‘Customer set a telco really wants’: Telus’s $700M buy of ADT Canada logical for a bundle of reasons
Telus Corp. announced Tuesday it is buying ADT Canada for $700 million, a move that will bolster the telecom’s suite of product offerings, but also bring it into direct competition with tech giants such as Amazon and Google.
ADT Inc. will still operate in the United States, but Telus is getting around 500,000 customers and 1,000 employees in the security services business across Canada with the acquisition. In announcing the deal, Telus noted that it already has about 100,000 home and business security customers.
Scott Young, principal research advisor with Infotech Canada, said the move makes sense for Telus and boils down to one word: “Stickiness.”
Faced with increased competition in their wireless and internet businesses, and cord-cutting on the television side, telecoms have been trying to hold on to customers and grow revenues by bundling services together.
“This adds another 500,000 to (Telus),” Young said. “That’s 500,000 potential people that also did not necessarily have other Telus services, that they can now try to come in from that angle too to try and offset any other losses.”
There are a lot of reasons home security services in particular are alluring to telecom operators, and Tuesday’s acquisition is just the latest in a series of moves.
Rogers launched home monitoring services back in 2011, and in 2017 Bell Canada acquired AlarmForce for $182 million. Bell then turned around and sold the western Canada portion of AlarmForce to Telus in early 2018 for $66.5 million.
The deal for ADT this week is much larger, but National Bank of Canada analyst Adam Shine noted that on a per-subscriber basis the AlarmForce and ADT deals are in the same ballpark.
“We view this as a good transaction for the company. Security and automation clearly represent areas that can be monetized as part of a bundle for businesses but also consumers in the context of health and home,” Shine wrote in an investor note. “Related solutions will find their way into smart cities, buildings, and enterprise with coming 5G serving as the great enabler to all these things.”
Related solutions will find their way into smart cities, buildings, and enterprise with coming 5G serving as the great enabler to all these things
Adam Shine, analyst, National Bank of Canada
That idea of bundling is the most alluring part of home security, according to Nigel Wallis, vice-president of industries and IoT with IDC Canada.
“Once they can prove themselves there, then potentially they can offer more of a whole-home solution, which might include a smart-home thermostat, might include digital flood warning in your basement, potentially even moving into something like smart irrigation systems for people who have gardens,” Wallis said.
“I don’t anticipate it happening this year, but over the next three years I think we will start to see all the telcos following what you see out of Comcast and Verizon (in the U.S.) trying to add, not like a geek squad, but a home squad.”
Home security customers are particularly alluring, too, because those customers tend to be higher-income individuals, Wallis said.
“That’s a customer set that a telco really wants, because they’re going to buy the extended cable package,” he said. “They’re much more likely to be on the list of people who want to get Apple iPhone 11. Those are much more likely to be higher-margin customers who are buying the home security devices.”
But there’s a problem for telecoms getting into the home security business, or really, there are two problems: Amazon and Google. Through their Ring and Nest brands, respectively, both companies are eager to sell smart locks, smart doorbells, camera systems and an array of other security services all knit together by the Alexa and Google Assistant platforms.
Those are higher-margin customers
Nigel Wallis, vice-president, industries and IoT, IDC Canada
Wallis downplayed this concern, saying that the market will probably segment largely along generational lines, with more affluent baby boomers and Gen X customers tending toward traditional home security systems, and millennials preferring the Nest and Ring options.
Wallis said because of this, the ADT Canada acquisition will probably pay for itself for Telus, but it’s unlikely to be a huge growth area.
“You’re looking to milk the existing customer-base who are going to be the same people you already work with for home residential TV and home phones and internet,” he said. “The people who are most likely to have gone to over-the-top (streaming) and not have home TV anymore are also most likely to go to digital-native companies like Amazon and Google.”
But Werner Goertz, a personal technology analyst with Gartner, was more skeptical, saying that the rise of Google and Amazon in recent years has changed the home security landscape. He said he was a bit surprised to see Telus making the acquisition right now.
“Large utilities across the globe were basically engaged in smart-home activities. They built their own subsidiaries and they made huge investments a couple years ago,” Goertz said.
“Ecosystems and incumbencies have developed on behalf of Amazon and Google to a much greater degree compared to two or three years ago, so now the barrier to entry has been raised, and I think that’s why we’ve seen less of a flurry of M&As.”