COGENT WOOS SMALL COMPANIES WITH SCALED-DOWN SERVICE

Targeting small businesses using DSL, Cogent Communications this week launched a 500 kb/s service, offering it to tenants in its 600-building, 21-market optical network. It's a far cry from Cogent's standard offering of 100 Mb/s for $1000 a month, but CEO Dave Schaeffer said the service provider has been missing a lucrative opportunity in its core network.

“We did an awful lot of market research and discovered only 45% of the tenants in our on-network buildings would be good candidates for our Cogent Classic service,” Schaeffer said. “The rest were too small to need that much bandwidth, but of that remaining 55%, we discovered about 40% fell squarely in the DSL space.”

The new tack is a departure for Cogent, said Lizet Tirres, senior research analyst for Stratecast Partners. By previously selling large amounts of dedicated bandwidth at rock-bottom prices, Cogent had hoped businesses would purchase 100 Mb/s of service even if 10 Mb/s satisfied their needs. Now, according to Tirres, Cogent is finally realizing that data customers aren't ready for that much bandwidth — regardless of price.

Stratecast conducted a study of small to medium-sized businesses last year and found that businesses on average used just 5 Mb/s of capacity. Tirres said Cogent's small business service clearly reflects the amount of capacity businesses are willing to purchase.

However, Schaeffer said Cogent isn't backing off from its original strategy; it's merely augmenting it. The company has always focused on medium-sized businesses that typically use a T-1 line or higher, and it has left small businesses to local exchange carriers. But the 500 kb/s offering allows Cogent to compete with DSL carriers without capital investment. In fact, small business customers get the same Ethernet equipment as Cogent's 100 Mb/s customers. Cogent merely chokes the pipe, limiting the amount of bandwidth each customer receives to a fraction of its overall capacity.

But as Cogent does for its 100 Mb/s and 1 Gb/s Classic customers, the company would dedicate the capacity its 500 kb/s customers purchase across the entire network — a benefit Schaeffer said would differentiate it from DSL.

“Our entire network resembles a gigantic corporate LAN,” Schaeffer said. “We're giving everyone the same connections. We're just limiting the amount of bandwidth the smaller ones receive.”

Attempting to serve the business needs of the country's millions of small businesses is nothing new. But many carriers are bundling services such as voice, Internet and other data services into DSL to lure small business customers. Cogent, however, is sticking to its Internet-only strategy, which Schaeffer doesn't see as a problem because small businesses are willing to shop around for different voice and data providers, he said. And because Cogent is charging $249 a month for its service, its price undercuts almost all DSL providers — regardless of what they're packaging with their Internet services, Schaeffer said.

Cogent has trialed its 500 Mb/s service in Los Angeles and Washington, D.C., but the carrier is launching the service commercially in all of its on-network buildings in 21 markets this week. Schaeffer said there are about 12,000 potential customers spread across 600 buildings, many of which don't have DSL. While he doesn't expect to reach them all, Schaeffer said he hopes to make a substantial dent in the number.

Stratecast's Tirres said Cogent stands a pretty good chance of doing just that. “Cogent's trying to bring people into broadband, getting them to nibble on the service,” she said.