According to Global Industry Analysts (GIA), the global monitoring industry was valued at $34 billion in 2009, having registered ~3% CAGR during the previous five years. The monitoring services industry includes error detection, which involves safety hazard at residential, non-residential and public places. Players in the industry provide services in one of the following areas:

? Residential Segment: This includes companies providing security alarm products such as fire alarm, cameras, monitors, recording equipment and monitoring services to retail users or home-owners. Residential is the largest segment within the security alarm and monitoring services industry generating total revenues of $23.4 billion during 2009 (~69% of the total monitoring industry). It is expected to grow 4.2% annually to $29.8 billion by 2015.

? Non-residential Segment: This comprises companies providing professional oversight and comprehensive monitoring management for commercial properties, including office premises, shops, restaurants, and banks among others. The non-residential segment generated ~$8.3 billion of revenues in 2009, and is expected to grow 4.1% annually to $10.6 billion by 2015.

? Others: This segment comprises companies that provide monitoring products and services such as closed-circuit TVs (CCTV), cameras, and professional management of monitoring at public places such as roads, signals and the government utilities. This segment generated $2.3 billion sales in 2009, and is estimated to grow at par with the other segments to $3 billion by 2015.

(Source: GIA)

The security alarm industry is highly fragmented, competitive and characterized by many small players. The high fragmentation of the industry is primarily due to the low entry barriers, coupled with the availability of wholesale monitoring, whereby smaller companies outsource their monitoring to large operators that specialize in providing this service to alarm companies. Within security alarm systems, residential intrusion and fire constitutes the largest end-use market for alarm monitoring services worldwide whereas non-residential alarm monitoring services represents the fastest growing segment for alarm monitoring services.

Key Metrics in the Security Alarm Systems Industry

The following key metrics are used to measure performance:

? Recurring monthly revenues, or RMR;

? Subscribers attrition

Global Monitoring Services Industry

Over the last decade, consumer demand for security systems has increased rapidly; thus, providing a new high-end market for manufacturers and service providers. This also paved the way for global monitoring industry to expand during the same period and it reached $34 billion in 2009. Although economic slowdown in 2008-09 impacted the home construction industry, manufacturers of security devices, distributors and dealers adopted novel technologies as a measure to offset the slump. Novel technological innovations, such as high quality cameras, recording equipments, and reduced turnaround time for reporting are now steering growth in the burglar alarm sector. In addition, consumers are increasingly demanding alarm monitoring companies for services such as the management of the administrative functions of closed circuit televisions (CCTVs), alarm systems and access controls. Accordingly, GIA expects the global monitoring services industry to register a CAGR of 4.1% over the next five years growing to a $43.3 billion industry by 2014.

(Source: GIA)

The U.S. Security Alarm Industry

Overview

According to Security Distributing & Marketing magazine, the U.S. security alarm industry has been estimated at $44.7 billion of annual revenues in 2009 and was expected to remain flat in 2010. The monitoring and services segment, which provides alarm monitoring services, accounted for a third of total sales or $16.3 billion during 2009. The monitoring and services segment grew at a rapid pace in the last decade, registering a 7.2% CAGR, and is likely to grow at par with the overall industry during 2010. The remainder $28.4 billion revenues in the U.S. security alarm industry were generated by product sales such as alarms, CCTVs, and electronic surveillance and installation fees of those products.

Electronic security systems , a major sub-segment within monitoring and services segment, registered a CAGR of 4.7% during 2004-09 growing to $10.9 billion. This segment is estimated to grow ~9.3% annually to $17 billion by 2014. Access controls and alarms together accounted for ~55% of electronic security system revenues during 2009 and the share of this segment is expected to further increase to ~60% by 2014.

(Source: Security Distributing & Marketing magazine, Freedonia)

The U.S. security alarm industry is highly fragmented and competitive. Currently, there are ~8,000 active security alarm companies in the U.S. and the vast majorities are small local operators, with less than 100 companies estimated to have RMR of above $200,000. In our view, increasingly licensing requirements for the new entrants as well as existing operators and high fixed costs of operating a central monitoring facility are making it difficult for new or small operators to sustain into the business; consequently, the industry might witness decline in the number of players by the means of exiting/closing business or consolidation in the near future.

