AT&T Inc. (T - Analyst Report), the second-largest U.S. mobile service provider, seeks to enter the U.S. home security and automation market this summer. The service will be initially run on a trial basis in the Dallas and Atlanta areas.
AT&T will offer automation, energy and water controls, and security services through a system known as “Digital Life”. Using high-speed Internet services, Digital Life will provide remote access to an entire home with its features that will include video cameras, door locks, sensors, moisture detection, lighting controls and thermostats. The hardware was developed by Xanboo, which was acquired by AT&T in 2010.
The demand for home security and automation services is growing rapidly in the U.S. According to BCC Research, the home automation systems and devices will see significant growth over the next few years. It is expected to grow at a compound annual rate of 10.5% over the next five years.
In a saturated market, the U.S. carriers are now looking at new avenues for growth, beyond the slowing mobile business. Several cable companies including Comcast Corp. (CMCSA) and telecoms operators like Verizon Communications Inc. (VZ - Analyst Report) have already entered into the home security market.
AT&T’s entrance into the home-security market will be a threat to Tyco International Ltd.’s (TYC - Analyst Report) ADT unit, which dominates the industry with a 25% share. These services are expected to add $1 billion to AT&T’s annual revenues.
AT&T’s decision to enter into the home-security business was an outcome of its plan to improve its growth profile. The company is also shedding some of its slower-growing assets or restructuring underperforming or non-strategic assets such as the directory business and rural access lines. Last month, AT&T announced the sale of 53% stake in its Yellow Pages business to Cerberus Capital Management LP for $950 million. The deal, pending regulatory approval, is expected to close mid-year.
Going forward, AT&T will continue to focus on its core wireless, IP, cloud and application-based services. The company is expanding in faster-growing markets such as mobile data and broadband through Long Term Evolution (LTE), U-verse IPTV and advanced television offerings.
We are maintaining our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1–3 months).