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Optical/IP

Cogent Tenders DSL-Killer

In a bid for more business, Cogent Communications Group Inc. (Amex: COI) today unveiled a new service it hopes will sizeably increase its annual revenues.

Cogent says the service, dubbed "Fiber 500," is designed to build on its existing roster of 18,000-odd customers, all of which are tenants in the approximately 600 U.S. office buildings that Cogent has lit with fiber and high-speed Internet access.

Since each of these buildings has, on average, about 50 tenants, Cogent's goal is to entice the remaining 12,000 tenants to switch services. The carrier says most of these businesses are currently using high-end business DSL services, the kind that offers all the bells and whistles for multiple users without matching the speed or reliability of fiber.

This is Cogent's first foray against DSL. Until now, Cogent has focused on services designed to replace private lines for businesses located in multi-tenant buildings. Cogent moves its own fiber point of presence into the basement, linking the building to Cogent's own redundant ring network in 20 U.S. cities plus Toronto. Cogent's present offerings include 100-Mbit/s or 1,000-Mbit/s connections, at $1,000 or $10,000 per month, respectively. Cogent also offers a 2-Mbit/s service in three cities (see Cogent Offers 2-Mbit Access).

Apparently, the carrier has been jealously eyeing the opportunities at slightly lower speeds, where business customers have sizeable DSL installations but aren't willing to drop $1,000 a month on fiber. So for $249 per month (plus $350 for installation), Cogent is offering 500-kbit/s service with guaranteed uptime and full accessibility (DSL services are often oversubscribed, Cogent claims, meaning more customers are given access than the bandwidth can accommodate at one time).

The fact that Cogent's already got a fiber POP inside the buildings it's targeting is key, because it means prospective customers won't have to shell out for a fiber installation -- a dealbreaker for many optical access services.

Cogent began offering Fiber 500 service in Washington, D.C., and Los Angeles in December, and spokesman Jeff Henriksen says there's been "strong reception," with "several customers" signed on and "twenty in the pipeline" in those cities.

Fiber 500 is being offered across all 20 U.S. cities in Cogent's network. The service also will go on sale in Toronto next week, but with slightly different pricing.

If Cogent succeeds in selling Fiber 500 in its buildings, it could conceivably realize $34 million a year in new revenues, a sizeable boost to the company's last reported net quarterly revenues of $16 million, and comparable to the $38 million the carrier reported for the nine months ended September 30, 2002.

Can Cogent do it? That remains to be seen. But the carrier has so far managed to perform better than would seem possible, given the weak market in optical access, which has resulted in a slew of high-profile setbacks and ongoing consolidation among competitors (see Yipes Reborn – Amid Accusations and OnFiber Takes Over Telseon).

Indeed, for years now, the company has represented a queer and quirky success story -- thanks in part to ongoing support from Cisco Systems Inc. (Nasdaq: CSCO), a clever reverse IPO last year, and a few interesting acquisitions that bulked up the books for a while (see Cogent Conundrum Continues and Cogent Hedges Fiber Bets).

Still, expanding the business beyond its existing customer base could prove challenging. According to analyst Amy Cravens of In-Stat/MDR, the entire U.S. market for commercial multi-tenant services was only about $74 million in 2002. And it probably won't be much more than $80 million this year, thanks in part to a lack of fiber access in key locations.

It will be interesting to see whether Cogent can prove its naysayers wrong yet again -- or at least put them off (again) for a little while.

— Mary Jander, Senior Editor, Light Reading
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rush21 12/5/2012 | 12:47:00 AM
re: Cogent Tenders DSL-Killer

Sure this isn't 1,800 customers? 18,000 customers at $1000/month should give them monthly revenue of $18 million. I don't think they are close to that yet.
lightmaster 12/5/2012 | 12:46:53 AM
re: Cogent Tenders DSL-Killer Cogents 18000 customers include the customers of the companies it aquired, including PSI, FiberCity, Allied Riser, and others. They for the most part NOT the 100meg/$1000 a month customers.

The joke is that the result of all of this effort is $38M a year in revenue if they get 100% pennetration. I'm not saying it is a bad idea, but Cogent has sunk over half a billion in their network and needs to be generating tens of millions in PROFITS (not revenues) per quarter if they are to stay alive.
squeegee 12/5/2012 | 12:46:50 AM
re: Cogent Tenders DSL-Killer Cogent is offering 500-kbit/s service with guaranteed uptime and full accessibility...
______________

How does Cogent go about limiting each customer to 500 k? My understanding of their 'traditional service' is that Cogent would give each customer a 100 Mbps port in the basement and dump them onto their network via the DS-3 or OC-3 on the other side of the router (which sounds like oversubscription to me...).

