As Tyco International seeks to spin out ADT, one of the nation’s largest home security dealers, at least one industry observer speculates that a major telco or cable company might look to purchase the new public company.
According to a report published by The Street, Vertical Research analyst Jeff Sprague issued a research note speculating that potential ADT buyers include Verizon, AT&T or Comcast. Sprague also noted, however, that bondholders may attempt to stop the spinoff.
If the spinoff occurs, ADT would be a $3 billion stand-alone company, The Street reports.
ADT has been pushing interactive video as part of a home security package that enables homeowners to check in on the home remotely using a smartphone. The company also stores event-driven video clips for customers for 30 days. By adding these capabilities to its traditional alarm package, an ADT executive told me several months ago that the company has increased its recurring monthly revenue (RMR) substantially – and the home security business is all about RMR. The executive also told me the company has had substantial success upgrading its existing customer base to the new interactive capabilities.
It’s easy to see how a combination of a company like this and a broadband provider could be attractive to both parties. Currently ADT’s offering is delivered over-the-top using virtually any broadband provider’s network. But if a broadband provider were to obtain the company, it could open up new multi-play opportunities – particularly within the network operators’ existing broadband footprint – thereby helping minimize customer churn and putting the marketing engines of both organizations behind the combined offering.
Such a move might seem to have appeal to any of the three companies. But each is in a bit different situation today.
What the network operators offer now
The home monitoring service that Verizon unveiled in no more than a few markets about a year ago is not actually supported by a central monitoring facility but instead sends alerts only to homeowners via a smartphone or similar device. Homeowners also can use their smartphones to check in on the system.
Comcast offers home security and home control in several markets, but also is not nationwide.
Both companies have focused on markets where their own broadband service is available to support their offerings.
AT&T, which began trialing its home security and control offering in two markets earlier this year, has taken a bit different approach.
As with Comcast, customers can use a landline broadband connection for alarm communications and control. And both AT&T and Comcast have said customers can use any broadband provider — although both companies have focused on markets in their own broadband footprints.
What AT&T is pushing more heavily than broadband, however, is wireless alarm communications to and from the central station – an approach that emphasizes the company’s unique strength. Virtually all of the alarm communicators on the market today were built to use GSM/GPRS to communicate with the central monitoring station because components for CDMA devices have traditionally been too costly.
In case anyone is confused, all three network operators – AT&T, Comcast and Verizon — let homeowners use any smartphone for remote home control and alerts. But when it comes to alarm communications with the central monitoring facility, GSM/GPRS carriers AT&T and T-Mobile currently have the market cornered—and each of them makes money every month from homeowners who use their service. Comcast’s system uses wireless only for backup.
Of course Verizon eventually may catch up on the wireless alarm communications front – and of course AT&T’s system will be more powerful when it works over landline broadband. But if AT&T gets its foot in the door with a wireless system, it should be well positioned to upgrade customers to broadband at a later date even if they don’t opt for broadband initially.
Unlike the other network operators, AT&T also has already built its own central monitoring facilities so it doesn’t need ADT’s.
If ADT does indeed spin off and if one of the network operators opts to buy the new company, I’m thinking it’s more likely to be Comcast or Verizon than AT&T.