Light Reading
MSOs and telcos are getting into home security and monitoring, but report warns that they'll have trouble turning that into a material business

Will Service Providers Steal ADT's Customers?

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
4/11/2012
50%
50%

Several major U.S. MSOs and telcos are rushing into the home security and automation market, but this potential growth opportunity may not evolve into a material business anytime soon, Sanford C. Bernstein & Co. Inc. warns in a new report.

Comcast Corp. (Nasdaq: CMCSA, CMCSK), AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and Time Warner Cable Inc. (NYSE: TWC) are attracted to this market because the residential and small business segment for security and automation services is big (US$12 billion and 30 million homes), profitable (margins in the range of 50 percent), and fragmented (the top three, dominated by ADT Security Services Inc., together hold just 30 percent market share). There also seems to be room for growth as just 23 percent of homes currently take home security and automation services.

While Bernstein does believe that the MSOs and telcos are positioned to get their "fair share" of the existing home security market while also targeting the emerging home automation sector, the investment bank's researchers are not confident that the strategy will evolve into a big profit-maker.

The firm notes that each point of the current market is worth $120 million in revenues and $60 million in EBITDA. If cable were to grab 5 percent of the market in five years, that's still just $300 million in EBIDTA. If Comcast were to get 40 percent of that, we're still talking about $180 million in annual EBITDA, contributing less than 1 percent to the EBITDA that Bernstein is predicting for the MSO in 2016.

But that sort of prediction hasn't stopped the majors from going after the market. Among MSOs, Comcast expects to have its service, Xfinity Home, rolled to most of its markets by year-end, while TW Cable already has its IntelligentHome service available in a handful of markets ahead of expected, broader launches. AT&T and Verizon have also developed their own set of services through partnerships or spurred along by recent acquisitions. (See Comcast Goes Big With Xfinity Home , TW Cable Picks iControl, Verizon's Over-the-Top Home Control and AT&T Dives Deeper Into the Smart Home.)

Build versus buy
Many have speculated that ADT could become an attractive M&A target for Comcast and turn the MSO into a market leader virtually overnight. That idea's been fueled by the fact that ADT's CEO (and former General Instrument Corp. and Motorola Inc. exec) Edward Breen resigned from the Comcast board last year. (See Will Moto Go Back to the Future?)

But Bernstein's analysts note that Breen's resignation is understandable because Comcast and ADT were becoming competitors. And that's not the only reason. "ADT's geographic footprint doesn't match that of any Cable operator, nor does its technology, nor does its principal focus on security rather than automation. An organic growth strategy is far, far more likely, in our view," the research firm concludes.

If that's the case, Comcast and its big service provider peers may have a long, patient march ahead if they expect to turn their budding home security plays into future profit-drivers.

— Jeff Baumgartner, Site Editor, Light Reading Cable



(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Jeff Baumgartner
50%
50%
Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 5:36:41 PM
re: Will Service Providers Steal ADT's Customers?


If it will indeed be an uphill battle for MSOs to make much of a dent to their bottom lines, then one has to wonder why so many service providers are still jumping into this business and making a go of it. What do they see that the Bernstein analysts don't?


And (shamless plug) that's something I'll certainly try to cover when I moderate a session on this home automation topic on May 23 at 11am ET at The Cable Show in Boston. Hope you can join us then, as we'll have execs on the panel from Comcast, iControl, TW Cable, Rogers Communications and Cox Communications.  JB

joanengebretson
50%
50%
joanengebretson,
User Rank: Light Beer
12/5/2012 | 5:36:38 PM
re: Will Service Providers Steal ADT's Customers?


I always wonder about broadband providers' forays into the alarm business because they normally see it as a fourth or fifth service they can offer as part of a broadband bundle--but if you ask a traditional alarm company, they will generally tell you they would much rather use wireless communications than broadband. Their take is that if they touch the customer's broadband connection, the customer will perceive that they are the cause of any future problems they may have with their computer--and what customer doesn't have computer problems?


Perhaps the risk is a bit less for a broadband provider since they are more involved in the broadband connection to begin with. But there's also the issue of the unreliability (real or perceived) of broadband (a.k.a. Internet) networks. You may say wireless neworks are unreliable, too--and they are--but those issues are largely ameliorated when you put a transmitter in a place with good reception and leave it there.

Flook
50%
50%
Flook,
User Rank: Light Beer
12/5/2012 | 5:36:32 PM
re: Will Service Providers Steal ADT's Customers?


Instead of trying to take over this market, why don't service provders see/explore how they can cooperate with existing home security companies in way that is beneficial for both and leads to further innovation and better home securit

skirstein
50%
50%
skirstein,
User Rank: Light Beer
12/5/2012 | 5:31:47 PM
re: Will Service Providers Steal ADT's Customers?


I'm certainly no insider, but from the outside it certainly seems as though these additional services provide not only a barrier to exit / disincentive to switch; they also represent largely marginal additional revenues rather than having to pass a margin hurdle on their own.


