SECURITY SYSTEMS MORE THAN JUST A FLAVOR OF THE MONTH

CHECK OUT THE UJEBSITE CF R TYPICAL SMALL TELEPHONE COMPANY or cooperative and the service offerings read like Baskin-Aobbins 31 flavors, with everything from landline to wireless to Internet to cable television-and the list goes on. Increasingly, small telecom providers are adding security systems to this list. At first glance, this may seem akin to BaskinRobbins deciding to sell doughnuts (which it essentially did when it teamed up with Dunkin' Donuts in 1994). But industry experts and analysts aren't surprised by this trend, noting that the technology and skill sets involved in security installations and monitoring are not that far removed from those already being offered by modern-day telecom companies.

The Mankeb

The Electronic Security Association (ESA), a trade group representing security dealers, cites estimates from Bobit Business Media that the entire North America security industry generates $33 billion annually. Roughly one-third of the business stems from residential, or homeowners, with the remainder coming from commercial and industrial customers.

In the past three years, the number of new installations has declined; but Marshall Marinacc-vice president/president-elect of ESA and owner of Marshall Alarm Systems-said this is merely a reflection of the economy. "It's hard to get true numbers, but the percentage of households with security systems is somewhere between 17% and 24%," he said. "Within five years, the industry is projected to hit its saturation point, which is 40%. That's a huge potential for growth."

One of the driving forces behind this optimistic projection for growth is new entrants in the security industry. "With the utility and cable companies getting into the business and generating interest through TV ads, telemarketing, mailings-this will create more interest and grow awareness," Marinace said.

Jay Henke, business development and operations manager for Clear Creek Communications (Oregon City, Ore.), agreed, pointing out that the big players-AT&T, Verizon, Time Warner and Comcast-are smart about going where the money is. "They wouldn't be getting into this if they didn't sec the market potential," he said.

Some Hlsbonu

ESA's Marinace pointed out that the Bell operating companies tried to enter the security arena 20 years ago but failed. "But things have changed so much and the landscape has changed, so now they're coming back," he said, pointing out that the delivery method for security systems has changed and evolved over the years, starting with landlines and then moving into broadband. "But landlines are going away and broadband was too unreliable because when the power went out, the service went down."

The advent of wireless technology is one of the biggest game changers, Marinace said. "Cellular security is where it's at," he said. "It's the best delivery method and the one that's growing at the fastest pace."

Clear Creek briefly tried its hand in the security business many years ago, Henke said. "The first time was a nightmare," he said. "It was so labor intensive-our techs were spending two or three days at a house. It sapped any profits. There was no recovery of that time or expense."

About eight years ago, the security industry went wireless, Henke said. "Since then, they've fine-tuned it and gotten the bugs out," he said. "Now it's much easier to have it wireless rather than running wire all through a house or office."

Now, Clear Creek sells and installs security systems to homes and businesses, and it outsources the daily monitoring. "We couldn't afford to hire four to 20 people to work 24/7 in shifts to handle the calls," Henke explained. "Call centers are better equipped for that and can be inexpensive."

Bernie Arnason-managing partner and founder of Pivot Media, a telecommunications consulting firm-pointed out that most small telcos outsource some part of their security offering. "They have to decide; Will this strictly be a resale effort or a monitoring business over an existing platform, or a hybrid of the two?" he said, adding that the commitment to sell, install and monitor comes with a hefty price tag. "Most small companies lack the resources to do everything themselves to make a full-blown A to Z offering."

Monlboping Only

For ComSouth Telecommunications Inc., an integrated independent telecommunications company serving central Georgia (Hawkinsville), it made sense to outsource sales and installations and to act as a third-party monitoring service. "We contract with security dealers who sell and install the systems, and then we handle the monitoring for them," explained Cathy Fincher, manager of central station monitoring for ComSouth Monitoring Inc., part of ComSouth Teleservices, a sister company of ComSouth.

When ComSouth first entered the security business 17 years ago, it conducted a business case and decided the revenues were not there to do the sales and installations, said Mike Penn, vice president of marketing and sales. "It's not uncommon for the large national brands like ADT to give away $300 security systems," he said. "That would be hard to compete against."

ComSouth offers monitoring-both residential and commercial-for 47 different security dealers, representing nearly 19,000 individual customers. "If we were a security dealer ourselves, the other dealers would likely view using us as a monitoring service as a conflict of interest," Penn said.

Fincher said ComSouth has 18 full-time employees to handle the monitoring, which encompasses burglary, fire, panic and environmental (for agricultural uses). "We have a lot of chicken houses in the South," she said. "Our environmental monitoring checks for heat and water flow."

Monitoring is a nonstop, continual operation, Fincher said. "The staff must work around the clock," she said, adding that they dispatch to police, fire and medical first responders, as well as to local guard services in gated communities.

Sales and Ineballabion

C. Lee Chambers- general manager of Sandhill Telephone Cooperative (Jefferson, S.C.), which has been offering security systems for the past six years-said he didn't want to hire additional off-hours staff or take on the additional risk involved in monitoring. "You have to take out a lot more liability insurance when you do the monitoring yourself," he said. "We sell the systems and install them, but a neighboring independent telco, Comporium Communications, does the day-to-day monitoring services."

