Sweeping innovation secures multi-billion-dollar surveillance boost

Google's $3.2 billion acquisition of Nest Labs shined a light on the potential of smart monitoring devices. Telstra and Hills Group are getting active in the Australian market, particularly when it comes to security.

Ever get the feeling that you’re being watched?

These days, the sensation isn’t confined to supermodels and conspiracy theorists.

Despite plunging per-capita crime rates, security cameras lurk in most public places (except, ­perhaps, when they are most needed).

Until now, the surveillance devices have captured grainy footage that’s stored away, only to be used on the odd chance the old bill drop by for some help with their inquiries. But improved internet connectivity and digitisation mean the multi-billion dollar sector is fast changing.

Two of our biggest listed corporates — Hills Group and Telstra — are taking note, as are global IT ­behemoths Google, Apple and Microsoft.

At a recent security conference in Melbourne, Hills chief executive Ted Pretty highlighted the change agents sweeping the industry as access control, surveillance, monitoring and networking converge.

Drivers of growth include high-definition TV, improved mega­pixels, thermal-imaging cameras, cloud-based access control and biometrics. “Over the next three years, the biggest trend will be migration from passive analogue security to an IP (internet protocol) video-centric security model and the integration of disparate security systems such as alarm, access control and closed circuit TV (CCTV),’’ Mr Pretty said.

In April, Hills acquired Open Platform Systems, which distributes physical security, IT security and “network communications solutions’’. A day later the company bought Questek, which makes nurse call and general health monitoring systems.

In June, Hills bought the Auckland-based importer and distributor Intek Security Group.

Security equipment and installation already accounts for the lion’s share of Hill’s $400 million a year “building technology’’ ­division.

Meanwhile, Telstra in June splurged an estimated $50m on a joint venture with SNP, formerly Sydney Night Patrol. The venture, TelstraSNP Monitoring, covers SNP’s back-to-base and security alarms business. According to ­Telstra group managing director Will Irving, Telstra is eyeing the opportunity to bundle security services with the telco’s other offerings, targeting its one million customers. “The National Broadband Network means much more convergence between voice data and so on and that increases what you can do,’’ he says.

“It was a logical time to bring these two businesses together.’’

In a global sense, though, Telstra is playing catch-up: in the US, Time Warner Comcast Xfinity and AT&T already offer security in telephony and entertainment bundles. In the process non-traditional players are emerging from the well-monitored woodwork.

Google in January splurged $US3.2 billion on Nest Labs, maker of smart thermostats and fire alarms, which can program themselves and detect if no one is at home.

Ingram Micro, the world’s biggest IT distributor in April formed a “physical security” division, specialising in IP monitoring and surveillance.

According to the division’s business manager David Charlton, video monitoring used to be the preserve of specialty installers.

“But as companies move to digital and IP-based security, security is progressively becoming a function of the IT department, with IT managers responsible for putting security solutions in place, and managing the storage and ­archiving of video footage.”

According to Hills chief operating officer Brad Newton, new-age applications include detecting shoplifters via facial recognition and integrated devices that control access, monitor energy usage and allow doors to be locked and unlocked remotely.

In the health sphere, it can be used to monitor a dependent person. On the data analytics side, video footage can be analysed to work out which aisle of a shop is being visited the most.

Mr Newton says Hills is talking to several large retailers who want to use CCTV to monitor their retail operations “in a smart way, using surveillance to recognise patterns of behaviour’’

“If you can integrate access and alarms with CCTV you can improve the productivity and security of your workplace. We see some really good traction in this part of the business.” On the domestic side, Mr Newton says only 1.3 million of Australia’s seven million residences have alarms, but back-to-base monitoring is “not highly penetrated’’.

That’s likely to remain the case as small businesses and residential customers move to video self-monitoring, rather than paying $30 a month for back-to-base monitoring.

“They are asking: do I need a monitoring station if I can get a video feed to my phone for dealing with an intruder.’’

In the US, video verification of a culprit has become a necessity, because without it police are unwilling to attend an incident.

Aside from the increased utility of devices, Mr Newton cites population growth and the recovery of the building sector as other ­revenue drivers.

“The building industry is still growing. People are upgrading from analogue to IP in the CCTV world and are taking advantage of developing technology in access and intrusion

Telstra’s Irving says the telco is merely dipping its toes in the water.

But it’s chosen a substantive partner for the initial submersion: family owned for 98 years, SNP is the third-biggest provider of physical and other security behind Tyco International (Wormald, ADT Security, Signature Security) and UTS Fire & Security (Chubb).

“We were looking for someone with scale and state-of-the-art control rooms and technology,’’ Mr Irving says. “The market is worth many hundreds and millions today and we think it can get ­bigger than that.’’

Mr Newton says the new look Hills — which recently sold its legacy steel business — strives to be the biggest value-added supplier of building technologies.

“We want to aggressively grow over the next two years,’’ he says. “We will look at further acquisitions and some of the key suppliers we don’t currently represent which we think are complimentary.’’

Research house IBISWorld estimates the size of the security system monitoring and installation sector locally at $1.6bn annually, with turnover forecast to grow at 2.7 per cent a year between 2014 and 2019, to $1.8bn.

This includes a forecast 3.3 per cent spurt in 2013-14 caused by the uptick in non-residential building construction, which requires extensive security and monitoring systems.

“This growth is expected despite ongoing falls in crime rates and will be driven by new security technology levels and greater demand across the retail, commercial and business sectors.’’ Hill’s Mr Pretty cuts the market in a ­different way: he estimates the total Australian security market at $3.6bn (including $2.1bn for ­intrusion and access).

He also expects 1.4 per cent growth out to 2019. “However … masked in that number are growth rates for video at 9 per cent, access control 7 per cent, building automation 4 per cent and, most interestingly, security by mobile device 9 per cent.’’

In another sign of the times, the growth in legacy security devices is being outstripped by mobile devices (12-18 per cent growth) and cloud services (25 per cent).

Paradoxically, the crime rate is plunging.

IBIS cites figures showing the number of victims of property crime fell from 1128 in 2008, to 930 in 2013, a 21 per cent decline.

This could be due to lower unemployment, but there’s a chicken-and-egg element: “fewer property crimes are either the ­result of improved security or fewer criminals, or a combination of both,’’ IBIS says.

Media reporting of the most unsavoury crimes also increases perceptions that folk (especially elderly ones) are unsafe in their own homes.

IBIS says lower prices (the ­result of the currency and tech­nology) mean consumers are ­bypassing the installation and monitoring intermediaries. “These systems can be purchased from local retailers for a relatively low cost and installed by a homeowner or a tradesperson, effectively bypassing the industry.”

According to industry pioneer Rod Kagan, the sector still offers decent margins. Incumbent players are protected to a degree by the high barriers to entry involved in building state-of-the art control rooms and training staff.

“You have to spend a fair bit of money to get to a certain level,” he says.

Kagan sold Probe Security to Chubb 10 years ago. “It’s a great business to be in, and to be honest I really didn’t want to sell,’’ says Mr Kagan, who now focuses on outsourced receivables management services.