already have WiFi or wired connections available. Furthermore, the industry has been able to leverage RFID strips in the past and can continue to use this technology (or NFC) for many M2M applications. Costs and cost effectiveness. To offer M2M services, medical devices need to be built with cellular components. The addition of new components can drive up costs, thereby decreasing adoption. Further, time to market for medical devices is long (two years), thus delaying implementation of new solutions. The ROI of these medical devices is also uncertain at this time. Resource issue and competing priorities. This is an industry plagued with staff shortages and tight budgets. Questions arise, given staff shortages, about 6 # IDC

7 who will manage the connection, make sense of the data compiled, and leverage the information to make changes. The health industry is undergoing significant changes; while M2M may help streamline some of these changes, the ROI might not be clear to decision makers that have competing IT and patient care priorities during this time of change. Doctor and insurance company buy-in. Established relationships and arrangements will make it difficult for mobile operators to insert themselves into the value chain. Since suppliers and buyers have these established relationships, switching costs within this industry can be very high. Finally, confusion about M2M is prevalent; convincing decision makers to move to and implement a new system can be difficult. ESSENTIAL GUIDANCE A dvice for Mobile Operators Based on the analysis discussed throughout this document, IDC offers the following suggestions for long-term success related to mobile operators offering M2M services in the health industry: The health industry is a complicated environment, plagued with governmental regulations and policies. To succeed, mobile operators must have an internal team dedicated to the success of M2M health solutions. Armed with vertical expertise, mobile operators will be able to understand the requirements of the market and match those needs. These relationships will help operators navigate the labyrinth of liability and policy issues and will also offer operators insight into alternative solutions, such as preventive products and services, that do not have the same level of regulatory and liability issues. In the M2M ecosystem, partnerships are critical. Mobile operators have strong relationships with device manufacturers. Leveraging those existing relationships will be critical for long-term success. Furthermore, it will be important to establish vertically specific relationships, for example, with healthcare regulatory and policy makers as well as healthcare providers. Many mobile operators are currently building out extensive managed mobility portfolios, where they are helping enterprises manage employee devices. There is an opportunity for operators to leverage the technologies and systems related to managed mobility to their M2M portfolios, taking full ownership of managing M2M devices and machine connections for customers. This will help combat QoS issues that currently exist. There are many opportunities to offer value-added services to the healthcare industry using the cellular network. However, mobile operators should not limit themselves and should instead look to alternative technologies and solutions outside of the cellular network. Solutions can be offered through technologies such as WiFi and wired technologies IDC #

8 Buy-in among healthcare decision makers will be a deterrent for many M2M solutions. Mobile operators must understand their clients' needs and then customize a solution to match those needs. Remaining flexible will help clients understand and extract real value from an M2M solution. LEARN MORE Related Research IDC's Worldwide Machine-to-Machine (M2M) Taxonomy, 2012 (IDC #236136, August 2012) Verizon Enterprise Solutions Industry Analyst Meeting 2012: Creative Disruption (IDC #234838, May 2012) Mobility in the Enterprise: Key Initiatives for 2012 (IDC #233970, March 2012) M2M Market Evolution (IDC #233989, March 2012) IDC MWC Mobile Industry Dynamics, 2012: Multiple Perspectives on a Shifting Industry Landscape (IDC #I52U, March 2012) Sprint Takes Its M2M Solutions Global with Orange Business Services (IDC #lcus , February 2012) Tablets in the Enterprise: Opportunities and Challenges for Businesses and Mobile Operators (IDC #231153, December 2011) Mobile Operators Help Enterprises Embrace Consumerization with Dual-Persona Device Solutions (IDC #231336, November 2011) Copyright Notice This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit Please contact the IDC Hotline at , ext (or ) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2012 IDC. Reproduction is forbidden unless authorized. All rights reserved. 8 # IDC