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by: Leif Kothe - Tuesday, October 1, 2013

The bite of chilly weather hasn't yet snapped southern Maine, but that doesn't mean I don't welcome the opportunity to go 500 miles south for 48 hours, where stronger vestiges of summer remain. Tomorrow morning I'm off to Maryland with Tim Purpura, SSN's publisher, to attend the Dynamark Convention 2013 in Hagerstown, Md.

The event kicks off in earnest with a vendor show tomorrow evening, which will showcase products from a slew of manufacturers, with an emphasis on new and emerging technology trends. Day two opens with a joint presentation by Dynamark founder Wayne Alter and Wade Moose, owner of The Systems Depot, followed by workshops tailored to dealers, technicians, installers and sales personnel.

My Hagerstown stay will conclude with my inaugural central station tour of Dynamark’s facility, which opened in 2011. I eagerly await this phase of the trip, not only because it’s my personal debut in a central station, but because the descriptions I’ve heard of Dynamark’s facility tend to be peppered with superlatives.

I plan to be active on Twitter during the vendor show and workshop sessions (https://twitter.com/SSN_Leif), and I’ll also be updating my blog over the course of the next two days as events unfold, distilling the sights and sounds and key takeaways from the speakers.

For those attending, I look forward to meeting you there.

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by: Leif Kothe - Friday, September 27, 2013

AT&T’s 2012 announcement that it would phase out 2G service left most in the alarm industry, well, unfazed. With wireless technology, such changes come with the territory. Moreover, it’s not the alarm industry but the mobile phone industry that dictates network “sunsets.” As Lou Fiore, Chairman of the Alarm Industry Communications Commission, put it in a recent conversation: “As long as you go cellular, there is no endgame here.”

A few months after the initial announcement, AT&T attached a deadline (Jan 1, 2017) to its 2G sunset. Since that time, the AICC has established a regular line of communication with AT&T, which sends a representative to attend the organization’s quarterly meetings.

AT&T informed AICC that, while interim changes would take place in advance of the 2G sunset, the changes would not affect the alarm industry. AICC members, Fiore said, were “skeptical.”

“We tried to impress upon [AT&T] the fact that our control sets hang on the wall, and if you change the operating parameters of that network, it may not work anymore,” Fiore said. “You can’t ask the homeowner to move the unit around to see if it works.”

Fiore, who is in the process of gathering information regarding possible outages for units tied to AT&T’s 2G network, said that in given locations, customers might still get 2G coverage but that there’s a chance it “won’t be as deep as it was before.”

Fortunately, there are some steps alarm companies can take to mitigate outages. Companies can switch to AT&T's 3G or 4G network by choosing matching hardware from a cellular alarm communicator, or to one of AT&T's competitors (the 3G and 4G networks of Verizon and Sprint are an option, Fiore said). Certain companies may be able to go with a wired network, but this is highly contingent upon business model, Fiore noted.

Still three years from the deadline, AT&T’s 2G sunset promises to be a story with several more chapters. I’ll be watching closely to see what kind of ripple effects it has on the industry.

by: Leif Kothe - Wednesday, September 25, 2013

In another illustration of the industry’s evolution, Baton Rouge La.-based Skyhawk Security, which offers remote video monitoring, IP camera systems and access control systems for commercial customers (most in Louisiana, but some as distant as California), acquired local IT firm Big Networks. With the purchase of the firm’s assets and intellectual property, the Skyhawk Group (the name of the merged company) will have an in-house IT unit to supplement its security offerings.

The move establishes an interesting hybridized security company in the Louisiana capital. Brett Lofton, one of three managing members with Skyhawk, said the acquisition, in addition to bringing in an “in-house IT decision maker,” also presents some major cross-selling opportunities, particularly with respect to some of the clients the company inherited through the Big Networks buy.

Lofton said some of these accounts could potentially be a boon to Skyhawk’s security business. “We’ll certainly be cross-selling and trying to get in front of them to talk about [our security offerings],” Lofton noted, adding that this applies especially to companies with guards—customers who could find the security services palatable. Commercial customers may find value in the prospect of replacing or supplementing nightshifts with video monitoring, Lofton said.

Skyhawk also plans to explore cross-selling its hosted access control service, which Lofton believes is gaining traction. It will be interesting to follow what kind of role video monitoring and access control play in the company’s primary near-term plan: organic growth—much of which could be fueled by business in its own backyard. Stay tuned for more on Skyhawk’s plans and near-term goals in Louisiana and beyond.

