Say what you want, Cogent Communications Group Inc. (Amex: COI) has been anything but a boring story. And the company's not quite done with its surprises yet.

Dave Schaeffer, Cogent's CEO, admits openly that the company is fighting for its life. And the outspoken CEO has kicked off 2004 with possibly his most audacious acquisition to date. In a bid for long-term survival, Cogent has acquired a European network from a company owned by Schaeffer himself and by Cogent's VCs (see Cogent Expands With Euro Acquisitions).

As if that weren't a bit strange, check this out: Schaeffer plans to upgrade the European network using spare equipment amassed from a number of U.S. acquisitions, and he has already started shipping the excess kit across the Atlantic (see Cogent Munches Midwestern ISP, Cogent Acquires PSINet, and Cogent Buying Binge: Another Bubble? ).

Investors like the news. Cogent's share price is up 15 cents, more than 10 percent, today at $1.59. But the company has only a market cap of $21 million.

Why does Cogent need a European network? Furthermore, why the self-dealing? It's a matter of survival, says Schaeffer. "The market is consolidating, and we need a greater scale to remain viable. Europe is the next biggest market for Internet traffic after the U.S., so it makes a lot of sense to expand into Europe. Breadth and scale is critical to long-term survival for Cogent, and that's what this acquisition gives us."

But this was no ordinary acquisition. Here's how the deal was worked:

Schaeffer says that, while the French and Spanish operations have been loss-making, the acquisition will result in cost savings, including a dramatic cut in U.S. termination charges.

The next step is to add the second-hand Cisco Systems Inc. (Nasdaq: CSCO) kit shipped from the U.S. to the European transport network, which is primarily Nortel Networks Corp. (NYSE/Toronto: NT) equipment. Adding the Cisco gear will involve ripping out a small amount of Juniper Networks Inc. (Nasdaq: JNPR) equipment. (Note: Cisco is the second biggest shareholder in Cogent after Jerusalem Ventures.)

By addding the Cisco gear, Cogent will offer Layer 3 access services in addition to the Layer 1 transport services in Europe.

Cogent plans to offer Ethernet services in Europe at the same aggressive price points it uses in the U.S. market. Cogent is known for its offer of 100 Mbit/s for $1,000 a month in the U.S., and it plans to offer access at between €10 and €30 per Mbit/s per month in Europe. "We're going to price aggressively to capture market share," says the CEO.

That might work for Cogent on paper, but Yankee Group European vice president Chris Lewis believes Cogent faces a tough battle to win business. "People are always looking for a good deal, but price is not the main purchasing criterion for European companies. Customer service and technical competence are the key issues, and the users want to buy from a company they can trust. Cogent might be seen as a risky option."

Cogent faces competition from incumbent carriers that are ramping up Ethernet services. "The incumbents control the markets -- they're very strong in Europe," says Lewis, who points to their success in dominating the DSL access market.

Lewis adds that it'll be costly for Cogent to market the services and find sales channels, as well as keep the costs of last mile access to an affordable level.

Cogent needs to make something happen quickly. In the nine months to September 30, 2003, it had revenues of just $44.9 million and operating expenses of $92.2 million, amounting to an operating loss of $47.3 million. These losses are always chewing away at its balance sheet. At the end of 2002 Cogent had $51.1 million in current assets, including $39.3 million in cash, but by the end of September that had shrunk to $27.8 in assets, including $11 million in cash.

— Ray Le Maistre, International Editor, Boardwatch