Cable firms, telcos making their presence felt in the alarm industry

Industry executives and analysts discuss the impact of new market entrants at the 2014 Barnes Buchanan Conference

Although these companies have the resources necessary to make a strong push in the industry, Barnes said their size doesn’t necessarily give them an advantage over more traditional alarm companies and that they, in fact, face the same challenges that other companies do in the market such as attrition, subscriber acquisition costs (SAC) and equal access to technology. “I don’t see any fundamental competitive advantage in terms of their operating costs,” he said.

This is the same reason that smaller companies have been able to remain very profitable and compete with larger alarm companies for years. “At the end of the day, the idea that there is some massive advantage in economies of scale isn’t true,” Barnes said. “This is still a block-by-block fight for market share.”

Barnes said there are also still some factors that could cause cable and telecom companies to lose interest in the security industry as they previously did. For example, many consumers and small business owners remain skeptical about the ability of cable and phone companies to provide a service as critical as security. Most of these companies also believe that their large customer bases will translate into an advantage when it comes to subscriber acquisition costs and that their ability to bundle services will work to their advantage. If these don’t come to fruition and security doesn’t have a payoff as soon as shareholders would like, then they could flame out of the business again.

On the other hand, Barnes said there is the potential for a game changer to occur that would lead these new players to be in the business for the long haul. Among these game changing events could be that consumers begin to embrace these companies as security and automation providers and that by bundling security and automation services they find that attrition rates for their core product declines. This would enable them to drastically cut prices and induce a price war in the market. Other industry changing events could also be the introduction of a proprietary product that catches the eye of consumers or if one of these companies decides to buy a company on the magnitude of an ADT.

Time will tell as to what the exact impact of these new entrants will be, but one thing is certain, alarm companies cannot ignore their presence any longer. “I think they’re going to be a serious competitor in the market,” said Barnes.