Any idea?
joestudz 12/5/2012 | 12:46:50 AM
re: Cogent Tenders DSL-Killer Cogent would be wise to use the 600 buildings with fiber to serve customers in all "line-of-sight" buildings using MRVC TereScope 1 Photonic Air Link (PAL) free space optics.

Will share my thoughts with COI for whatever good that might do.
gea 12/5/2012 | 12:46:47 AM
re: Cogent Tenders DSL-Killer Nah..Cogent's model is actually quite simple.
They take the bandwidth of the main shared pipe and divide it by the number of users. Thus, their 100Megabit (ie, 100BaseT) service was created by taking a GbE out to a location and offering access to 10 customers.

This case is a little different in that the physical bandiwdth of the drop to the customer isn't being relied on to do rate-limiting. But I would guess they play a fairly similar game by a combination of hard 500K rate limiting and taking a big GbE or whatever and dividing by N.
lightmaster 12/5/2012 | 12:46:42 AM
re: Cogent Tenders DSL-Killer "But the carrier has so far managed to perform better than would seem possible.."

Give me a BREAK! This company is a financial disaster. As of their last financial statement (quarter ending September):

- Owed Cisco $224M for equipment purchased
- Generated 16M in revenue, but 32M in operating expense (plus $8M in interest expense).
-$51M in cash, quarterly net loss of $25M

The company has burned through $116M in VC money, $200M+ in vendor financing, and has yet to show how it will ever turn a profit. The only reason that they have not run out of cash already is that they inherited cash from some of their aquisitions and have negotiated some very favorable payment terms with Cisco.

Cogent has a very interesting network and a really cool portfolio of service offerings, but I can't see a business model that will actually make money. The only hope is for somebody to buy them, not for their business but for the value of thier building access agreements.

gea 12/5/2012 | 12:46:40 AM
re: Cogent Tenders DSL-Killer "Cogent has a very interesting network and a really cool portfolio of service offerings, but I can't see a business model that will actually make money."

Well, one thing's for sure is that they kind of got screwed by Crisco. In their earlier GbE-centric network, they had very costly installations of Cisco gear that would mean they could probably never break even (ie, Routers/switches, 15454s and DWDM).

BUT, I think they're possibly in the right ballpark. Somehow or another, they seem to be continually tweaking their approaches, and if they can stay in business long enough maybe they'll find one that works.

Moving to lower bitrates is a big start...only really big businesses need large amounts of access bandwidth, and those customers have no problem paying the big $$$ for SONET-based glodplated services.

If Cogent can get a large number of lower bandwidth "nibblers", maybe it can grow some of those customers up into their 100Meg services and make some money to pay Cisco back.

BuckStopsHere 12/5/2012 | 12:46:39 AM
re: Cogent Tenders DSL-Killer Actually, the growth problem for Cogent's customers is a little more granular than that. Jumping even from their new 500KB offering up to 100MB is not "growing". That would be like "growing" from your tricycle to a Formula 1 race car. The same goes from 100M to 1G, except now you're piloting the Space Shuttle. Customers need more middle ground (in this case, ANY middle ground). If I have a 100MB connection bursting at the seams because I am trying to squeeze 200MB of data through it, can I afford to bump up to 1GB? Of course not. And don't start telling me about multiple 100MB connections, either. Cisco's port-level technology has a data-limiting granularity of at least 1MB, probably even less. Why isn't Cogent using it? They should be able to plug me in one time, start at whatever data rate I want, and simply bump me up all the way to 1GB at whatever intervals I want, when I want it. Anyone thinking this doesn't make sense is still suffering from ILEC-itis. What I want, as a customer, is more important than what you, as a service provider, want to give me.
gea 12/5/2012 | 12:46:37 AM
re: Cogent Tenders DSL-Killer Well, I basically agree with you "BuckStopsHere".
As for the various rate limiting features available, I'd bet that Cogent isn't using them simply because of operational costs and complexity. Right now, they're probably just dipping their toes in the 500K waters, and if they start seeing a lot of customer demand above 500K then they'll look into it.

Or at least, that's what I THINK they're thinking (I met with the CTO a couple of years ago, and while he was not slam-bang super technical, he was no idiot.)Indeed, one of their major funding statements was to build a network that didn't have tons of operational costs (hence the name Cogent and the very minimal calling cards).

And while I personally believe rate-limiting is going to be an important feature in networks eventually, you've got to admit it ain't going to be easy: For instance, if you rate limit, you better NOT drop IP-telephony packets first (for instance). Thus you need DiffServe and/or MPLS, and all sorts of other stuff that will require gobs of high-$$$ router dudes.
stuartb 12/5/2012 | 12:46:35 AM
re: Cogent Tenders DSL-Killer "To fix the access problem, they have bought up the assets of companies like OnFiber"

Lightmaster- Cogent did not buy OnFiber... In fact, OnFiber has been making their own acquisitions of late including Telseon.

-Stu
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