Cogent sees first-ever quarterly traffic decline

“We’ve not seen a massive migration of video consumption over the Internet,” Schaeffer said, pointing out that consumers watch Internet video for an average of 4.5 minutes per day and traditional broadcast television for 4.5 hours per day. “Until there’s some shifting in that relative mix, we’ll see slower growth.”

“The Internet is not going to decelerate, it’s not going to go away,” he said. “But it is going to be a bit lumpy in the way it accelerates.”

One analyst on today’s call asked if content delivery networks (CDNs) could be draining Internet traffic growth by pushing content closer to users, thus bypassing longer network routes. But Schaeffer dismissed the idea.

“Some CDNs have experienced deceleration in their rate of traffic growth as well,” he said. “Others have been less transparent about that… But few if any CDNs have all content available at all locations. Someone’s got to carry the bits.”

Despite the quarterly traffic dip, Cogent still grew revenue more than 3% sequentially in the quarter (and 19% from a year earlier, to nearly $54 million in revenue). That’s possible because about 44% of the company’s revenue came from corporate customers, which, unlike its service provider customers, do not pay less if traffic declines. “It does mean that the sales force has to work harder,” Schaeffer said. “There’s not that natural uplift from net-centric customers.”

Because another Cogent revenue stream comes from penalizing customers for exceeding their traffic limits, lower traffic levels also diminish that revenue as well. The company’s so-called “burst penalty” revenue dropped 25% in the quarter.

For the full year, Cogent lowered its revenue expectations to $218 million, from between $225 million and $235 million, based in large part on the latest traffic trends. And contrary to previous statements, the company no longer expects positive net income by the fourth quarter.