With its Sprint wireline network acquisition behind them, Cogent is focusing on gaining a more significant foothold in the optical wavelength and optical transport services business. Today, Cogent has connectivity and wavelength sales capabilities in 419 locations.
During its first-quarter earnings call, Dave Schaeffer, CEO of Cogent, told investors that it is leveraging the former Sprint assets to sell optical services to its mix of corporate and net-centric wholesale customers.
“We are selling these [wavelength] services to existing customers to acquired and new customers,” he said. “These customers require dedicated optical connectivity without the capital cost and ongoing expenses associated with owning and operating their transport network.”
Despite the opportunity for growth that wavelength services represent for Cogent, Schaeffer admits that the turnup time is lengthy because “these locations do require longer than acceptable sales provisioning cycles.”
However, the service provider is making progress, having sold wavelengths in 104 locations with plans to extend service availability.
We are continuing to experience extended wavelength provisioning cycles, but we can now offer wavelength services in 419 locations. By year-end, we will have over 800 carrier-neutral locations connected to our network throughout North America with substantially reduced provisioning cycles that will mirror the provisioning times we can achieve with our transit services.
Standardizing wavelength provisioning
Although Cogent has enabled wavelength services in 419 locations in the 12 months since the Sprint wireline acquisition was completed, the service provider has to go through a four-part effort to enable wavelength service.
After Cogent places a transponder shelf in each of its carrier-neutral data centers to accept the wavelengths, it has to reconfigure the metropolitan networks to optimize wavelength delivery. From there, the provider has to physically extend the Sprint network to intersect our metro networks and then deploy a reconfigurable add/drop multiplexer at the intersection of the intercity and intracity networks.
“All 4 of those efforts are underway to touch all 800 locations,” Schaeffer said. “This project has multiple subprojects and multiple constraints. Most of those constraints outside Cogent's hands have been resolved. And now all the additional work is under our control.”
He added, "we’ll see a continued increase in that number relatively linearly between 419 to 800 by the end of the year.”
Overall, wavelength service momentum continues to rise.
According to Vertical Systems Group, the expansion of the U.S. base of wavelength circuits is being driven by double-digit growth for 100+ Gbps connections through 2027. Moreover, billable installations of 400+ Gbps services are emerging as wavelength providers expand availability and roll out new solutions.
Cogent faces strong competition from established Tier 1 providers like Lumen, Zayo, AT&T, and Verizon. However, Schaeffer maintains that its ability to rapidly develop services will set it apart from the competition.
“One of the key advantages that Cogent will have in this market is the standardization of our products and the ability to provision these services within a 2-week window, which is far better than the industry has historically been able to provision wavelength services,” he said.
Today, Cogent can provision a wavelength service in 120 days, but the provider will be able to improve that timeline by automating and scripting processes.
“We should be able to reduce those provisioning time substantially,” Schaeffer said. “We're talking about a [ 10x ] improvement in that provisioning, but it's migrating from a custom one-off provisioning to a modularized, standardized provisioning program, and we feel very comfortable having the resources and the architecture to do that.”
COVID-19’s lingering effects
While the COVID-19 pandemic may have abated, Cogent’s corporate business line, which is the services it provides to businesses, continues to be affected.
Cogent reported that first-quarter service revenue was $266.2 million, down from $272.1 million for the fourth quarter of 2023.
The provider’s corporate business represented 46.9% of its revenues for the quarter, and it decreased sequentially by 1.4% to $124.9 million due to the grooming of low-margin off-net connections and the elimination of non-core products. As of the end of the quarter, Cogent had 51,821 corporate customer connections on its network. Cogent’s off-net revenue was $118.2 million for the quarter, down 4.4% sequentially.
“We continue to remain cautious in our outlook for our corporate revenues given the uncertain economic environment and other challenges from the lingering effects of the pandemic,” said Thaddeus Weed, CFO of Cogent.
There were some bright spots. Cogent noted that it started to see declining vacancy rates, rising office occupancy rates, and positive trends in its corporate business in several parts of the United States.
However, Schaeffer noted that “the impact of the pandemic on leasing activity and office occupancy lingers.”
He added that “as the option to work from home fully or partially becomes permanently established at many companies, Cogent’s corporate customers are integrating some of the new applications that were part of the remote work environment into their everyday use, which benefits Cogent’s corporate business as these customers upgrade their Internet access infrastructure to higher-capacity connections.”
Also, Cogent’s on-net revenue was $138.6 million for the quarter, up 0.4% sequentially. The provider had 87,574 on-net customers during the quarter, who are served in its 3,321 on-net multi-tenant office and carrier-neutral data center buildings.
Cogent’s wavelength revenue was $3.3 million for the quarter, a 7% sequential increase; that was 693 wavelength customer connections.
Weed noted that it continues “to succeed in selling larger 100-gigabit connections and 400-gigabit connections in carrier-neutral data centers and selling 10-gigabit connections and selected multi-tenant office buildings, adding that these higher bandwidth services have “the impact of increasing our year-over-year on-net ARPU.”
Alternatively, Cogent’s Net-Centric business continues to benefit from continued growth in video traffic, streaming and wavelength sales. It had 61,599 net-centric customer connections on its network. Cogent’s Enterprise business represented 18.5% of its revenues this quarter and was $49.3 million. “Our Net-Centric business continued to experience significant traffic growth from streaming and other customers,” Schaeffer said.
