Light Reading

Did Cogent's Aleron Buy Boost Cisco?

Light Reading
News Analysis
Light Reading
12/2/2004
50%
50%

When Cogent Communications Group Inc. (Amex: COI) announced in late October that it was acquiring the assets of Aleron Broadband Services LLC, some mused that the carrier had finally shown the full extent of its ties to Cisco Systems Inc. (Nasdaq: CSCO), its main equipment supplier and financial surrogate (see Cogent Acquires Aleron Broadband).

Why? Through the acquisition, Cogent absorbed the sole customer of an up-and-coming threat to Cisco in the core routing market, Axiowave Networks Inc. Axiowave, in fact, announced a significant layoff shortly after the Cogent-Aleron deal was announced, a sign that it was bracing for a body blow with Aleron's sale (see Aleron Touts IP SLAs, Headcount: Cutting the Fat (Really)).

Cogent, which will take over Aleron’s network and customer base, also received $18 million in cash. By acquiring Aleron, Cogent -- and by extension Cisco -- has seemed to accomplish two goals: First, it netted more operating cash for Cogent and, secondly, it threw up some roadblocks for a Cisco core routing competitor. Ex-employee sources from Axiowave are grousing that the acquisition was a strategic move by Cisco to “put a nail in the company’s coffin.”

According to SEC filings, since 2000 Cisco has become a major debt holder in Cogent, restructuring away more than $269.1 million in loans in 2003, and becoming a major stockholder in the company.

Cisco’s increasing control has many wondering about the motives behind many of Cogent’s acquisitions. The Aleron acquisition was Cogent’s sixth this year; the others were Global Access, LambdaNet Communications, LNG Holdings, Symposium Omega, and UFO Communications Inc. (see Cogent Buys UFO, Cogent Adds to Euro Empire, and Cogent Buys the Boss's Network).

In each of its acquisitions, Cogent has picked up unprofitable companies that have cash and network assets, allowing Cogent to use the cash to finance its next few quarters. There have even been some rumblings that Cisco is using Cogent to make these acquisitions to keep near-new equipment from hitting the market in liquidation sales.

Cogent declined to comment on its relationship with Cisco when contacted by Light Reading. Cisco spokeswoman Robyn Jenkins says the company doesn’t comment on rumors, but she notes that ”Cisco has no voting control or say on the day-to-day running of Cogent.”

Samuel Wilson, senior analyst at JMP Securities, smacks down some of the conspiracy theories, saying that Cisco wouldn't go to such trouble to keep used equipment off the market.

“If that was their worry, Cisco would have no problem buying the equipment on the street and refurbishing it themselves,” Wilson says. “Cogent doesn’t have that many customers, and Cisco would be foolish to chance pissing off the big RBOCs who are its customers. Cogent 10 times over couldn’t buy what Sprint Corp. does in one year, so what do they have to gain by risking it?”

Conspiracy chatter aside, Cogent is far from profitable, even with the financial backing from Cisco. In its SEC filings on Nov. 15, Cogent’s net loss for the quarter ending Sept. 30 was more than $23 million, compared to a gain of $196 million in the same quarter in 2003. A closer look reveals that this was based on a line item “Gain—Cisco credit facility troubled debt restructuring” of $215 million in 2003 that was not repeated this year.

With losses mounting, the Cogent/Cisco relationship is definitely worth watching. Cogent’s goal of creating an “all optical” backbone to provide dedicated end-to-end bandwidth at a reasonable price has morphed from a simple plan to offer cheap bandwidth to an intricate acquisition strategy that's being indirectly financed by one of the most acquisitive networking companies in the world.

Of course, as Light Reading has previous reported, Cisco has been here before and, though it hasn't been as scorched as some vendors that helped finance carriers, it has picked a bushel of losers (see Cisco's Learning Experience and Cisco's Under-Powered Carriers ).

But there have been some successes, too. Cisco, in fact, shelled out millions to keep Sweden's Bredbandsbolaget AB (B2) going, and that carrier has been a pioneer in Ethernet and VOIP (see B2 Deploys Cisco VOIP Gear). The company has also had roaring success with e.Biscom SpA's (Italy: EBI) FastWeb (see Top Ten Service Providers to Watch).

So what explains the Cisco fascination with Cogent?

JMP’s Wilson believes Cisco is simply hanging on to Cogent until it can find an exit path to liquidity. “Cogent is a holdover from the bubble days of vendor financing,” he says (see Vendor Financing). “If Cisco is using its influence over Cogent, then it’d be pushing the bounds of what’s proper.”

— Chris Somerville, Senior Editor, NGS

(3)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
readingsbelieving
50%
50%
readingsbelieving,
User Rank: Light Beer
12/5/2012 | 1:01:40 AM
re: Did Cogent's Aleron Buy Boost Cisco?

When a disgruntled ex-employee floats a conspiracy thoery, and experts tell you it doesn't make any sense, most journalists would need more than such flimsy stuff in order to write a story. Not Light Reading. Kudos!
vrparente
50%
50%
vrparente,
User Rank: Light Beer
12/5/2012 | 1:01:38 AM
re: Did Cogent's Aleron Buy Boost Cisco?
For the record I ordered the power down of all the Axiowave routers PRIOR to any discussions with Cogent.