Comporium (Rock Hill, S.C.) had already been in the business for four years, Chambers said. "Since they'd already been there and done that, we figured this was a good avenue for us to get into this business," he said, adding that his company recently signed its 1,000th customer. "When we get to 2,000 or 3,000 customers, we'll re-evaluate at that time if we want to start doing the monitoring ourselves."

Offering lb Rll

Head far north to Canada and find Nexicom Group (Millbrook, Ontario), a telco that has been in existence for the past 115 years and in the security business since 2006. It doesn't outsource anything. It provides sales, installation and monitoring for 133 residential customers and 91 business customers, explained Julie Howe, sales and marketing manager. Specifically, it monitors for burglary, intrusion, smoke/ fire, carbon monoxide and flooding. In addition, its camera option allows users to look in on homes or businesses. The telco also has a medic alert system for seniors or people with medical conditions, as well as a smart home solution to regulate things like thermostats and lighting.

For telcos just getting into the security business, Howe advised that it makes sense for newcomers to initially outsource a monitoring station company, especially if they don't already have 24/7 customer service employees. But once a telco reaches 500 security customers, that's the time to consider taking it back in-house, she said.

Another tip for newcomers is to pick one equipment provider and stick with that vendor for consistency, Howe said.

For Sandhill Telephone, its equipment hassles come during the summer months. "Most telephone equipment is inside; but with security, it's mostly outside," Chambers said. "So come lightning season, cameras get knocked down and equipment gets fried. If you offer a maintenance plan, definitely realize that you'll be making a repeat visit."

In addition, many states have laws on the books (and national regulations may be on the horizon) to ensure that security personnel have the proper licensing and background checks.

Rather than put all the technicians on that job. Sandhill Telephone designates just a few people for its security work. "That's their job. That's all they do," Chambers explained, adding that this saves time and money on the background checks.

Salee Advice

Henke noted that security installation work is a relatively simple matter for most technicians. "It's not that far removed from installing cable," he said, pointing out that the biggest hurdle for most small telcos and co-ops is on the sales and marketing side. "We're good at customer service and retaining customers, but we're not so good at selling ourselves because we're used to people coming to us."

Nexicom's Howe agreed it's important to do extensive marketing to play up security as part of the telecommunications bundle. "Incent your sales staff with good commissions for selling this service," she added.

Both Sandhill Telephone and Clear Creek have had success finding customers outside their service territories. "Just within the past year, we decided to branch out beyond our co-op service territory and market to folks in the surrounding area," Chambers said. "That's really helped beef up our numbers, and it's easy enough for us to do this. It's just 30 minutes further down the road."

While Chambers is pleased with his company's decision to get into the security business, he noted that it's not a get-rich-quick operation. "Don't expect to make money on this for the first few years," he said.

For those just looking into the security business, perhaps the hardest decision is what to offer because there's such a wide array of services, explained Pivot Media's Arnason. Some could say it's as hard as settling on an ice cream flavor out of 31 choices. *

DEMOGRAPHICS DETAILS

The typical business customers that want a security systems are those that are at high risk for burglary, such as jewelry stores and pharmacies, enplained Marshall Marinace-vice president/ president-elect of the Electronic Security Association and owner of Marshall Alarm Systems.

Jay Henke, business development and operations manager for Clear Creek Communications (Oregon City, Ore.), pointed out that business owners are typically an easier sell than homeowners. "Most businesses already have alarms. They know they need to protect their assets," he said, adding that video monitoring via smartphone is by far the biggest appeal to bar and restaurant owners. "For business owners to be able to look in and see what's going on-not just in terms of security, but to know what their workers are doing-means that the owner can be tied to the business 24/7 in a good way. If we can get in front of business owners and explain this, we've sold it. That's a $1,000 system installed and $40 a month in revenues."

On the residential side, Marinace noted that typical customers interested in home alarm systems are wealthy people who have ewpensive belongings and valuables to protect; new homeowners who are interested in an insurance discount; and single mothers.

C. Lee Chambers, general manager of Sandhill Telephone Cooperative (Jefferson, S.C.), said older people who live alone are another prime demographic in his area. "ADT has a TV commercial that shows parents checking in to see that their children are home from school; but around here, the reverse is happening," he said. "The adult kids who have moved to the city are logging on to see if mom or grandma is OK. It's possible to see if they got up and opened the fridge or opened the medicine cabinet."

Despite these demographic segments, Marinace said the biggest wave of new security customers are often people who were recent victims of a crime or personally knew a victim. "Unfortunately, that's the type of thing that triggers a sale," he said.

Chambers agreed. "Once people know you have security, no one is really jumping on this until there's a neighborhood break-in, and then everyone wants a security system installed at the same time," he said. "Be prepared that this is a feast or famine type of operation. It really depends on what's going on in the neighborhood."

Henke said he's observed this same phenomenon in his part of Oregon. "There's a scary event and customers sign up; and at first, they're diligent about using it every time they leave the house," he said. "That's for the first few months, and then they start only setting it up when they're going away, and then they forget to ever use it. After a year, they're asking themselves, 'UUhy are we paying for this?'"

To avoid customer churn, Henke said it's important to sell more than just security. "You want to build sticky features into the system," he said, eHplaining that this can easily be done through smart home monitoring. "You can turn lights on and off to make it look like the house is occupied. You can monitor energy consumption to better regulate the heating and cooling systems. This smart home trend is what the security industry sees as real growth. This is really going to take off."

Rachel Brown is a freelance writer. She can be reached at [email protected].