Cable’s Play in Home Security

Fri, 09/30/2011 - 8:50pm
Craig Kuhl, Contributing Editor

IP networking and smartphone access make the service more attractive.

For several years, the revenue stream for home security and monitoring services has been a slow, meandering trickle for cable operators and communications service providers.

Traditional security services offered by entrenched providers such as ADT have dominated the home security space, with the few leftovers going to cable and telecom companies.

Not anymore.

With the emergence of IP-based networks, iPads, tablets, smartphones and technologies that are now connecting homes to myriad mobile devices, home security is no longer an ancillary business tucked away in the back pages of a cable operator’s business model.

And though not exactly predicted to generate a rushing stream of revenue, it’s here, it’s real and it’s growing.

“There’s a significant opportunity for broadband service providers to offer security and monitoring services to consumers. Nearly 20 percent of consumers have home security service, so there is an existing revenue stream. We’re seeing added value to the service like video monitoring and more enhanced features, which will expand the market by 30 percent beyond traditional security by 2016. So it will take a while,” said Bill Ablondi, home systems research director for Parks Associates.

In the meantime, U.S. households are generating $10 billion annually for home security services, reports a Parks Associates study, with a growing number of them finding home monitoring services such as energy management and lifeline services appealing.

“The smartphone is prompting people to connect with these security services,” Ablondi noted. “Ten years ago, the technology was there for IP-based security, but people weren’t tearing around with easy access. Now, cable and telcos are more trusted to offer security services.”

And smart is the operative word. The research firm In-Stat predicts that within five years, more than 200 million people in the U.S. will own a smartphone or tablet, many of whom will insist on a reliable mobile-tohome connection.

But there’s a “show me the money” element in the security service equation that must be addressed, Ablondi cautioned. “Security service is a viable revenue stream and is really about RGUs. The more services subscribers take, the more likely they’ll stay with their provider, thus reducing churn. But it’s still about the money, so we’ll see more cable firms get into the home security service business.”

Canadian-based Rogers Communications is a prime example of an operator already in the security service business. Widely acknowledged as the leader in home security services among broadband providers, Rogers has combined its IPbased network and wireless business into a living, breathing home security business model.

“We’ve completely reinvented home security with IP-based service, including home automation management. They’re sticky services and represent both revenue generators and retention. One of the foundations of our home automation service is home security, and it’s becoming more deeply integrated with our core products,” said Ian Pattinson, vice president and general manager of Rogers Smart Home Monitoring.

Ian PattinsonAnd according to Pattinson, it’s about time.

“There have been virtually no innovations in the home security market, and customers are telling us they want their homes connected. So there’s a natural awareness building going on. It’s like the introduction of DVRs in 1994,” he maintained.

Rogers offers three different rate plans, starting at $39.99 a month, and sells a starter kit “Touch Pad” while offering home sensors on an a la carte basis. It has taken home security to a whole new level, Pattinson added.

“We offer UL-certified true lifeline service and have absolutely core security services,” he said. “We have, frankly, raised the bar for security services and are now evolving from one-way unencrypted sensors to ZigBee encryption, with lots of innovative ideas coming from tons of vendors.”

Many of those ideas, Pattinson noted, are being developed in unison with Rogers’ cable counterparts in the U.S., which are collaborating on the operational side, including quality control and best practices, and with participation by CableLabs.

Cable has some distinct advantages, such as the ability to run home security over the top of a network and an experienced fleet of trucks and field technicians.

But above all, home security is emerging as a revenue generator. Said one industry observer who asked not to be identified: “Revenue growth has been flat. So where is the RGU for cable? The one at the top is home security. It’s the next biggest opportunity for cable.”

Vince GroffNo argument there, maintains Vince Groff, executive director of strategic development for Cox Communications.

“With the maturation of traditional services, we’ve been looking for new growth opportunities. Now there is lots of interest in home security. It has ARPUs in the low 30s to 40 range, a customer life of eight years and 1 percent annual churn. So, we won’t throw a product like home security into the bundle as a loss leader,” Groff said.

Cox isn’t exactly full throttle with home security either – at least not yet. Added Groff: “With new features like video of movement, unlocking doors and others, it tests well with customers. But sales have been slow out of the gate. As an industry, the home security product has to be sold, not just bought. Only 18 percent know they want home security; the other 82 percent has to be sold on it.”

Groff concurs that the home security space needs innovation if it is to reach a penetration level worthy of a standalone revenue generator.

“Innovation has been stagnant for years, with a clunky design. But there are innovations in the smart home platform and device spaces, and lots of IP cameras are in their infancy.”

Cox, he noted, is already in discussions with multiple device manufacturers and with “people we’ve never talked with before, like swimming pool companies,” he said with a chuckle.

Paul DawesOne of the key home security vendors is iControl, whose vision early on was that home security was a market ripe for change.

“We identified from consumers that a core peace of mind and safety proposition, along with a connected home, is very appealing. That was the combination we saw as a good fit for cable operators,” said Paul Dawes, co-CEO at iControl, a provider of broadband home management services.

Yet entering the market as a new category, home security and management has its challenges, mainly lack of awareness as to what features actually define home security.

“It’s a new category of products, so the challenge is to execute on the vision. The business model has been established, and the technology problems are solved. People now understand home automation, digital voice and home security, but they don’t understand that by pulling them all together, it will allow families to take advantage of a mobile lifestyle, home energy management and more. It’s a high-value product with the right price points, but we have to execute effectively,” Dawes said.

But is home security destined for greatness as a revenue generator for cable operators? Probably not, some analysts maintain.

“I can’t imagine a cable company becoming a go-to company for home security and monitoring. Only 5 percent of people surveyed said cable was their home security service. For cable operators, it’s more of a revenue protection strategy. So they must capture more of the market. A big business for them? No. A necessary business? Yes,” said Mike Jude, program manager for Stratecast, a research arm of Frost & Sullivan.

Maybe so, but Suddenlink Communications, a St. Louis-based cable company serving 1.37 million customers in seven states, is pushing ahead with its home security business, and it’s doing pretty well.

Tim Thompson“We’ve seen strong interest and noteworthy growth since we began rolling out the [home security] service to new markets in early 2010. Our home security business grew 11.1 percent in the second quarter this year and 66 percent over the 12-month period ending June 30. Across the markets where we sell our home security services, we estimate that we are second only to ADT in market share,” said Tim Thompson, vice president of telephony and security operations for Suddenlink.

Suddenlink, he noted, offers 24/7 security monitoring using a five-diamond, UL-certified central station and provides customers with a wide range of monitoring features, such as remote control and monitoring of home safety devices like smoke detectors, door locks, lights and thermostats.

“Cameras and other high-tech options allow homeowners to stay connected to their homes when at work or on vacation, and customers can set their personal alerts to send messages when their child comes home from school. It’s an appealing feature for many of our home security customers,” Thompson said.

For traditional home security providers such as ADT, whose interactive smart home automation system, Pulse, remotely accesses a home security system in real time, cable’s push into the home security space is likely to prompt more innovation from them – and more competition.

Concluded Ablondi: “ADT and traditional security firms aren’t sitting still. The challenge for cable operators is to sell security differently than entertainment, and top executives must be behind the home security business. Patience is critical.”

Just how patient U.S. cable operators are with the home security business will likely determine its place on the revenue chart. One thing is certain, however: The home security and management revenue stream is moving from a trickle to an increasingly flowing stream.


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