Cogent Communications’ Net-Centric customers are bandwidth-intensive users which use the company’s fiber network to either deliver content to end users or to provide internet access to residential / commercial internet users. Examples of customers which have been recent growth drivers for Cogent include Over-The-Top (OTT) media services such as Netflix and Disney+ and online video providers including YouTube and Twitch.
Net-Centric customers generally connect to Cogent Communications’ fiber network in carrier-neutral colocation facilities and in the company’s owned data centers. Additionally, these Net-Centric customers typically purchase their connectivity services from Cogent on a price-per-megabit basis.
The Net-Centric market exhibits significant pricing pressure due to the continued introduction of new technology. This new technology lowers the marginal cost of transmitting bits. This phenomenon highlights the commodity nature of the fiber connectivity service, which Cogent Communications provides. In turn, price is typically the only differentiating factor for Cogent Communications’ Net-Centric customers.
Cogent had no meaningful transit pricing renegotiations in Q2 2020 and does not expect any pricing renegotiations going forward. Pricing declines have started to moderate recently. Specifically, this is attributable to the dominance of the biggest transit customers (with the lowest prices), such as Google and Netflix, being offset by growth in smaller customers like Disney+.
Cogent Communications typically sees Net-Centric revenue slow in the months of July and August. This is because consumers are outside rather than watching digital video and are using less traffic. Traffic usually rebounds from September onwards.
However, web traffic levels have been greater during summer 2020 than in a typical year given that people are spending more time at home, as part of social distancing. Therefore, an acceleration in year-over-year traffic levels during Q3 2020, will likely compare favorably to Q3 2019. Cogent will disclose the traffic levels when it reports its Q3 2020 financials in the early November timeframe.
Reviewing Cogent’s Q2 2020 performance, the company experienced less revenue strength as compared to Content Delivery Networks (CDNs). This is because most CDNs (e.g., Akamai, Cloudflare, Fastly and Limelight) charge for their services on a total traffic basis. Whereas Cogent’s transit business bills on “peak traffic”, which made Cogent’s revenue improvement subdued.
Cogent Communications owns 94.4k fiber route miles. This fiber is connected to 1.8k office buildings and 1.0k carrier-neutral data centers. Overall, Cogent’s network spans across 200 metropolitan markets globally.