Cogent’s CEO says it can capture 25% of the U.S. wavelength services market by 2028

Striving for differentiation

Cogent’s move to gain market share in the optical wavelength market may be a long, uphill climb. Still, it claims it has the correct elements in place to be a viable competitor to well-established Tier 1 players.

Today, the U.S. wavelength services market is dominated by five leading players—Lumen, Zayo, Verizon, AT&T, and Crown Castle —which is in the process of being acquired by Zayo. Zayo will likely enhance its wavelength capabilities by purchasing Crown Castle, but the impact won’t be fully known until the deal closes next year.

While Cogent represents only 1.5% of the addressable wavelength market today, with Lumen as the dominant player, the company is confident that the reach and routes of the former Sprint wireline network will enable it to differentiate itself from other wavelength service providers.

“Our largest competitive advantages come from the route diversity that we offer and the reliability of our network vis-à-vis others,” Schaeffer said, adding that it is “hard to count that as a competitive advantage until you have installed customers.”

In addition to delivering faster wavelength provisioning, Cogent maintains the Sprint fiber network's original design and current data center footprint, which is an advantage.

Schaeffer said, unlike the fiber IRUs it purchases from other dark fiber providers, the Sprint fiber network “was deployed with a deeper buried cable that has been cut much less frequently, resulting in higher reliability, better throughput and ultimately, fewer future cuts going forward.”

“We have bought fiber now from 378 different suppliers around the world, roughly 124,000 route miles of IRU fiber,” he said. “And across that footprint, the frequency of fiber cuts from IRU fiber, not calling out Lumen specifically, but across the entire base, is 7x that of what we experienced on the Sprint network. And I think that will ultimately be our biggest long-term competitive advantage other than pricing.”

Wavelength bandwidth options

The wavelength services market continues to rise due to an uptick in AI rollouts. Vertical Systems Group noted in its 2024 U.S. Wavelength Services LEADERBOARD that customer demand for 400 Gbps Wave services is increasing steadily, driven by Hyperscalers, Data Center connectivity, Cloud providers, and Enterprises with heavy data transfer requirements.

However, the research firm noted that 800 Gbps wavelength services “are ramping slowly due to several challenges, including limited availability of services and equipment, as well as protracted lead times for space and power.”

For its part, Cogent offers a mix of wavelength services, scaling from 10 Gbps, 100G and 400G across its network footprint. However, a large majority of Cogent’s wavelength sales are for 100G circuits.

“As of today, roughly 79% of our wave sales are at 100-gig,” Schaeffer said. “That is very different from the aggregate market, which is today dominated by 10G wavelengths. There is an ongoing product rotation across the industry, with customers who previously had 10-gig waves now migrating to 100-gig.

He added, “There is further migration from 100-gig to 400-gig waves, which is just under 10%, but we expect that to continue to accelerate.”

Like other wavelength service providers, Cogent has prepared its network to support future 800G and 1.6 Tbps needs when they arise. “While the equipment in our network can actually support 800-gig and even 1.6-terabit interfaces, those interfaces for customers are not readily commercially available, and there really is no commercial market today for 800-gig,” Schaeffer said. “But our network at all sites will be capable all the way up to 1.6 terabits per wave as that market develops.”

On-net, wavelength services dominate revenues

As in earlier quarters, Cogent continued to see its next-generation service sets, such as wavelengths and on-net Ethernet, dominate, while off-net services declined.

Wavelength revenue was $10.2 million, up 12.4% sequentially and 92.5% year-over-year.

Likewise, Cogent’s on-net services revenue, which is provided to customers located in buildings that are physically connected to Cogent’s network by Cogent facilities, was $135.3 million, up 2.2% sequentially.

“Our high contribution on-net services and wavelength services both increased in the quarter,” Schaeffer said. “We remain highly focused on selling products that deliver higher margins and allow our EBITDA margins to continue to expand.”

However, its off-net revenue continued to weigh on the third quarter, declining 6.9% sequentially to $95.1 million.”

As a result of declines in off-net revenue, Cogent’s total service revenue was $241.9 million, down 1.7% sequentially.

“For the quarter, we experienced a $1.3 million decline in noncore revenues and an additional decline of $800,000 in USF revenues,” Schaeffer said.

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