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.