ADT 2013 Annual Report Download - page 67

FORM 10-K
automation for managing lights, thermostats and appliances, and can be programmed to perform certain
functions, such as recording and viewing live video and sending text messages, based on triggering events.
Many of our customers are driven to purchase monitored security as a result of a perceived or actual
increase in crime or other life safety concerns in their neighborhood, such as a break-in or fire nearby, or as a
result of a move to a new home and/or neighborhood. These life events tend to heighten interest in solutions
which can enhance safety and security and provide customers with greater peace of mind. We believe many of
our customers purchase security systems and monitoring services as a result of encouragement by their insurance
carriers, who offer lower insurance premium rates if a security system is installed or may require that a system be
installed as a condition of coverage.
The majority of our customers use standard land-line telephone service as the primary communication
method for alarm signals from their sites. However, as the use of land-line telephone service has decreased, the
ability to provide alternative communication methods from a customer’s control panel to our central monitoring
stations has become increasingly important. We currently offer a variety of alternate and back-up alarm
transmission methods including cellular, digital radio and broadband Internet.
Under our Companion Services brand, we provide monitoring center supported personal emergency
response system (“PERS”) products and services which leverage our safety monitoring infrastructure to provide
customers with solutions that help sustain independent living, encourage better self-care activities and improve
communication of critical health information. Our core PERS offering consists of a console unit and a wireless
transmitter generally worn as a necklace or wristband by the client. In the event of an emergency, the transmitter
allows the client to summon assistance via a two-way voice system that connects the client’s home telephone
with our emergency response center, where dedicated PERS monitoring specialists relay information to the
appropriate local emergency responder, including police and fire departments. We offer customers the option to
install the PERS unit themselves or to have one of our trained field staff perform the unit set-up.
In addition to monitoring services, we provide technical services to our customer base for routine
maintenance and the installation of upgraded or additional equipment. Approximately 75% of our customer base
is enrolled in a service plan which generates incremental recurring monthly revenue. Purchasers of our electronic
security and home/business automation systems typically contract for ongoing system monitoring and
maintenance at the time of initial equipment installation.
Most of the monitoring services and a large portion of the maintenance services that we provide to our
customers are governed by multi-year contracts with automatic renewal provisions that provide us with recurring
monthly revenue. Under our typical service agreement, the customer pays the initial installation fee and is then
obligated to make monthly payments for the remainder of the initial contract term. The standard agreement term
is three years (two years in California), with automatic renewals for successive 30-day periods unless canceled
by either party. If a customer cancels or is otherwise in default under the contract prior to the end of the initial
contract term, we have the right under the contract to receive a termination charge from the customer in an
amount equal to a percentage of all remaining monthly payments. Monitoring services are generally billed
monthly or quarterly in advance. More than half of our customers pay us through automated payment methods,
with a significantly higher percentage of new customers opting for these payment methods. We periodically
adjust the standard monthly monitoring rate charged to new and existing customers.
Customers and Marketing
We serve approximately 6.5 million residential and small business customers throughout the United States
and Canada. Our residential customers are typically owners of single-family homes, while our small business
customers include, among others, retail businesses, small-scale commercial facilities and offices of professional
service providers and similar businesses. We manage our existing customer base to maximize customer lifetime
value, which includes continually evaluating our pricing and service strategies, managing our costs to provide
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