Increasing demand for electronic security systems in the US

According to Freedonia, revenues from electronic security products and systems in the US are expected to go up by 9.3% per annum to $17 billion in 2014, far above the growth registered in the last 5 years (~4.7% per year). Although growth declined in the last two years due to economic slowdown coupled with a tight credit environment, we believe growth in the near future will rebound driven by a strong rebound in construction and capital investment spending. Moreover, the US household and commercial markets provides huge opportunity for home security companies to expand their base in the medium-to-long term, considering ~80% of the 120 million households and businesses are currently unalarmed. In addition, technological improvements and falling prices will further enhance growth as the customer base begins to upgrade existing systems or install new ones. For instance wireless monitoring is gaining popularity as technological advances and dropping prices make it a better option.

? Within electronic security systems, access control represents the largest and fastest growing product segment, accounting for 36.7% of revenues having registered 9.8% average annual growth during 2004-2009. Demand for access control is forecasted to grow 12.8% annually through 2014, driven by new technologies such as smart cards, biometrics and the increasing adoption of higher-value technologies.

? In 2009, alarms accounted for the second largest share of electronic security equipment due to their widespread use in most markets. Sales of new alarms are forecasted to increase 7.2% annually through 2014, driven by a recovery in business and consumer spending, especially residential expenditures.

? Demand for security-related CCTV products and systems are anticipated to register a 7% CAGR and grow to $1.6 billion over the next five years. Growth is expected to be driven by an increase in capital spending and overall improvement in economic activity. Besides, sales of CCTV cameras and recording equipment will also benefit from technological advances in digital recording, image quality, computerized analysis and Internet-based monitoring.

Closed Circuit Television Systems ($ million) � US

Item 1999 2004 2009 2014E 2019E

CCTV System Demand 660 1120 1140 1600 2100

Cameras 270 480 510 760 1050

Monitors 160 260 230 300 370

Recording Equipment 60 115 130 190 280

Other Components 170 265 270 350 400

Less: Net Imports 135 320 440 800 1250

CCTV System Shipments 525 800 700 800 850

(Source: Freedonia)

Monitoring Services Industry � European and APAC region: Europe represents the largest region for alarm monitoring services worldwide and is expected to continue its dominance in the medium-to-long term. However, growth is likely to stem from the emerging markets, including Asia-Pacific, Latin America, and the Middle East. Among all, Asia-Pacific is poised to be the fastest growing market for alarm monitoring services, with an estimated CAGR of over 8% in the next five years, according to GIA.

Challenges Ahead and Outlook

Security alarm services grew robustly in the last decade, in spite of the credit crunch and slowdown in the construction sector, owing to expansion of services from conventional alarms, motion sensors and glass break detectors to high-end technological security systems. Nonetheless, the economic recession coupled with the slow down in the housing sector in the US disrupted the growth momentum of the home security market in 2008. Subsequently, the market witnessed a drop in demand for houses, which negatively impacted security devices market.

While housing sector witnessed gloomy business scenario, home as well as business burgles increased at a considerable rate, which further created demand for the alarm companies, post recession. In our view, recovery of the housing sector and growing consumer demand for a cost-effective and efficient home security system is likely to fuel demand for alarm monitoring services in the near future. Moreover, increased spending by government entities in home security products as well as services would provide another opportunity for the growth of home security services.

Considering aforementioned, we believe the global alarm monitoring services market is well poised for robust growth in the medium-to-long term and is anticipated to reach $45 billion in 2015, driven by increasing fear of terrorism in the US, the threat of burglary and the declining costs of security systems. In addition, product innovation and technological advancement in products will provide addition growth support for the industry in the long term. Nonetheless, biggest challenge in the US alarm monitoring market is obsolete technologies and to replace analogue mobile phone systems (AMPS) alarm transmission systems with the advance technology.