Recent interviews with Pro One executives John Hesse and Steve Millstein reveal the company will con

The fall 1997 merger of Protection One and Westar Security Group, the security arm of Topeka, Kan.-based utility Western Resources, has set up both companies for growth. The merger took Pro One from an account base of 230,000 to more than 670,000 accounts in 48 states.

John Hesse, executive vice president and chief financial officer of Protection One, has been with Pro One since its purchase from Pacificorp in 1991. He recalls when the company was only about 30,000 accounts strong.

Steve Millstein, president of Westar Security Group, also is excited about the recent merger. His title will change but his mission will remain the same. “My job is to grow the business ” do the research, marketing, planning and management to make a sizable business,” he says. The daily running of the business will be left to others at Westar and Pro One.

Recent interviews with Hesse and Millstein reveal that Pro One will continue its growth through acquisitions, internal sales, and through dealer affiliations. The company’s future includes big plans for growth in verification and patrol. Also, Millstein will head up a group of 20 to 30 people whose core responsibilities will be finding other lines of business related to security the company can get into, such as mobile security.

Hesse foresees cities cutting off alarm response in the near future. He believes this will hurt small alarm companies’ ability to compete. He also envisions a new type of marketing revolving around alliances with utilities and phone companies. Overall, Pro One sees a strong market for all dealers in the next five years.

SS: In 1991, did you see mergers as the wave of the future?

Hesse: I think we’ve always seen consolidation going on in this industry. It was true in 1981 and it’s true today.

I also think there are some things happening in the industry that make consolidation in the future more important than just the financial play or the economics of consolidating this fragmented industry.

For example, how companies and cities respond to alarms will make market share and large subscriber bases more important and more valuable than ever before. We have always believed it’s inevitable that at some point in the future, cities will stop responding to alarms. Growth in the number of alarms being installed is occurring much faster than police budgets are increasing. Even if we do a wonderful job, just the shear number of alarm systems will cause there to be a demand for response that cannot be handled by the local municipalities.

As more cities figure it may be the best way to deal with the problem, they’ll put the burden back on the alarm companies to do the first verification by actually going to the premises.

SS: How will this affect smaller dealers?

Hesse: As more cities stop responding first, the smaller companies will have a hard time competing. They will not have enough of a customer base out there to put patrol officers on the street.

With today’s penetration levels, dealers need to have about a 20-percent market share to have enough subscriber density to make their own response force economically feasible.

SS: Then, is Protection One’s main thrust in the future going to be verification and patrol?

Hesse: That’s one strategic initiative. I also think alarm companies are going to have to be a lot more proactive about giving the customer more information so the client can have an easier understanding of the value of paying a monthly monitoring fee.

Those may be things as simple as an affinity relationship with a utility where we can read the meters for the utility and help save the homeowner some money through lower electrical rates.

Or, it can be things we’re doing currently in our relationships with the utility in Salt Lake City and Portland where we can tie the security system into the thermostat. So, when a user sets the alarm system in the away mode, it automatically sets the thermostat. Users save energy by using the alarm system.

Millstein Talks About Benefits of ‘Combination’ <\b>


SS: How are customers being notified?

Millstein: We don’t want customers to think they’re going to see changes in the quality of the service or the price or even the people that show up to service a system.

To a lot of them it’s probably nothing more than a name change. We will begin transitioning out those yard signs and transitioning to the Pro One name in the eyes of the customer as well as the market.

An excess of 10 percent to 15 percent of leads can come in from yard signs. It’s something we’ve kind of suffered from at Westar. We haven’t changed out our yard signs, in part because we thought we were going to get the ADT name, then this deal came along.

Now, we’ll get that boost in sales that comes from brand recognition.

SS: Is the company prepared for quick growth?

Millstein: We have greater capacity since Pro One has recently upgraded its central station capabilities and we have capacity here. We have just upgraded our Kansas City and Orlando central stations. Plus, we’ve got a fair number of employees here now so we’re absolutely capable of handling it.

SS: How do you feel about the security industry today and in the future?

Millstein: I have seen nothing to make me anything but positive about the industry. The values for the business are increasing. If you look at what Ameritech paid for Republic and what we paid for Westinghouse, we got more for less. I think the latest economics in the industry suggest our decision was right and we have nothing to dissuade us from that at this point.

SS: What are some things Westar will be offering that couldn’t have been offered without the merger?

Millstein: We’re going to gain a lot more experience in a dealer program. Pro One has patrol and that can be a significant differentiation in the market.

We’ll probably continue to offer Safety Net to our dealers, which is a service we give gratis to our customers. If they suffer losses related to what we monitor, such as fire or burg, we reimburse them for their homeowners deductible up to $1,000 an occurrence up to two occurrences per year.

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