Cogent Offer in New Markets

Cogent Communications, the low priced backbone its competitors love to loathe, makes a move immediately after raising capital.

by Alex Goldman ISP-Planet Managing Editor [June 19, 2006]

Now that it's completed a stock offering, Washington, DC-based Cogent Communications is talking to the press again.

The offering brought in $81 million (9 million shares at $9 each) of which $36 million (4 million shares) went to the company and $45 million went to insiders (5 million shares).

Expansion plan
Cogent founder and CEO Dave Schaeffer told ISP-Planet that the company will continue to grow gradually. "We have, going forward, a clear expansion strategy. We will connect one building per week. Most will be in markets we already serve, and in some cases they will be in markets our network passes through but where we did not break open the backbone. Finally, some will be in markets where we have unlit dark fiber."

Cogent is today announcing a discount offer of one month free on a one year contract. The offer is for customers in the following new markets: Phoenix, Ariz.; Buffalo, New York; and Milan, Italy. It will also apply to Zurich, Switzerland and Montreal, Canada when Cogent connects those markets. Finally, the offer applies to new customers in already-announced Copenhagen, Denmark and Stockholm, Sweden.

During the first thirty days, companies can cancel for any reason.

Schaeffer said that the stock offering has made it easier to connect new buildings because the company's "survivability is less in doubt" but other aspects of Cogent's long term strategy are also important.

"Cogent has ubiquitous relationships with REITs and property owners," he said.

"Fewer competitors are confusing the topic," he added.

Finally, he noted that Cogent has acquired companies (relatively cheaply) that had raised over $14 billion in capital, of which $4 billion was spent in PP&E (property, plant, and equipment). "We have a fair amount of equipment. In many cases, we can just pull the equipment out of the warehouse and light the routes," he said.

Does price matter?
Cogent already boasts the lowest price for bandwidth in the business. So does offering a discount make any sense?

"We're not dropping our price," insisted Schaeffer. "We're giving an introductory month to help inaugurate the market and get customers to understand that our quality is equal to the competition even though the price is lower."

So does a free month make much difference? Schaeffer said it makes a big difference for big bandwidth customers like service providers. "Some of our customers use multiple 10 Gbps connections. Some are spending $150,000 per month. So one month would be a big discount."

In that case, is this a revenue hit to Cogent? "It's revenue we don't have today," Schaeffer said. "It's giving away what we don't have. In the example, I'm not giving away $150,000; I'm gaining $1.8 million."

— End