Whatever happened to AT&T’s Digital Life?

AT&T's Digital Life promises to allow customers to monitor and control various home security functions. (AT&T)

AT&T was reported by Reuters last August to be shopping AT&T Digital Life, its smart home subsidiary, in an effort to pay down debt in anticipation of its Time Warner acquisition. However, AT&T so far hasn’t inked a sale of Digital Life and the carrier has remained conspicuously quiet about the business—such that some analysts believe AT&T is moving away from the smart home security sector.

There has been a noticeable change in how AT&T Digital Life operates. Analysts cite a drop off in marketing efforts for the home security subsidiary. And, according to an analyst, its R&D operation has mostly been disbanded.

Kevin Peterson, who had been president of AT&T Digital Life Services, has a new role within AT&T. In addition, Digital Life's ecosystem has not expanded and the company is not reporting customer numbers for the business. The last new app and equipment announcements at Digital Life's website were in July and March, 2017, respectively.

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It's not that the service isn't popular. AT&T Digital Life had about 630,000 subscribers at the end of 2016, according to analyst Bill Ablondi, Strategy Analytics' director of smart home strategies. In fact, it is adding enough subscribers to more or less compensate for those who are canceling their subscriptions, according to analyst Tom Kerber, the director of IoT strategy for Parks Associates. He added that this compensates or even slightly beats the losses from attrition.

Moreover, the market for home automation clearly has an upside. One estimate forecast that worldwide smart security revenues will grow from around $10 billion this year to almost $24 billion in 2022, a compound annual growth rate (CAGR) of 24.2%. And other players continue to invest in the space; Comcast announced in April that its Xfinity Home service added 46,000 home security and automation customers during the first quarter.

AT&T backs off

Despite the fact that both the company and the category are healthy, it appears that AT&T is backing off of the smart home. AT&T wouldn't discuss its Digital Life business, including whether the subsidiary was for sale last summer, why it didn't move and whether or not it is on the block today.

"My impression was that AT&T was putting out the word and shopping it around to see if there was interest," said Tammy Parker, a telecom analyst for research and consulting firm GlobalData.

Digital Life launched in 2013 and as of 2016 was available in 84 U.S. markets. Analysts believe it still is for sale and they offered a number of possible reasons for AT&T's apparent strategic shift. Home security, Parker pointed out, is a very competitive and low-margin business. If anything, it is growing more fragmented as homeowners can easily throw up cameras and set up DIY systems that can offer some level of security.

There is also the idea that the company's goals are shifting. Parker said that Comcast perceived its Xfinity platform as the in-home host for many services.

"I think AT&T had to be looking at it the same way," she said. "Their goals as an overarching global brand changed somewhat, however. They have connected cars, connected health. Entertainment is a huge part of its global brand and you can't do everything at once. I am guessing they shifted focus to areas where they have more traction and can get higher margins."

A hard sell

Kerber, from Parks Associates, added that home security is a customized sell. For instance, a family with a dog likely would have subtly different security needs than a family with a toddler. The idea of such granular marketing in a low margin business may have convinced AT&T that it isn't a wise expenditure of resources. Instead, Kerber suggests, the carrier may have decided that the prudent path is to build on its role in connecting companies serving the home to central stations, a task it already performs.

The broader idea is that business-to-business connectivity—and not business-to-consumer marketing—is a more promising revenue stream. Kerber points out that the traditional device segment is saturated. The next growth area will be connecting the billions of IoT devices that are being deployed.

"Instead of serving millions of end customers, perhaps they [AT&T] will focus on [connecting companies such as] Vivint and let them go out and sell it to millions of end customers."

Another reason that there was no sale may simply have been that there was no good match. Strategy Analytics' Ablondi pointed out that the big players in home automation and home security already have their own platforms.

"ADT or Vivint (or their private equity backers) are possible buyers [of Digital Life] just for the subscribers," he explained. "The price might be too high and both of these firms already have debt-laden balance sheets."

Thus, it remains unclear what will ultimately happen to AT&T Digital Life, though most analysts believe it still is on the market. What will be seen over time is whether the company is making a mistake. "I thought its original strategy was excellent. [I] don’t know what their strategy is now," Ablondi noted.

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