Victor R. Blake
Former Director of Network Engineering
of Aleron Broadband Services
graceful_restart
50%
50%
graceful_restart,
User Rank: Light Beer
12/5/2012 | 1:01:34 AM
re: Did Cogent's Aleron Buy Boost Cisco?
When did you "ordered" the power down of all the XCR128?
Flash Poll
From The Founder
The Swedish vendor has undergone a significant transformation during the past few years, adjusting to the demands of next-generation communications companies.
LRTV Documentaries
The 3GPP's Road to 5G Standardization

4|17|15   |   4:43   |   (0) comments


Satoshi Nagata, chairman of the 3GPP's TSG-RAN group and a manager at NTT Docomo, explains the standardization process for 5G, as well as the biggest challenges and opportunities.
LRTV Documentaries
AlcaLu CTO Makes the Case for a New 5G Air Interface

4|16|15   |   3:54   |   (0) comments


Michael Peeters, CTO of wireless at Alcatel-Lucent, explains why 5G will require a new air interface to meet its diverse performance targets.
LRTV Documentaries
AlcaLu + Nokia: The New Uber-Vendor

4|15|15   |   2:42   |   (4) comments


Heavy Reading Senior Analyst Gabriel Brown discusses the technological and competitive opportunities and challenges if a merger between Alcatel-Lucent and Nokia comes to pass.
LRTV Huawei Video Resource Center
Huawei's Data Center Power Play

4|15|15   |   6:22   |   (0) comments


Huawei has developed industry-leading energy efficiency capabilities for its indoor and outdoor data center solutions, explains Dr. Fang Liangzhou, vice president of Huawei's Network Energy product Line.
LRTV Huawei Video Resource Center
Huawei’s Routers, Switches Get the Green Mark

4|15|15   |   2:02   |   (0) comments


TUV Rheinland's Frank Dudley explains how Huawei's routers and switches have been successfully tested by energy efficiency experts and have gained Green Mark Certification.
LRTV Documentaries
A Finn, a Frenchman & a Guy From New Jersey Walk Into a Merger...

4|15|15   |   3:17   |   (0) comments


Stop us if you've heard this one before... Light Reading CEO Founder & CEO Steve Saunders weighs in on the technical and cultural implications of a Nokia and Alcatel-Lucent merger.
LRTV Huawei Video Resource Center
Accounting for Better Solutions

4|10|15   |   02:31   |   (1) comment


Murad Yousuf, CTO at Saudi Arabia's Ministry of Finance (Dept. of Zakat & Income Tax), talks about the benefits of deploying router technology from Huawei.
LRTV Huawei Video Resource Center
What's in Store for Huawei & DataCore?

4|10|15   |   05:44   |   (0) comments


At the CeBIT trade show in Hannover, Germany, George Teixeira, CEO of software-defined storage (SDS) specialist DataCore Software, explains why he has just signed a partnership agreement with Huawei Technologies.
LRTV Huawei Video Resource Center
Du Puts Its Faith in Huawei's Routers

4|9|15   |   3:42   |   (0) comments


Adnan Masood, director of Enterprise MS Solutions Marketing at du, the United Arab Emirates (UAE) operator also known as Emirates Integrated Telecommunications Company, explains why his company chose to use Huawei's multifunctional AR routers as part of its managed enterprise services.
LRTV Huawei Video Resource Center
Huawei Gets Active in the Data Center

4|9|15   |   3:17   |   (0) comments


With enterprise users looking to maximize the use of their data center assets, Huawei’s Chief Architect & Technical Director of IT Data Center Solutions, Bruce Su, explains how the company's six-layer active-active data center solution is eradicating the need to deploy passive, redundant data center assets.
LRTV Huawei Video Resource Center
Blue Consult & Huawei for a Better Solution

4|8|15   |   4:01   |   (0) comments


Martin Rott, CEO, and Marc Metzler, head of sales virtualization, from Germany's Blue Consult discuss their collaboration with Huawei and TrendMicro to develop a secure, scalable IT platform that can meet the needs of the most demanding enterprise users.
LRTV Huawei Video Resource Center
Beach Petroleum on eLTE & Mining

4|8|15   |   3:09   |   (0) comments


Network systems integrator Jeremy Hamlyn explains how Huawei's secure packet-based trunking communications system, eLTE, can help remote communities and companies in the mining, oil and gas sectors, deploy efficient communications networks that are perfect for video and data as well as voice.
Upcoming Live Events
May 5, 2015, Hyatt McCormick Place, Chicago, IL
May 6, 2015, Georgia World Congress, Atlanta, GA
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
June 10, 2015, Chicago, IL
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
November 11-12, 2015, The Westin Peachtree Plaza, Atlanta, GA
All Upcoming Live Events
Infographics
Network Instruments, a JDSU division, shares results from its 2015 State of the Network, a global survey on security.
Hot Topics
Verizon Scores New OTT Content Deals
Mari Silbey, Independent Technology Editor, 4/16/2015
Can WiFi Calling Find Its Voice?
Iain Morris, News Editor, 4/13/2015
Senator Proposes New 'Title X' for Net Neutrality
Carol Wilson, Editor-at-large, 4/13/2015
Nokia, Alcatel-Lucent in Merger Talks
Iain Morris, News Editor, 4/14/2015
Nokia & Alcatel-Lucent: What's Going On?
Ray Le Maistre, Editor-in-chief, 4/15/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Data Center Interconnect, or DCI, is one of the hottest sectors in telecom currently. Since coming back to Light Reading last year, prodigal-son style, I've ...
LR CEO and Founder Steve Saunders sits down with the head of Qosmos to talk about the changing state of the art in deep packet inspection technology, including its role in SDN and NFV architectures.
Cats with Phones
Steve's Phone Click Here
Steve Saunders's personal phone.