This classification includes establishments primarily engaged in monitoring and maintaining security systems devices, such as burglar and fire alarms. Establishments of this industry may sell or lease and install the security systems that they monitor and maintain. Establishments primarily engaged in the sales and installation, or installation only, of such devices are classified in SIC 1731: Electrical Work.
561621 (Security Systems Services (except Locksmiths))
Simple on-site burglar alarms, which may deter an intruder with their noise and attract the attention of a passerby, are usually insufficient for the higher security needs of many businesses and some residences. Security systems services provide added security by continuously monitoring property alarms for multiple clients through their own off-site central station. Accordingly, these companies often are referred to as central stations.
Central station-monitored alarms, when triggered, send a silent alarm signal to the station through a leased telephone line, a coaxial cable (television) line, or a reserved radio frequency. Unless contacted by the subscriber within a few minutes to cancel a false alarm, the station then calls the police, possibly dispatches its own guard, and notifies the client. The monitoring agreement may involve keeping the central station notified of the business's regular hours and when the alarm is turned on or off, thus sharing the responsibility for and the control of operating the alarm system.
Most of the commercial alarm monitoring businesses deal with burglar alarms. Only a small number of police stations are willing to directly monitor alarm systems themselves because of the high incidence of false alarms and limited police resources. Alarm systems connected directly to police stations usually only exist when no private central station is operating within a particular area. Private monitoring companies are considered to have greater security advantages than police station monitoring systems. Fire alarm systems, on the other hand, generally are monitored directly by fire departments, because false alarms occur less frequently.
Burglar alarm systems typically include both door and window trip switches to detect break-ins and sensors to detect motion. Both kinds of devices are linked by wires or short-range radio transmitters to a central console, where the system is switched on or off. Different detection systems provide varying levels of security. Alarm systems are rated by Underwriters Laboratories (UL), an independent product testing organization that serves insurance underwriters.
UL not only tests alarm equipment but also inspects and rates the firms installing and monitoring the equipment. UL also certifies alarm service companies upon approval. Central stations are graded according to the length of time they take to dispatch a guard to the property and whether the line that runs from the property to the central station is protected from electronic tampering. Other than UL's services, the industry is relatively self-regulated. Not every state requires the licensing of alarm installers.
Central stations often install the alarm systems, a service the manufacturer of the system usually does not perform. As for the maintenance of alarm systems, installers typically provide a one-year warranty on parts and labor. Thereafter, annual maintenance contracts usually cost around 10 percent of the original installation price.
There are approximately 2,000 establishments in the United States engaged in security systems services. These include both private and publicly held companies and a number of unincorporated individual proprietorships or partnerships. The majority of firms concentrate on the monitoring of burglar alarms. Most provide only local service, although several are national in scope. Central stations serve both residential and business clients and occasionally specialize in particular types of clients. Many central stations are specialized in the business of security service monitoring, but some companies also offer on-site security guard services, other electrical equipment installation contracting, and other building maintenance activities, such as janitorial services.
In the 1920s, crime increased significantly in the United States, and new burglar alarm systems were devised as a response. Originally, most alarms were monitored directly by the police, but police stations gradually became overwhelmed by false alarms. In some cities, they responded only to alarms owned by special permit holders or only to alarms protecting businesses requiring high security, such as banks and jewelry stores. Private enterprise central stations gradually took over for the police.
In the 1980s and 1990s, private central stations began monitoring fire alarms as well. Fire alarm monitoring, however, tended to be contracted out by municipal fire departments, rather than directly by property owners. A number of cities were beginning to privatize their fire alarm monitoring services to save money, to avoid having to make continuous investments to keep up with the latest technology, or to avoid having to compete against private companies. Often, central stations that already handled other types of alarms, such as burglar alarms, took on fire alarm monitoring as well.
