AT&T (News - Alert) isn’t the first communications service provider to enter the home security market in recent months, but the company may have the strongest offering.
At first glance, AT&T’s Digital Life offering, announced this week in a planned two-market trial, seems quite similar to offerings already available in certain markets from Comcast, Time Warner (News - Alert) and Bright House. In addition to a traditional monitored alarm system, all of the service providers tout the ability to remotely control thermostats and other devices in the home using a smartphone or any Web browser. Purchasers also may have the option of including a video camera, enabling them to check in on the home when they are away.
But there is a key difference. An AT&T spokesperson confirmed that AT&T’s system is designed to communicate with the outside world using the company’s own 3G wireless service. Customers can also use a landline broadband connection from AT&T or another provider for backup and for more efficient video delivery, the spokesperson said.
The cable companies, in contrast, are relying primarily on landline broadband for connectivity; although at least one cable company, Comcast (News - Alert), offers cellular backup.
Verizon also uses landline broadband for what the company calls a “home monitoring” service. The company’s offering doesn’t include a traditional alarm system or central station monitoring but instead includes only the browser-based home and video control and monitoring capability.
Depending on the service provider, customers may or may not be allowed to use a competitor’s broadband service to support these landline broadband-based home security or monitoring offerings.
AT&T Advantages
I see several advantages to AT&T’s wireless-focused approach.
First, most traditional alarm companies prefer to rely primarily on cellular rather than landline broadband. They perceive – and they argue that customers perceive – that it is more reliable than a traditional Internet connection. It’s true that cellular service can be unreliable, but when a wireless device is installed in a fixed location with good reception, proponents argue that it’s more reliable than landline broadband. And if customers are getting multiple bids on a job they most likely will hear these arguments from the traditional alarm industry.
Second, the money that AT&T will get for the wireless connection, which likely will be built in to the monitoring cost, will be incremental to whatever the company already earns on any mobile wireless or landline broadband connection the customer buys.
Third, AT&T’s 3G service covers a large portion of the U.S. population, and the headline for the company’s press release states that it plans to take the service nationwide. Landline broadband, on the other hand, is regional. And although some other service providers may say you can use any broadband connection, I doubt they would offer the service in an area where they have no broadband service of their own.
It’s worth noting that AT&T plans to provide installation with its home security offering, and considering the company’s nationwide ambitions for the service, it seems likely that the company will outsource the installation task – at least in some areas. If so, that could give it somewhat of a cost disadvantage against any cable companies, such as Comcast, that are using their own technicians to do installations.
But on balance, I would argue that AT&T has more profit potential.
A big barrier to entry
Other service providers’ decisions not to use AT&T’s approach was likely made less out of choice and more out of necessity. The cable companies don’t have wireless – and although several of them have a partnership with Verizon Wireless (News - Alert), Verizon has its own unique problem. The problem is that the company’s 3G network is based on CDMA technology and virtually every cellular alarm communicator on the market is designed to work with GSM – the type of technology used by AT&T and T-Mobile.
At the time alarm manufacturers began to develop cellular communicators, they found that the royalties exacted by Qualcomm (News - Alert) on key components made CDMA a less attractive technology than GSM. I don’t know if those royalties are still so costly today. But the reality is that alarm manufacturers now have five years or so of experience and probably some economies of scale centered on GSM – and any service providers wanting to use a CDMA alarm communicator would have to have something designed especially for them.
A key unknown
I should note that my enthusiasm for AT&T’s offering could be curbed depending on pricing, which hasn’t been released yet.
But clearly the company is taking this market seriously – more seriously, I would argue, than other communications service providers. While some of those service providers are relying on a third-party central station for system monitoring, AT&T has built two central monitoring stations of its own to support its offering.