October 20, 2011
Telephone Company Sells Home Security Division to Alarm Company
Telephone companies were once heavily involved (and invested) in the alarm industry, and for the most part, it did not go well. Ameritech, then Southwestern Bell, SNET in Connecticut, and others bought or launched home alarm divisions, on the assumption that they could offer combined (or “bundled”) services to their customers, and make more money. Other types of utilities -cable companies, and even power companies - also joined in the fun, only to bail when the going got tough. Over time, most of them sold their security startups for a loss. Now several new players are coming back, but in this report one more phone company joins the list of those who have exited the space.
At a time when many telcos are jumping into home security, Cincinnati Bell has decided to shed its home security business, though it will continue to have a cooperative marketing agreement with the buyer, Guardian Alarm Company, a super-regional security company based here. Guardian paid $11.5 million for Cincinnati Bell’s alarm business, which included 15,000 accounts and 15 employees, Guardian president David Goldstein told Security Systems News.
Is History Repeating Itself?
The article is correct about other companies jumping in. Verizon, AT&T, Rogers in Canada, and even Comcast and Cox have all initiated some form of home security and/or home automation service offering over the past year. Some are freshly launched, some are still in the test phase, and others are still primarily on the drawing board – but the trend is clearly for these providers to be active in home security. My previous post on utilities providing alarm services addressed this momentum, as well as the challenges. And, there continues to be plenty of conjecture as to how these new entrants will fare in the unregulated and highly competitive home alarm arena. Here’s more on the recent sale:
Peter H. Wright, managing director of Charlotte, N.C.-based investment bank Anderson LeNeave & Co. brokered the sale. Wright said Cincinnati Bell ranked as the “80th largest provider of home security in the country.” Shareholders were given the opportunity to divest the security operation in February. “There were seven interested buyers and Guardian made the most sense financially and strategically.” In a prepared statement, Cincinnati Bell CFO Gary Wojtaszek called the transaction a “shareholder-friendly initiative that demonstrates the company’s ability to sell a non-core asset at a significant premium to current stock price multiples.”
What Draws Them In?
The alarm industry view on how utilities decide to enter the security sector at all is that they often overestimate the synergy of a bundled service offering: they assume that home security is just one more service they can add to the mix – and make money from. It usually does not work out that way, since the practical requirements eventually surface: to be successful, alarm operators need separate trucks, separate technicians and training, special licensing and bonding, separate inventories, and above all, a reputation for protecting homes and families. In other words, it’s just not that simple. What surprises me is that a bunch of very smart people have continued along the same path, with the same unhappy result.
There is one additional factor that keeps surfacing in recent discussions of the “outside” companies joining the alarm industry today: trying to hold onto customers longer. The average alarm account has a longer life than the average cable customer, so cable companies could well be adding security services as part of a larger service package, in the hope that these customers will stay around longer just because of the added alarm services. The profit margins are higher on the traditional services (such as cable), so that breaking even - or even losing a little - on the alarm equipment and services can make sense. Time will tell if the new round of entrants will be more successful than the last.
We’ll keep our eyes out for more interesting stories to share about the alarm industry. FrontPoint competes extremely well against all the traditional alarm companies, and we expect the same to hold true against these new entrants. After all, we are the leader in wireless home alarm systems that are safer, smarter, simpler, more affordable, and virtually impossible to defeat. We also specialize in cellular monitoring and smarter interactive and home automation services, the two most important developments in electronic security – one more reason why we are recognized as the #1 ranked alarm company in the US. Bring on the competition!