The number of alarm monitoring companies in the United States declined because of a number of acquisitions. The industry was originally very fragmented and localized but began to consolidate in the late 1980s, a trend that accelerated in the early 1990s. Larger companies took over smaller ones by offering limited partnerships. Alert Holdings Inc., for example, acquired close to 400 companies between 1985 and 1991. Smaller companies found it difficult to compete with larger ones that offered lower-priced installations. The alarm monitoring business easily benefited from economies of scale. National companies could monitor clients in other states through one central station.
In the late 1980s, alarm monitoring services began to target their marketing efforts more seriously toward private home owners. The residential market was not as well penetrated as the business market because home owners usually took care of their security needs with simple on-site siren systems they had installed themselves. Decreasing alarm-system installation prices and rising crime, however, boosted the residential business of central stations. Installation costs of centrally monitored systems fell from around $3,250 in 1970 to $1,250 in 1993. Occasionally, installations were offered at no charge as part of a multiyear monitoring contract. Residential monitoring services also began to offer other security services, including the monitoring of medical alert signals, possible water pipe and gas leaks, and thermostat controls. Consequently, centrally monitored alarms represented the fastest growing segment of the home alarm business in the early 1990s.
About one million home systems were installed in 1992, for roughly $1.4 billion in service fees and equipment expenses. About 75 percent of these professionally installed systems were connected to central stations, accounting for $1.9 billion in annual revenue from monthly residential security monitoring and maintenance fees.
In 1990, alarm monitoring represented the third largest use of information services over telephone lines, after database services and transaction processing, and ahead of telephone answering services and 900 telephone number services. Alarm monitoring through telephone lines accounted for about $2.5 billion worth of services.
Growth was fueled not only by an increasing fear of crime, but also because some property insurance under-writers required their clients in high-risk businesses to obtain security services before a policy was issued. The security systems services industry experienced steady growth; total revenues increased markedly due to continued public concern over security issues. In 1987, the security systems services industry recorded $2.2 billion in revenue. The industry had an average yearly growth pattern of over 6 percent from 1993 to 1997. Most notably, during the intervening decade, total industry annual receipts more than doubled by 1997 to $5.9 billion.
Some commercial alarm monitoring services have broadened their services in response to client requests, including drive-by spot-checks and the dispatching of guards. In the wake of the Oklahoma City bombing in 1995, fear of crime was at an all-time high—though actual crime statistics failed to support public perceptions—and security companies tooled up for an anticipated surge in demand. As it turned out, although demand for more security remained strong, that sector of the industry involved in reselling, installing, and monitoring remained unsettled.
Alarm monitoring brought in about 20 percent of all dollars in 1996, with equipment and installation accounting for most of the rest. Greater consolidation also continued within the industry in 1996, as the largest national and regional firms bought up smaller firms and accounts. The trend was expected to continue as cash-rich utilities, Wall Street investors, telephone companies, and powerhouse retailers all bought their way into the security industry. Companies also showed less interest in the home security market, an amorphous area that was overly price-sensitive and whose needs were difficult to gauge. Also worrying was the growing do-it-yourself (DIY) business. The sale of home computers with home automation bundled in, and the sale of DIY sensors, detectors, and even CCTV components posed a serious threat to alarm installation and monitoring firms. As a result, many companies turned their attention to the large commercial market where they were able to offer systems integration services, reap higher profits, and build longer-lasting client relationships.
Already one of the fastest growing industries in the United States by 2000, electronic security products and services as a whole brought in an estimated $22.4 billion in 2002, up 9.7 percent from 2001, and as of 2003, there were about 14,000 electronic security businesses in the country. In 2001, alarm monitoring—a section of this industry—had grown into an $11.1 billion business, up 9.9 percent from $6.9 billion just five years earlier. The security industry thrived in a post-9/11 environment, with everyone from big businesses to private residences beefing up or adding new security systems. Updated technology was probably the other major contributor to this sector's good fortune, with more customers upgrading their systems in a quest to own the latest security had to offer. Sales for digital video recorders and access control systems increased so significantly that some sources began dubbing 2002 "The Year of the DVR." The annual study by Security Distributing & Marketing, (SDM), found that 16 percent of total dealer/integrator revenues came from video surveillance systems in 2002. A strong housing market in the early 2000s, driven in part by lower than ever interest rates, also aided sales in security. Many new homeowners were purchasing alarm systems. However, most security companies found commercial customers were still the key to sales. This industry also saw some growth in the government and food markets. Some markets were not as profitable; with school budgets being cut, educational institutions contributed little to demand in new security systems.
