Ethernet services

Cogent: King of Ports

Is really the largest Ethernet service provider in the U.S.? That's what the company claims and, when measured one way, the claim is legit (see Ovum-RHK Ranks Cogent).

Cogent does indeed have more Ethernet ports deployed in the U.S. than any other service provider, according to a June 20 research brief by Ovum-RHK Inc.. That's remarkable considering Cogent only opened its doors back in 1999.

But a little picking around found that the carrier is nowhere near the top in Ethernet revenues. Also, its lead in Ethernet ports deployed is believed to be temporary, so it may not be the largest U.S. Ethernet service provider for very long.

Cogent itself didn't want to discuss its status in-depth. While the carrier took time to publicize its ranking, company spokesman Jeff Henriksen did not return Light Reading's calls seeking comment.

"Certainly, Cogent is a major supplier of Ethernet-based Internet access," says Heavy Reading analyst Stan Hubbard (see HR: Ethernet's Taking Over). "But it can hardly be considered the largest provider of Ethernet services, which… includes a whole host of Ethernet connectivity and Ethernet-based access services in addition to Internet access."

Though it has lots of ports in service, Cogent doesn't have as far a network reach as other carriers. As of early 2005, Cogent offered on-network services in 31 metro markets in the U.S., Canada, and Europe and had about 980 on-network buildings (including 880 in North America), according to Heavy Reading. , in contrast, has the ability to deliver many types of Ethernet services to more than 5,000 on-network buildings in 44 metro markets.

The Ovum-RHK analyst who measured and ranked the Ethernet providers concurs that Cogent's lead is bolstered by the kind of service the carrier offers. "What Cogent is focused on is providing access to the Internet," Ovum-RHK analyst Brian Van Steen says. "It's an Ethernet service, but they're not providing, say, a transparent LAN service."

Of course, Cogent's definitely not alone in offering cheap and cheerful connectivity. As Heavy Reading's April 2005 Ethernet report notes:

Telecom and cable companies in North America now offer at least 589 Ethernet connectivity and access-based services – including at least 416 Ethernet connectivity and Internet access services. While connectivity services represent the vast majority of the major offerings, Internet access is the largest single category of Ethernet service -- primarily because it is the easiest to deploy and provides a simple way to get customers hooked on Ethernet's value.

But where does Cogent measure up in terms of Ethernet revenues?

"I can say that was significantly higher than Cogent in revenues and the top three players in port counts was a much tighter race," Van Steen says.

Table 1: North American service provider share rankings (by revenues)
US Service Provider Ports In Service Ethernet Revenues (2004)
AT&T 10 1
SBC 5 2
Cogent 1 3
Verizon 2 4
Time Warner Telecom 3 5
BellSouth 4 6
XO Communications 7 7
Comcast Commercial Services 9 8
Yipes Enterprise Services 6 9
MCI 8 10
Source: Ovum-RHK

"In terms of ports in service, Cogent was listed ahead of other Ethernet providers including AT&T, , , , Time Warner Telecom, , and ," Cogent's press release says. But when measuring revenues from Ethernet services, Cogent was third in the U.S. and sixth overall in North America, according to Van Steen.

Cogent told Heavy Reading earlier this year that the overwhelming majority of its revenue is from Internet access, while only a small percentage comes from point-to-point Ethernet services. Hubbard says he thinks Cogent's total revenues from North American Ethernet connectivity services were less than $6 million in 2004.

It's worth noting, too, that Ovum-RHK signed non-disclosure agreements with the carriers ranked, which prevented Van Steen from providing actual numbers, as opposed to overall rankings.

He was, however, able to give a sense of Cogent's port-count leadership. "I don't expect them to stay at the top just because Verizon and SBC are pretty focused on Ethernet now," Van Steen says. "Obviously those carriers are incumbents and they have the fiber access that they can rely on and the existing customer base."

It's also interesting to note that Cogent gets its customers via acquisition, as well as by signing up new accounts (see Cogent Buys Piece of Verio , Did Cogent's Aleron Buy Boost Cisco?, and Cogent Buys UFO). And it's that same quest for business customers that led Verizon to agree to buy MCI and SBC to pony up for AT&T.

Regardless of Cogent's rankings, the carrier's momentum reiterates that the North American Ethernet market is a hot business.