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by: Leif Kothe - Friday, September 20, 2013

As some know, the world of alarm monitoring can have murky legal waters, and it’s sometimes difficult to tell what risks you’re exposed to as a company until it’s too late. Even exculpatory provisions don’t necessarily make you immune to legal repercussions. If contracts aren’t worded with sufficient clarity or designed with the correct protective provisions in place, the exculpatory clauses may be unenforceable.

Clearly it’s best to err on the side of caution, and to ensure, if possible, that contracts are designed under the guidance of legal professionals with alarm industry expertise. A question posed today on Ken Kirschenbaum’s newsletter illustrates some of these good instincts. And it touched on a growing vertical that’s created something of an industry buzz: marijuana.

In summary, the questioner asked what kind of legal risks securing a marijuana dispensary or growing facility entails for an alarm company. Of course, with the substance being legal in certain states but illegal federally, it’s unrealistic to imagine that risks are the same across the board. From a legal standpoint, the most interesting sub-question, posed by the same questioner, follows below in paraphrase:

What if, for example, a driver under the influence of illegally stolen marijuana gets behind the wheel under the influence of the stolen substance and strikes a pedestrian, killing them? Would the alarm company to any extent be culpable?

In his response, Kirschenbaum said all businesses, illegal or legal, carry some kind of risk, and marijuana dispensaries or growing facilities are no exception. If an alarm system is well-maintained, functioning properly and code-compliant, risk is minimized considerably. “Why should the alarm company care what’s going on in the subscriber’s premises when that alarm signal comes in?” he asked. “The decision is whether to dispatch and to which agency, police department or fire.”

The marijuana example was merely the kernel which Kirschenbaum convincingly expanded into a much broader topic about what alarm companies can and can’t control. “I don’t think the alarm company is responsible for subscriber activity,” he noted. These words from an industry attorney should, if anything, be a source of comfort for alarm companies, who may not have to worry about another front opening up in the war against legal liability.

Still, some caution is advised. But what's Kirschenbaum’s advice for having dispensaries or other high-risk premises as subscribers? “If you get a call to alarm a pot dispensary, take the job and price it right,” he said. “At least you don’t have to compete against ADT."

by: Leif Kothe - Wednesday, September 18, 2013

The projected expansion of the PERS market will be fueled by several realities playing in its favor. First and foremost, the demographics, highlighted by an aging baby boomer population, are compatible with growth in the PERS space. Similarly, PERS devices make seniors better equipped to remain in their homes and possibly reap considerable cost savings. The market is relatively resilient. The technology is simple. One of the biggest barriers to entry may be tapping into the right marketing channel, Josh Garner, CEO of AvantGuard Monitoring Centers, told me in a conversation we had earlier this year on the state of the PERS industry. The marketing hurdle is not to be underestimated. But it also seems far less an obstacle than, say, mastering the technical ins and outs of a product truly difficult to integrate or install.

These are all PERS-relevant realities of which the industry already has a fairy sound understanding. While much is known, many questions still linger with respect to the future of the market. That much became clear in a recent conversation with Barry Epstein, president of Dallas-based Vertex Capital.

One question with many ramifications for the market: what will reduce the annual attrition rates for PERS devices? Will it simply come down to a broader (and younger) customer demographic? Metrics are far from perfect, and the market is still green from an acquisition standpoint, but Epstein says the attrition rate for PERS devices hovers somewhere between 24 and 36 percent. Even at the lower end of that spectrum, these rates are not conducive to huge RMR value, and they could make private equity firms leery about getting involved, at least right now. A huge ancillary question to the one posed above will be what kind of innovations, on either the dealer or manufacturer end, can companies make to reduce these less than sterling rates.

Another question: Can smaller alarm companies do PERS? Or is the market going to remain the province of larger dealers or wholesale monitoring companies who can afford to support a PERS-only division? To what extent will traditional alarm companies have a share in the space at all? Epstein, who recently moderated a panel at the PERS Summit in Park City, Utah, said the conference naturally featured an abundance of PERS dealers, but only a small fraction of them had alarm accounts.  

The development of this market will be worth watching closely. When will the acquisition tipping point occur? What will be the force behind it? What factors, as yet undeveloped, stand to drive the market’s upward trajectory? And what about mobile PERS units?

In a broad sense, we're mostly sure where the PERS industry is going. But regarding specifics, questions abound.

