In Cogent's rear view mirror

June 5th, 2008 by · 9 Comments

Items actually were closer than they appeared. That is the message Cogent got in the first quarter, when they saw slowing traffic growth and reduced sales productivity and I remarked on the change at the time. For years, Cogent's $10/Mbps offer on 100Mbps of IP Transit was by far the lowest bar in the industry - when introduced the pricing norm was $50 or so. In essence, Cogent forward priced the market in order to transform themselves into a top-10 network, and they didn't make many friends doing it as can be seen by their frequent peering disputes. Over the years, as Cogent's network performance has improved steadily, the competitions' pricing has come down steadily until we reach the present day.

Now, pricing between $10/Mbps and $20/Mbps is common in major datacenters from a variety of carriers, and since winter there has been skirmishing below $10 by some players. On the higher speed end, Level 3 and XO have been increasingly aggressive, but on the low speed end Tier 2 players such as Hurricane Electric are known to be challenging Cogent's pricing as well. So Cogent faced a choice, do they lower prices to stay on the bleeding edge of bandwidth pricing? Or do they let let the field catch up while they let their improved network performance and service do their talking for them?

Well, Cogent has made its choice.  According to various reports, their $10/Mbps firewall is now history, at least in the datacenter - their enterprise business remains untouched by this of course.  Cogent has chosen to maintain its familiar position as price leader, with *list* pricing on higher bandwidth services for longer contracts dropping below even $5/Mbps - actual contract pricing of course may be lower depending on the buyers' negotiating power. Of course, this means Cogent must face price compression both in future sales and in renewals, something they have not experienced the way the rest of the industry has over the past few years, and that means to maintain their revenue growth rate they need even faster traffic growth than they have attained over the past few years. That's why their stock is under pressure, in terms of EV/Ebitda Cogent has been consistently valued above the rest of the sector because of their steady and high revenue growth rate. Threaten that growth rate and the premium comes down, and so it has.

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Categories: Datacenter · Internet Backbones

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9 Comments So Far


  • Parkite says:

    What a horrible, commoditized business. They have basically admitted that their offering has no competitive advantage at all. In this kind of a business, lowest cost provider wins at the end of the day. Who is it? L3?

  • On the other hand, what is the value add from providers that charge considerably more for transit, ie Sprint and ATT?

    Cogent built a better network from day 1 and always sought to commoditize the industry – they certainly accomplished that.

    Next stop – $1 / MB.

  • Frank A. Coluccio says:

    I’d argue that latent value actually does exist in low-price bandwidth providers if they have the vision and wherewithal to partner with, or organically evolve their customer services, to include cloud computing and a growing list of remotely-manageable enterprise (and even residential-level, albeit not as enticing) services: i.e., MSP functions.

    Any low-ball provider of bandwidth that doesn’t recognize this opportunity will either be doomed, or doesn’t deserve to remain in business in the first place at this stage, IMO.

    Mobilizing for such a perch, of course, is easier blogged than executed, granted, which is where the partnering component comes into play.

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