Light Reading

Will Service Providers Steal ADT's Customers?

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner

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        ADD A COMMENT
Jeff Baumgartner
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

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.

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

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
From The Founder
Steve Saunders provides an overview of white box networking and introduces a new "slim line" version of the OSI 7-layer model.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
Between the CEOs
Centec on Ethernet Switching

11|26|15   |   09:58   |   (0) comments

Centec CEO James Sun talks to Steve Saunders about Ethernet switching and the white box revolution.
LRTV Custom TV
Delivering Service Agility in the Virtualization Era

11|25|15   |   5.41   |   (0) comments

Interview with Massimo Fatato, WW OSS Business Lead, Hewlett Packard Enterprise.
Wagner’s Ring
How Might Open Source Fail?

11|24|15   |     |   (10) comments

Open source, SDN, and NFV are looking inevitable – but performance, standards proliferation and regulatory capture could derail the movement.
LRTV Custom TV
NFV Lifecycle Orchestration – a Fresh Vision for Telco

11|23|15   |   6.40   |   (0) comments

Simon Osborne, CTO Comptel, and Heavy Reading's Caroline Chappell reveal the business impacts of new SDN and NFV, and what the term service orchestration actually means. Together they define Lifecycle Service Orchestration and how the virtualized future will look for telecoms operators.
Between the CEOs
Cisco's Virtual Role in Saudi

11|20|15   |   12:15   |   (2) comments

Light Reading founder and CEO Steve Saunders talks with Zayan Sadek, Regional Manager at Cisco Systems, about the competitive communications services market and advance of virtualization in Saudi Arabia.
LRTV Huawei Video Resource Center
Huawei Leads With Kubernetes for Cloud PaaS

11|19|15   |   08:26   |   (0) comments

Huawei is looking to Kubernetes as a key tool for building robust open source technologies for customers and partners, said Ying Xiong, chief architect of cloud platform at Huawei, in an interview with Light Reading West Coast Bureau Chief Mitch Wagner at the recent Kubecon conference.
Women in Comms Introduction Videos
WiC in London: The Highlight Reel

11|19|15   |   5:33   |   (1) comment

NetCracker's Mervat El Dabae headlines an inspiring morning in London with help from leading women from Vodafone, TalkTalk, Hyperoptics and Ciena.
LRTV Documentaries
Why Saudi's So Hot for New Tech

11|19|15   |   05:07   |   (0) comments

Light Reading's Steve Saunders reports from Saudi Arabia, a hyper-competitive market desperate to embrace the next generation of communications technologies and services.
LRTV Custom TV
Why Data Models Deliver More Value Than Information Models

11|19|15   |   5.08   |   (0) comments

Stefan Vallin argues that more automation is needed to manage end-to-end services and the hybrid networks they run on, and that data models are key to achieving this.
Telecom Innovators Video Showcase
SDN Management & Orchestration in the WAN

11|17|15   |   7.20   |   (0) comments

Carol Wilson and Packet Design CTO Cengiz Alaettinoglu discuss CSPs' SDN service delivery and assurance requirements. Learn about a modular approach to building automated control, orchestration and management functions for the WAN that are policy- and analytics-driven.
LRTV Custom TV
Flash Networks: Optimizing for Radio Spectral Efficiency

11|17|15   |   3:34   |   (0) comments

Today most optimization vendors only focus on optimizing voice or data. Ofer Gottfried, Flash Networks' CTO, shows how improving data throughput and maximizing spectral efficiency reduces capital and operating expenses while also providing a platform for user engagement.
LRTV Custom TV
Making Pay-TV User Experiences Millennial-Friendly

11|16|15   |   6:42   |   (0) comments

The unique challenge of reaching and engaging Millennials is driving pay-TV video experience transformation that can include higher quality UIs, viewing of multiple content streams at once and seamless transitions between handheld devices and the television.
Allot MobileTrends Report H2/2015 reveals how daily online behavior can be used to discover smarter ways to profile customers and propose valuable, real-time offers to them.
Hot Topics
Samsung to Sell Wireless Networking Unit?
Dan Jones, Mobile Editor, 11/23/2015
Samsung: No Sale of Wireless Unit
Dan Jones, Mobile Editor, 11/25/2015
How Might Open Source Fail?
Mitch Wagner, West Coast Bureau Chief, Light Reading, 11/24/2015
Sprint to Get $1.2B From New Leasing Venture
Dan Jones, Mobile Editor, 11/23/2015
Networking Shines in HP's Gloomy Final Earnings
Mitch Wagner, West Coast Bureau Chief, Light Reading, 11/25/2015
Like Us on Facebook
Twitter Feed
December 15, 2015
Virtualizing Cable Services
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Centec CEO James Sun talks to Steve Saunders about Ethernet switching and the white box revolution.
Light Reading founder and CEO Steve Saunders talks with Zayan Sadek, Regional Manager at Cisco Systems, about the competitive communications services market and advance of virtualization in Saudi Arabia.
Cats with Phones
Can't Find the Phone on Thanksgiving? Click Here
Check under the cat! (hint: bottom right)
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and for copper plant evolution and the various deployment possibilities for FTTH/B.