Cogent Locks Onto Security Wave

Last week Cogent Communications Group Inc. (Amex: COI) announced it would enter the managed security services field and begin offering two levels of virus and intrusion-detection protection to its customers.

Cogent will offer these services on its all-optical network through an agreement with Tekmark Global Solutions LLC, a third-party provider of security services. Cogent will maintain the direct customer relationship and handle all issues related to the managed security service.

"A trusted partner, TGS will provide the expertise and hands-on management skills necessary to run what will operate very much like a division of Cogent Communications," says Cogent CEO Dave Schaeffer in a release announcing the deal.

Cogent’s entry to the managed security services market is part of a growing trend of third-party providers offering services to stop threats before they hit customers’ networks (see Pipe Cleaners). Other players in the field include AT&T Corp. (NYSE: T) with its Internet Protect Service and MCI Inc.’s (Nasdaq: MCIP) intrusion-prevention services launched earlier this year. Cogent's offerings comes in two flavors -- Advanced and Premium -- tailored to its small and medium-sized demographic. For $199 or $259 a month, respectively, users of the service will get a SonicWall Inc. (Nasdaq: SNWL) firewall allowing unlimited user devices, VPN remote client licenses, 24/7/365 customer support, and online reporting through a Web portal. Premium-level customers add content filtering and desktop anti-virus services. The service is being launched in the U.S. and Canada and is available to Cogent's SME business customers who connect at speeds from 1.5 Mbit/s to 100 Mbit/s.

Jim Slaby, senior analyst at The Yankee Group says that by partnering with Tekmark and targeting small and medium businesses is a good market for Cogent to pursue. “They’ve gone after the low-hanging fruit of outsourcing,” he says. “Most SMBs don’t have a dedicated employee dealing with security issues and virus outbreaks can hurt them badly.” Slaby points out that Cogent’t security offering takes an anti-virus style approach where it looks for known threats. “It’s good for managing known threats,” he says. “It’s not so great for managing day-zero threats.”

Mark Lutkowitz and Sam Greenholtz of Telecom Pragmatics Inc. see Cogent’s offering as creating confusion with its marketing message. “When I think of Cogent I think of flat-rate pricing of 1,000 Mbit/s for $1000,” Luftkowitz says. “Now they come out with this two-tier pricing system for security and it creates conflict in the mind of its customers. It’s like they want to have their cake and eat it, too. I think a better way would have been to offer the services as part of the flat-rate price.”

Greenholtz points out that one potential negative for Cogent’s customers is the fact that by partnering, there are two companies who can point the finger at each other if something goes wrong.

Regardless of the potential pitfalls of different marketing startegies, it's clear that Cogent is trying to take advantage of the growing security concerns about networks. Service providers are expected to step up their security offerings as the threat of security breaches, hacker attacks, and viruses grows.

According to the June 2004 Light Reading Insider Report, “Managed Security Services: The Safe Bet,” managed security services are poised for strong revenue growth (100 percent per year) through the first half of 2005 with not one vendor or service provider leading the way (see Managed Security Services Pipe Up). The report attributes this growth to the fact that enterprises are becoming more willing to outsource security services as the cost of in-house IT security staff skyrocket.

Managed security services are also a lucrative market with opportunities to generate ongoing revenues. “Professional services are where there is money to be made,” says Peter Glock, head of Equant’s (NYSE: ENT; Paris: EQU) security services in the Light Reading report. “The actual hardware and software is only 15 percent to 20 percent of the cost [of security].”

And the market is expected to grow as new, more potent threats are targeted at networks. “It’s like an arms race between the hackers and the guardians,” explains Mike Arnavutian, head of security strategy at BT Global Services in the report. “The sophistication of the attacks is growing, as is the ease with which they can be launched. So you're getting fairly clueless people getting ahold of hacking software and bringing down organizations.”

— Chris Somerville, Senior Editor, Next-Generation Services

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