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by: Leif Kothe - Wednesday, September 11, 2013

Hundreds of TrendNet customers found out the hard way that products they purchased, billed as home security cameras, weren’t all that secure. In January 2012, a hacker was able to breach TrendNet’s website, circumvent security credentials and access some 700 live-camera feeds monitoring inside customers' homes. Many of the videos were then disseminated on the Internet, a curious fact by itself in light of the complaint filed by the Federal Trade Commission, which said security flaws in the cameras allowed for the “unauthorized surveillance of infants sleeping in their cribs, young children playing, and adults engaging in typical daily activities.” The online community continues to recover from the trauma of being exposed to such tedium.

But for obvious reasons, customers were unnerved. The FTC wasn't happy either. The oversight committee’s complaint alleging that TrendNet misrepresented its software as secure and failed to adequately protect its customers resulted in a settlement, which was reached last week, according to multiple reports.

The story reached mainstream news. Unsurprisingly, it’s on the alarm monitoring industry’s radar as well, as I discovered in a short conversation with Stephen Doyle, executive vice president and CEO of CSAA. Doyle said he just returned from an Alarm Industry Communications Committee meeting in which 65 industry members were briefed by an industry lawyer on the legal ins and outs of the TrendNet snafu.

In terms of pertinence to the industry, the case seems fringy in some respects, relevant in others. It’s true, after all, that TrendNet cameras are unattached to alarms, and designed specifically for remote monitoring of homes via smartphones and other mobile devices. But it's relevant to the industry insofar as it deals with a few topics in the forefront of people's minds.

One of those topics is the viability and security of do-it-yourself monitoring systems. Another is cloud security, a topic that stands to grow in significance with the spread of IP panels, and as more companies migrate information and services to the cloud. Whether a company’s data becomes more or less secure when it’s transferred to the cloud is a hot-button industry debate with little consensus. Cloud adoption is likely to expand, but that doesn’t mean there won’t be skeptics. Either way, the TrendNet case perhaps intensifies the debate.

At TechSec 2014, Jeremy Brecher, VP of technology, electronic security at Diebold, will tackle some issues in this vein as part of the educational program, while also exploring ways security companies can thrive in an increasingly cloud-based environment.

by: Leif Kothe - Friday, September 6, 2013

This morning I had the opportunity to chat with Stan Martin, executive director of the Security Industry Alarm Coalition. He proved to be a valuable font of information about the current state of the alarm industry, in particular the three-pronged relationship involving alarm monitoring companies, law enforcement and municipal governments—all of which play huge collaborative roles in responding to legitimate alarms and mitigating false ones.

When I asked him what he considers an ideal alarm ordinance, it became abundantly clear just what kind of challenges an effective alarm ordinance has to address. A whole constellation of considerations go into curbing false alarms. 

“We’ve studied alarm management issues for twenty plus years, and we know what best practices will reduce these unnecessary dispatches,” Martin said. “We list them in our model ordinance.”

A model ordinance, Martin said, should require all alarm systems to be registered with local police. It should mandate the use of Enhanced Call Verification, or two-call verification, a protocol that requires alarm monitoring stations to attempt to confirm a signal is valid before requesting dispatch. It should require that panels feature the newest equipment standards, meaning they are compliant with the ANSI/SIA CP-01 Control Panel Standard – Features for false alarms—a standard that minimizes the single biggest cause of false alarms: human error.

Martin also emphasized the tremendous importance of strict enforcement of an alarm ordinance, but acknowledged that enforcement measures vary by municipality, and are often dictated by local politics—particularly with respect to the number of free responses permitted. The SIAC recommends no more than one or two free responses. It also recommends suspending response once a fixed number, generally between the range of six and 10, has been surpassed. 

Martin says this curtails chronic abuse and holds some of the larger commercial entities accountable. “You do need to stop responses,” he said. “Otherwise, the higher-end clients, commercial clients, banks in particular, will just write the check. They consider that easier. It’s the cost of doing business. But when police say they’re not going to come any longer, they have to take some kind of corrective action.”

by: Leif Kothe - Wednesday, September 4, 2013

Today, Ken Kirschenbaum, an industry attorney, broached the topic of valuation in the alarm industry in his email to subscribers. In the monitoring space, a company’s valuation is based “exclusively on a multiple of RMR,” Kirschenbaum explains. A reason for this is that, in a sale, an alarm company isn't selling its ongoing business so much as its subscriber accounts. 

While the RMR multiple can shed light on the value of a company on the verge of a sale, it doesn’t tell everything. In fact, as Kirschenbaum explains in the preface to an article by Dorsie Mosher of the Davis Group, RMR multiples can fall into a wide range based on several variables, such as contract stipulations, as well as financing and accounting decisions within the company. 

