AT&T’s impact on the residential security market

Dealers say telco’s entry could benefit entire industry

"Given that the incremental cost for a cable or broadband operator like AT&T  to add new services  to what they already have in turning the triple play into the quintuple play, the types of financial blocks that they ran into 10 years ago have been mitigated dramatically," Kessler said. "And, in turn, the value proposition to the customer is also much greater now because they can do a lot of things with their home security services or systems to make it a worthwhile system rather than a negative sale. Now, people are being marketed differently, whether it is from ADT, their competitors in the industry or whether it’s from the big carriers and they’re saying that it isn’t just a matter of security anymore."

In addition to being able to offer security and home automation as an incremental cost, Kessler said that the accounting for telecommunication and cable titans has changed for the better in that senior management is not being pressured by shareholders over the initial loss that it used to take to gain a security customer being that security can now be added as just another service. Kessler also believes that the competitive landscape has changed.

"Up until now, one of the things that has held guys like AT&T back from really trying to market these services is the very negative branding or response that many existing users have to the carriers. When someone tells you that they’re going to show up at your home in a week, sometime between the hours of eight and five, that doesn’t cut it when you have either a security issue, which has to be dealt with immediately, or you have a healthcare issue, which not only has to be dealt with immediately but over a long telephone call… and the barriers to that are breaking down," Kessler explained. "Given the amount of dollars that AT&T is prepared to spend and we don’t know what that amount of money is, but the budget is obviously in the many, many millions of dollars and that Comcast and Verizon are already spending in tests, it’s clear these companies believe they can take some share from the existing alarm companies and the existing dedicated personal emergency response players and the existing dedicated home services companies, many of whom are pricing themselves out of the market anyway."

McVeigh believes that the adverting dollars that will be put behind AT&T’s security offering, as well as the ones from the other communications companies like Comcast and Verizon, will create awareness among consumers about home security and will thereby increase the market for everyone.

"These companies are going to severely punch into that to bring that penetration rate up and that’s going to benefit everybody because now you’re going to get customers that are well aware of these new technologies that are coming out," McVeigh said.

Kessler agrees that these marketing dollars will increase awareness of home security and automation in general and that the market, which has remained relatively stagnant between the high teens to low 20s in terms of the percentage of homes in the country that have a security system, could potentially double over the next five to eight years.   

"My conclusion to you is that the amount of dollars spent on marketing this area, on the part of everybody, is going to increase… the effective market and that we could get to 35 or 40 percent penetration of American homes using these services in the next five to eight years, which is again almost double what it is now. That is enough to provide AT&T with a lot of success, even though they may not be taking customers away from ADT. The rising tide will help all ships here."

Both McVeigh and Kessler agree that innovations in technology have reduced some of the market entry barriers that faced telecommunications and cable firms just a few years ago.

"I think all of those providers have learned a lot over the years and I believe now the equipment itself has improved dramatically since when they were in the market before," McVeigh explained. "They were dealing before with a hardwired scenario, which made it very labor intensive and the upkeep was considerably different than it is now. The onset of wireless technology has become so stable now and it’s much easier to get in and out."

The much bigger issue, however, according to McVeigh, is how the entrance of AT&T and other cable and broadband providers into home security is going to impact smaller, independent security dealers and even some of the larger players in the space. He believes the challenge for some companies will be migrating to these newer automation capabilities that residential customers are clamoring for and understanding that the industry itself has changed.