Washington, D.C.-based Cogent Communications today announced a massive new customer, Gigex Inc. of San
Francisco, Calif. Gigex provides trailers for movies and computer games to
end users. With over 1 million downloads each month, many of them running to
several or even a hundred megabits, Gigex is a major consumer of bandwidth.
Cogent is known as a metro Ethernet provider, but most people associate
metro providers with office building connectivity. Cogent is usually lumped
into a group that includes Telseon, Yipes!, and Intellispace.
With the announcement, along with its recent purchase of the U.S. assets of
PSINet, it’s clear that
the company is branching out from buildings and moving into data centers.
“You can do almost anything if money is no object,” said Dave Schaeffer,
Cogent’s CEO and founder, “but in today’s economy that’s unusual. We provide
LAN throughput on a WAN scale through 200 data centers nationwide in 20 U.S.
cities, 135 unique fiber rings, and 7,200 miles of metro fiber. What makes
us unique is both the size of the connection we offer, and also the price
point.”
Of the 200 data centers that Cogent connects to, it runs only three. In the
others, it competes with other major backbones. Gigex, for example, is
located in a data center that Cogent does not own. Schaeffer claims that he
was able to offer bandwidth to Gigex at a price that was between one-third
and one-fifth the rates offered by the competition, without offering special
discounts.
Service providers are often tempted to offer large bandwidth consumers a
discount because of the structure of peering agreements. Peering agreements
allow backbone providers to pass traffic to each other for free. However,
the agreement only makes sense if the amount of traffic sent to a partner’s
network is about equal to the amount of traffic sent back in return. If
traffic is not balanced, a larger backbone may cut off its rival. This
briefly happened to PSINet. Shortly before its bankruptcy, PSINet briefly
lost connectivity to Cable & Wireless’ backbone.
Cogent is claiming that it does not need to offer discounts to attract large
customers because its prices (100 Mbps for $1,000 per month) are already
below the prices offered by the competition.
Cogent has built a high capacity network with $409 million in vendor
financing from Cisco Systems plus venture capital and loan
commitments. While its competitors continue to ask how it can offer the
industry’s lowest prices, the company continues to win customers.
