Cogent Hedges Fiber Bets

Cogent's new deal secures fiber at a time when the fate of some fiber sellers is unsure

July 19, 2002

3 Min Read
Cogent Hedges Fiber Bets

RCN Corp. and its joint venture company, Starpower Communications LLC, said Thursday that Cogent Communications Inc. had purchased a 20-year, multimillion-dollar dark fiber lease so Cogent could connect parts of its network in New York City and Washington, D.C. (see RCN to Supply Cogent). The move is fairly run of the mill for Cogent; the company leases all its backbone fiber from other carriers.

However, it's worth asking whether Cogent is leasing the RCN fiber because its business is growing or because, with several fiber providers facing serious financial troubles, it must hedge its bets.

The answer, according to Cogent, is a little of both. Cogent says it's not distancing itself from any of its fiber providers. "Cogent goes into every market with as many options as possible," says Jeff Henriksen, a company spokesman.

Cogent must keep its options open in each metropolitan market it serves. At least three of the 21 companies from which Cogent leases fiber have filed for bankruptcy protection. These include its largest supplier of metropolitan fiber networks, Metromedia Fiber Network Inc.(MFN) (Nasdaq: MFNX); ACSI Network Technologies Inc.; and Williams Communications Group Inc., its main supplier of national backbone fiber, according to Cogent's SEC filings.

"In these or other cases of bankruptcy or financial collapse, our rights under our dark fiber agreements remain unclear, although to date there has been no interruption of service," Cogent's filings with the Securities and Exchange Commission (SEC) say.

Analysts also say that because Cogent provides Internet connections of 100 Mbit/s for $1,000 a month, the company must always look for ways it can cut operating costs out of its network. For the three months ending March 31, 2002, Cogent's network operations costs were $3.4 million more than its revenues for the same period.

"The company just went through a network upgrade about six or so months ago," says Jason Knowles, an analyst at Current Analysis. "I can't see [Cogent's RCN deal] as a [new] capacity issue."

Cogent's latest fiber lease, or indefeasible right of use (IRU), includes more than 50 miles of backbone fiber from RCN and Starpower that connects about a dozen commercial properties with Cogent's points of presence (POPs) or network hubs, in Manhattan and Washington. Each building that Cogent serves has a Cisco Systems Inc. (Nasdaq: CSCO) router that connects the customers in the building to the metropolitan fiber that Cogent leases. The connections are made via a fiber optic cable running from the customer's local area network to Cogent's gear, which is usually housed in the building's vertical utility shaft.

Not only has Cogent been shopping for additional dark fiber partners, it is also branching out to selling T1 (1.5 Mbit/s) and T3 (45 Mbit/s) connections in 33 markets via its PSINet Inc. acquisition (see Cogent Acquires PSINet).

Other experts in the field have indicated that copper-based Frame Relay services have gotten held up while the optical Ethernet services market is taking its time to materialize.

"I think the [bandwidth] demand and the [network's] edge didn't show up, for the most part," OnFiber Communications Inc. CEO Danny Bottoms told Light Reading last week. "We have a lot of medium to fairly large businesses still sitting on a T1 or multiple T1s. Our competitive product to that is [bandwidth connectivity via] Ethernet. And the Ethernet business, for various reasons, hasn't really materialized either."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.comWant to know more? The big cheeses of the optical networking industry will be discussing this very topic at Opticon 2002, Light Reading’s annual conference, being held in San Jose, California, August 19-22. Check it out at Opticon 2002.

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