 

Educational Resources
sponsor supplied content
Educational Resources Archive
Flash Poll
Wagner’s Ring
Data Centers Drive Telcos Into the Future

8|28|14   |   2:20   |   (2) comments


Data centers are at the heart of key trends driving telecom -- network virtualization, the drive for increased agility, and the need to compete with OTT providers.
LRTV Custom TV
Why SPs Should Consider Cisco's EPN

8|27|14   |   5:40   |   (0) comments


Sultan Dawood from Cisco discusses Cisco's EPN, which enables SPs to build agile and programmable networks delivering new network virtualized services using Cisco's Evolved Services Platform (ESP).
LRTV Huawei Video Resource Center
Huawei’s Showcase @ Big Telecom Event 2014

8|26|14   |   2.56   |   (0) comments


SoftCOM is Huawei's framework for telecom business and network transformation. Haofei Liu, Solution Marketing Manager, Carrier Business Group, Huawei, showcases Huawei's SoftCOM architecture in this video.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of Integrated Solutions on SoftCOM & NFV Monetization

8|26|14   |   4.43   |   (0) comments


Libin Dai, Director of Integrated Solutions, Carrier Business Group, discusses Huawei's SoftCOM and NFV monetization. Huawei believes that NFV monetization should be service-driven rather than network-driven, and that operators should have network transformation, service transformation and a compatible and collaborative ecosystem in place in order to deploy NFV.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of US NFV Lab on CloudEdge & the Future of NFV

8|26|14   |   4.06   |   (0) comments


Sean Chen, Director of US NFV Lab at Huawei, discusses Huawei's new approach to NFV in open collaboration. Huawei believes that through Proof of Concept tests, it could help operators learn and communicate with the industry more effectively. Sean believes that successful implementation of NFV should have its values reaching to end users and discusses how Huawei's ...
LRTV Huawei Video Resource Center
Huawei's Highlights @ Big Telecom Event 2014

8|26|14   |   3.34   |   (0) comments


At the Big Telecom Event in Chicago Huawei showcases its high-level strategy, the SoftCOM architecture, which helps operators reduce the cost of ownership of their network infrastructure and generate additional revenue in the ICT service environment. Huawei showcases over 30 pilot programs from across the globe, focusing on the industry-leading commercial ...
LRTV Custom TV
VeEX – Live from the Show

8|21|14   |   5:58   |   (0) comments


An overview of VeEX Test and Measurement solutions including TX300S multi-service test set with VeExpress cloud-based management system, UX400 universal modular platform supporting 100G testing, and the redesigned RXT modular platform.
LRTV Custom TV
Transitioning CE 2.0 Networks Into the SDN & NFV Era With Telco Systems

8|19|14   |   5:19   |   (0) comments


Telco Systems' Ariel Efrati (CEO) and Moshe Shimon (VP of Product Management) discuss virtualization and how the company's new Open Metro Edge solution utilizes the SDN and NFV concepts to accelerate and orchestrate service delivery through its innovative product portfolio and software applications.
LRTV Custom TV
NFV Myths: Is NFV Still Several Years Away?

8|11|14   |   1:13   |   (0) comments


Some say that NFV (network functions virtualization) is still several years away from being implemented on mobile operator networks. This isn't the case. Operators can get started on their paths to NFV now, as this short video from Skyfire shows.
LRTV Custom TV
A New Security Paradigm in SDN/NFV

7|28|14   |   02:54   |   (0) comments


Paul Shaneck, Global Director Network Solutions for Symantec, discusses the evolving virtualized network, explaining how Symantec is leading the security discussion as it relates to SDN and NFV, and helping to ensure the network is protected and compliant.
LRTV Documentaries
Sprint's Network Evolution

7|24|14   |   14:59   |   (0) comments


Sprint's Jay Bluhm gives a keynote speech at the Big Telecom Event (BTE) about Sprint's network and services evolution strategy, including Spark.
LRTV Documentaries
BTE Keynote: The Software-Defined Operator

7|24|14   |   18:43   |   (1) comment


Deutsche Telekom's Axel Clauberg explains the concept of the software-defined operator to the Big Telecom Event (BTE) crowd.
Upcoming Live Events!!
September 16, 2014, Santa Clara, CA
September 16, 2014, Santa Clara, CA
September 23, 2014, Denver, CO
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
Hot Topics
Rogers, Shaw Take Aim at Netflix
Mari Silbey, Independent Technology Editor, 8/26/2014
Utilities to Pump $11.2B Into Smart Grid – Study
Jason Meyers, Senior Editor, Utility Communications/IoT, 8/26/2014
Verizon Launches QR Code Security Solution
Carol Wilson, Editor-at-large, 8/26/2014
M2M's In Fashion: Wearables Play the US Open
Sarah Reedy, Senior Editor, 8/25/2014
Verizon to Launch HD VoLTE in 'Coming Weeks'
Sarah Reedy, Senior Editor, 8/26/2014
Like Us on Facebook
Twitter Feed