by Joseph Weisenthal

At Least One Broadband Provider Is Happy To Be A Dumb Pipe

from the heresy dept

One of the interesting subplots of this latest internet boom is the steady elimination of the bandwidth glut from the previous boom. Basically, during the last bubble, there was a lot of overinvestment in fiber, causing many early investors to lose their shirts. But, as is the case with many bubbles, the initial overinvestment and the subsequent glut of resources often lays the foundation for growth down the road. Fortune magazine has an interesting look at one company, Cogent Communications, that has made a business out of snapping up cheap, unused fiber and selling it cheaply to bandwidth-hungry firms like YouTube and eBay. Often, its prices are just a quarter of what its competitors, like AT&T, are charging. Obviously, Cogent's price advantage rankles its competitors, but the company likens itself to cheap overseas workers. While some parties are affected negatively, it's clearly a net positive for customers and the economy on the whole. What's also interesting is that the company is totally content with being a dumb pipe, a concept that freaks out incumbent operators. Still, some questions linger about Cogent's business. For one thing, the company hasn't turned a profit, nor does it expect to do so in the short term. Furthermore, the company can't have an infinite supply of cheap bandwidth. It's only a matter of time before bubble-era fiber is used up, and its infrastructure costs may come to resemble its competitors'. Thus, it's not clear how sustainable the company's current model is. Still, the incumbent operators need to pay attention. The company is growing rapidly because it's meeting the need for cheap, no-frills bandwidth, rather than trying to fight the trend towards commoditization.

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  1. identicon
    Roy Thigpen, 29 Mar 2007 @ 7:58am

    Good observations

    The source article by Fortune was not really a true indication of Cogents business model or profitibility. As a Cogent employee, I can tell you that we own our own fiber, and we operate with the highest margins in the industry, even with our low cost bandwidth.

    By being "dumb pipe" we keep our cost and complexity down, meaning a much smaller headcount, equipment costs, and simple billing which makes income forcasting much simpler.

    Are we everything to all users? No. We lack a security product, MPLS, managed routers and servers and other products... so we're not going to win all the time, especially when someone wants to have their network managed for them. Where we shine, however, is when a company is looking for the lowest cost, most reliable internet connection they can find.

    As far as your comments about over-subscription, bear in mind that Cogent does NOT oversubscribe any of it's customers. We did have issues a couple of years ago due to poor peering, but we are now one of the biggest peers out there, so it's no longer an issue. The fact is that while our network may not have as large a footprint as ATT, MCI, Spring or L3, our current capacity of 80-120 Gbps is unmatched in the industry, and we only are operating at approximately 8% of our gross network capacity!

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