Cogent's Latest Price Drop

While most internet companies are trying to charge more for their services, Cogent takes advantage of price deflation, charging less for burstable bandwidth.

by Alex Goldman ISP-Planet Managing Editor [April 3, 2006]

Today, Cogent Communications announces an unusual price cut. The company is now charging customers based on the 90th percentile of bandwidth usage, down from the 95th percentile, which is the industry standard (see Pay for 95 Percent).

"We are trying to do two things," says Dave Schaeffer, CEO and founder of Cogent. "We are trying to accommodate customers with asymmetric erratic traffic who were penalized for it, and it's another way in which we are trying to get customers to focus on the value of our network and the lower price we offer. We are effectively lowering the price of our services."

The majority of Cogent's customers are now service providers. Schaffer says that service providers now account for 25 percent of customers, 45 percent of revenue, and 97 percent of traffic on Cogent's network. In January, 2005, Schaffer told us that service providers accounted for 19 percent of customers, 50 percent of revenue, and 86 percent of traffic.

The shape of bandwidth
We ask if bandwidth shaping algorithms are a consideration, imagining that machines that route packets based on price will now have another reason to send traffic to Cogent.

We have been unclear. Schaeffer says there is a great deal of publicity and concern about bandwidth shaping at the core of the network as the net neutrality debate heats up. "This issue is receiving particular attention as distribution networks allege that application providers are not adequately paying, but content providers are already paying to use networks. Our view is that this whole whirlwind of activity is a series of specious arguments masking the fact that legacy distribution networks cannot charge enough money to upgrade their antiquated plant."

We clarify the question. Schaeffer says, "most users of a large amount of bandwidth use pricing algorithms. We often start our relationship as a backup provider, but as soon as our customer understands that our quality is virtually identical but at a lower price, we usually relegate someone else to the backup role."

Schaeffer adds, "our belief is that we more than any other single company have accelerated that slide in price. Competitors blame us for it -- you talk to them, do you agree?" Yes, we agree that competitors are upset with Cogent's pricing.

"If we supply more value than less efficient competitors, then we're proud of that," says Schaffer

Applications and education
We ask for examples of applications prone to asymmetric demand. Schaeffer mentions weather information and news services.

We ask about universities. Schaeffer says that all universities have spikes just before and just after their vacations. "If they're all on campus for a day or two, they used to suffer. Now they have three days' grace," he says.

Jeff Henriksen, Cogent's director of marketing and communications, says something similar happens at primary schools. "Even at the K-12 level, you see daily spikes. Usage peaks during the day and then drops off after 3 PM," he says.

We ask if the number of days per month is a key metric. Schaeffer says that at its heart, the issue is about treating customers more fairly. "We would encourage our competitors to begin thinking this way," says Schaeffer. "If they won't lower the price, at least they could try to avoid overcharging people who don't get the benefit of the bandwidth."

800 numbers
Since he's talking about the competition, we ask Schaeffer if he'd be willing to break open his network in rural areas to help the dialup industry with its 800 number problem. He says the company is not a CLEC. "It is true that more revenue is generated from legacy services, but those are what I think are declining industry segments. More money is spent on voice than on internet, but the revenue from voice is declining."

WISPs
When we ask if he can provide bandwidth to WISPs, Schaeffer says Cogent already has many WISP customers. "WISPs are using our network as a jumping off point," he says. "We because the upstream provider. We welcome these customers. We have over 1,050 locations already."

The company website lists POPs, public peering locations, and private peering locations. It may not add up to 1,050 (we suspect that each metro Ethernet ring counts as several locations for the purposes of this number) but it's plenty.

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