Ovum-RHK says there were about 67,500 Ethernet ports in service generating just under $840 million in revenues during 2004. The researcher predicts that those figures will rise by 50 percent and 60 percent respectively, making the North American Ethernet services market worth $1.3 billion this year.

— Phil Harvey, News Editor, Light Reading

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douggreen 12/5/2012 | 3:07:59 AM
re: Cogent: King of Ports Cogent leads the market in ports, yet in their last SEC filing:

1.Lost $15M on 34M in revenue
2.Negative $7M cash flow from operations
3.17M in cash and equivalents left. Would have gone under long ago if not for Cisco's forgiveness of hundreds of millions in debt in exchange for equity.

The real question that should be asked is: "is the Ethernet market profitable?"

firstmile 12/5/2012 | 3:07:59 AM
re: Cogent: King of Ports Hi Doug,
With all do respect, wrong question.
It would be more accurate just to nip this one in the bud by answering the original question:
"Is Cogent Communications Inc. really the largest Ethernet service provider in the U.S.?"
The answer is clearly "No". Sorry, but I'm not going to hang around for the debate on this one. Just go ask the big carriers in the Ethernet world that matter (Cogent is not one of them).
Second point worth mentioning related to your question related to profitability...I would restate your question as, "Are gigabit ethernet services which are priced at a flat rate of $1000/month profitable". Again the answer is clearly "No".
I cannot believe they are still alive with this bubble strategy.
I bet that their claim to size cannot be substantiated based on a physical inspection of the network. Similar to the old days at Northpoint Communications. Lots of colos, but very few lines in each colo. Very low sales, zero profits, eventually the investors smarten up and pull the plug.
nuff said :-)
douggreen 12/5/2012 | 3:07:57 AM
re: Cogent: King of Ports Firstmile,

My guess is that Cogent RHK just asked Cogent how many Ethenet ports they had (normal methodology of RHK). Cogent may very well include anything that has an Ethernet port facing the customer, including a leased T1 Internet, frame relay, or even fractional T1 and DSL. Cogent has tons of these from the aquisitions of old unprofitable ISPs. Of course, if you ask most SPs they would not include something like a DSL service (even though the customer connects with an Ethernet).

My guess is that Cogents strategy is not to make money. They want to build up their port counts to the point that they are an attractive aquisition for someone who wants "footprint" without profits.
Just who that would be I can't imagine.

My question about Ethernet services still stands. I haven't been covinced about their profitability in general. Most business cases I have seen ignore the cost of the entire network and focus on the cost of edge equipment.
paolo.franzoi 12/5/2012 | 3:07:57 AM
re: Cogent: King of Ports

I think you are on the money. I used to ask folks about Yipes!, If there service has so much value to the customer then why can they not charge more $ per bit/sec for it.

The only way I see to get revenue here is to build a network that charges a lower cost per bit but has a higher bit/second interface (example: replace a T-1 with a 10BT interface). Now the problem with it is that building a network to capture commodity business in the face of an incumbent seems like a pretty foolish way of investing money.

dc_optics 12/5/2012 | 3:07:56 AM
re: Cogent: King of Ports Based on their SEC filings I find it hard to swallow that they would even make such a statement. Cogent is a smoke and mirrors company. The CEO has been saying that they would show a profit by 2003. It is now 2005 and what have they done?

If Cisco had not forgiven millions of dollars they would be Chapter 11. The Cogent plan from the start was to build a network and then be bought. I don't think that there are too many takers.

Beware of the Cogent CEO. The companies that Cogent bought in Europe were fully or partly owned by him. And their headquaters is a building owned by the CEO. So Cogent dollars go back into the CEO's pocket. Looks like he is the only one making a dollar or two.
aaron.glenn 12/5/2012 | 3:07:49 AM
re: Cogent: King of Ports The real answer to that question is "only if you provide profitable services." What services is Cogent providing? Direct internet access and very, very little else. Cogent is competing simply on price and absolutely nothing else. This doesn't work because the costs involved in providing ethernet service requires higher revenue per customer. The only customers willing and able to pay higher prices are those looking for more than an internet connection. ATT has a large footprint, capable network, and has the service portfolio those companies than can pay, want.

Cogent is useless because they provide no useful service.
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