This is why investors and financial institutions tend to prefer EBITDA—earnings before interest, taxes, depreciation and amortization—to RMR. They regard the former as the more telling valuation metric, says Mosher, because, simply put, the figure is less prone to flux due to uncontrollable variables. Through EBITDA, investors can get a better idea of how much cash will be generated to pay debts and finance future growth. 

“A company can have $1 million in RMR and still be losing money, which is certainly not what the investor is looking for,” Mosher writes.

Kirschenbaum, for his part, believes EBITDA is not about to replace RMR multiples as the primary valuation metric in the alarm monitoring space. But when it comes to mergers, acquisitions and financing, it’s worth keeping in mind that RMR isn’t the only valuation category all parties are taking into account. 

by: Leif Kothe - Tuesday, August 27, 2013

Over the weekend, the Partnership for Priority Video Alarm Response, a public-private partnership comprising stakeholders in property crime, announced the addition of a major manufacturer to its membership ranks. The company? Honeywell Security.

After speaking with some in the industry involved with PPVAR, including Keith Jentoft, president of Videofied and RSI Video Technologies, it is increasingly clear to me why this carries major implications for the future of video monitored alarm systems. A recurring theme I’m hearing is that Honeywell’s decision to come on board with PPVAR reflects significant progress toward “mainstreaming” such systems.

In a PPVAR statement, Donald Young, president of PPVAR and chief information officer at Protection 1, said the following: “Honeywell will help us in our efforts to strengthen our partnerships with law enforcement using monitored video alarm as a mainstream solution.” In the same statement, Scott Harkins, president of Honeywell Security Products Americas, stated: “Honeywell is pleased that the PPVAR supports continued police response to all burglar alarms. We also recognize that video verification is an important product category as we look to the future of security.”

If you synthesize these two statements, PPVAR’s message becomes clear. The organization encourages the mainstream adoption of video verification alarm systems in both commercial and residential settings, since this appears to be the trajectory monitored alarms are on. But what’s also apparent in the statement, particularly through Harkins’ quote, is that both the organization and its members remain firmly positioned as allies of the monitored alarm industry and its stakeholders in general—whether we’re talking about video monitored alarm systems or traditional ones. PPVAR's emphasis is on priority response. 

With monitored video alarm systems becoming more affordable, it may only be a matter of time before video verified alarm systems reach a tipping point in their adoption. It’s a development that some in the industry, as well as in law enforcement, will hail—especially as municipalities across the country continue to search for ways to mitigate false alarms.

Honeywell’s membership status with PPVAR only helps advance the industry closer to that adoption tipping point. On that front it is a major illustration of progress. Equally instrumental for achieving broader adoption, however, could be PPVAR’s positioning itself not as a threat to the existing, largely non-video installer base, but as an ally. 

by: Leif Kothe - Monday, August 19, 2013

Over the course of June and July, fourteen companies renewed their eligibility with IQ Certification, an installation quality certification program for alarm companies. The group of re-certifiers includes COPS Monitoring, based in Williamstown, N.J., Monitoring America Alarm Co-op of Tulsa, Okla., and General Monitoring Services, based in Huntington Beach, Calif.

Founded in 1997, the IQ Certification Program, headquartered in Erie, Pa., is based on one fundamental principle: security systems that are properly designed, professionally installed, feature the best equipment, and are monitored correctly tend to function free of failure or false alarms. A fifth component of a sound security system, according to the website, is providing users with education and training as well. 

To earn IQ Certification, alarm companies must undergo a rigorous evaluation by the IQ Certification Board, which is comprised of law enforcement, fire, state regulatory and insurance industry representatives, the program’s website notes. The certification standards are extensive and specific. The website features a code of ethics and PDFs on program bylaws and polices and guidelines. To become re-certified, companies must demonstrate to the board on an annual basis that they meet the required standards.

The expansion of a program like IQ Certified, first and foremost, reflects the industry’s dual commitment to mitigating flaws, such as false alarms, and making users better attuned to managing their systems. The guidelines expounded on the website also demonstrate a concerted push for cohesiveness and standardization in the interest of quality and functionality.

Interestingly enough, I began learning about the IQ Certification Program mere minutes after reading an opinion piece, published on MSN Money, titled “14 reasons monitored home security isn’t worth it.” The article, while somewhat disconcerting, is nevertheless worth a read, if only because it offers a window into certain non-industry attitudes about home security.

Yes, the opinion piece is critical of monitored systems, often unduly so. The tone is one of exasperation and hyperbole. But few things can better counteract the negative perceptions detailed in this piece than a rigorous, quality-focused program like IQ Certification, an organization aimed at rectifying problems rather than dwelling on them. 

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