In the products category, burglar alarms made up the largest percentage of revenue in 2002, with 43 percent, down from 64 percent a decade earlier. Fire alarms made up 18 percent of 2002 revenue; home systems other than burglar or fire made up 16 percent; video surveillance had 16 percent; access control, 9 percent; integrated security systems, 5 percent; and other types of security products, 2 percent. In the services category, residential security sales/installation accounted for 32 percent of 2002 revenue; home systems sales/installation, 9 percent; nonresidential sales/installation, 28 percent; service/maintenance, 12 percent; monitoring/leasing, 17 percent; and other services, 2 percent.
Along with demand, prices of residential security also rose, going from $1,293 in 2001 to $1,424 in 2002. Monthly monitoring charges also went up, from $22.00 in 2001 to $22.75 in 2002. Accordingly, SDM showed that security systems dealers received a larger percentage of total revenue from sales and installation in 2002 than in the previous year.
As the twentieth century ended, the security services industry became a microcosm of widespread globalization of markets and trends toward acquisitions by conglomerates in related businesses. As a result, total revenues reported for most firms in the industry were not solely derived from security services activity and operations. One of largest companies in the industry was Securitas Security Services USA, which had sales of almost $1.4 billion. Ranked as the leading security company on the 2002 SDM 100 was ADT Security Services, Inc. (operated as a subsidiary of Tyco International Ltd.), with gross revenues of $2.5 billion in 2001. The largest electronic security services company in North America, ADT provided electronic security monitoring services to business customers in retailing, financial services, manufacturing, and to the public sector in North America and Europe.
At the beginning of the new millennium, other viable competitors operating in the security services industry were also subsidiaries or divisions of conglomerates. With $3.8 billion in sales in 2002, Brink's Company (formerly Pittston Brink's and the Pittston Company) operated in two related security operations, Brink's (armored transport) and Brink's Home Security. The Wackenhut Corporation offered even more diverse security services and recorded total revenue of almost $2.8 billion in 2001. Perhaps most illustrative of the continuing trend of leading security systems industry firms to operate as part of a consolidated corporate structure comprising a variety of security services, Wackenhut engaged in private prison management, (security) employee staffing, and security services (which included security systems) in sensitive markets such as background investigations and facilities in airports, nuclear power plants, and embassies.
Central stations benefited from technological advancements achieved during the 1980s and 1990s, particularly those emanating from the telecommunications industry. To prevent criminal tampering of leased telephone lines that carried the alarm signal, alarm services developed a computerized method of sending signals, made up of thousands of signals sent at random, that burglars could not duplicate. There also was progress in wireless communications, including tests that used cellular telecommunications, rather than regular phone lines.
Computer software for alarm monitoring became more sophisticated. There were improvements in installed alarm systems. In particular, efforts were made to reduce the incidence of false alarms through more advanced sensoring devices and better consumer and dealer education. One innovation on the technological side was the introduction of shock glass break sensors tuned to the frequency of the glass. Unlike acoustic sensors, these responded only to changes in the glass itself, resulting in significantly fewer false alarms.
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Stepanek, Laura E. "12th Annual SDM 100." SDM, May 2002.
—— "No Downturn for This Industry." SDM, January 2002.
Tyco 1999 Annual Report. Exeter, NH: Tyco International Ltd., 1999.
U.S. Department of Commerce, Bureau of the Census. Service Annual Survey 1997. Washington, DC: GPO, 1999.
Zalud, Bill. " 'Tremendous' U.S. Security Industry Growth." SDM, September 2000.
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