bernstein+home securityHome security and automation is an “attractive” market for cable operators and telcos and is a “sensible service extension for a largely fixed cost infrastructure,” says Bernstein Research, an influential financial research firm, in a research note issued yesterday.

“We believe cable and telco operators are likely to gain their ‘fair share’ of existing home security subscribers and that they will grow the market by targeting the emerging ‘home automation’ market,” notes Bernstein.

Cable companies and telcos have become more interested in the home security and automation market in recent years because they view it as one more service they can add to multi-play bundles delivered over their broadband infrastructure. To date cable companies have taken the lead in venturing into the market. Comcast and Time Warner have launched offerings in several markets—and according to Bernstein, Comcast is planning a nationwide launch by the end of 2012.

On the telco side, Verizon has launched a home monitoring and automation service with limited home security capability in at least one market, but has hinted that it has bigger ambitions.

According to Bernstein, cable and telcos should have a cost advantage of 4% to 5% in the home security and automation market. The authors note, for example, that “Comcast can include Xfinity Home Security in its advertising and can leverage its technicians to do both installation and service calls for home security.”

Bernstein doesn’t expect cable companies to significantly undercut existing security company pricing, however. “We do not expect the cable MSOs to have the installation capacity to handle hyper-aggressive growth,” the authors write. Citing the example of how cable companies priced voice service, the authors also note that “cable operators are generally price takers, even in markets where they are new entrants with a cost advantage.”

One thing Bernstein researchers do not mention is that in delivering home security over a landline broadband connection, cable companies are bucking a home security industry trend.  Many of the smaller alarm companies that represent the vast majority of the market would prefer to use cellular rather than landline broadband for alarm system connectivity—a trend that has emerged in recent years as alarm systems move away from reliance on traditional landline phone lines.

These security dealers view traditional Internet service as too unreliable for emergency communications and also prefer to avoid having anything to do with the customer’s existing computer connection so as not to be blamed for any computer problems. If potential customers get quotes from these dealers as well as from a cable company or telco, they will likely hear the pro-cellular pitch–and the cable company or telco will need to be prepared with a convincing rebuttal. Comcast apparently recognizes the issue, as its offering includes cellular backup.

Despite its general optimism for cable companies and telcos in the home security and automation market, Bernstein notes that the market is not a large one. Bernstein estimates that if cable and telco operators were to gain a 5% market share by 2016, it would yield incremental industry EBITDA in the range of $300-$400 million, adding less than 1% to industry EBITDA.

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