Cogent enters wholesale dial-up biz with 12th acquisition

Cogent Communications today announced its twelfth acquisition and its sixth this year alone, which puts the company in a new market: wholesale dial-up service. Cogent purchased network wholesaler Aleron Broadband Services for an undisclosed amount of preferred Cogent equity.

Aleron’s network assets consist mainly of a single OC-48 nationwide backbone that connects major American cities, one that is redundant to Cogent’s existing network and will be discontinued. Cogent is now in the process of migrating customers onto its own backbone and shutting that network down.

"Within a week, that network will cease to exist," said Cogent CEO Dave Schaeffer.

Cogent will adopt Aleron’s customer base, which consists of about 100 service providers to whom Aleron provides dedicated Internet access and wholesale dialup service. Cogent will not only continue Aleron’s wholesale dial-up business--a new business for Cogent, which puts them in competition with Level 3 Communications, that market’s leader--but expand it, using undeployed equipment from previous acquisitions. Aleron is the fifth largest provider of wholesale dial-up service in the United States, Schaeffer said

"All the major dial-up companies you can think of are customers," he said.

Schaeffer acknowledged that wholesale dial-up is a "shrinking market," but he said the traffic from this new business will increase utilization of Cogent’s IP network, which is only at about 4% of its capacity today. He expects wholesale dial-up to be a long-term business for Cogent.

"While [wholesale dial-up] is a relatively stagnant market, we have a competitive advantage based on how we acquired these assets and the network in which those assets will be connected, and we’re going to win market share," he said. "Our cost basis is far far lower than any of the other [wholesale dial-up] providers, and while you look at Level 3 as the dominant provider, Level 3’s sitting there with $5.9 billion of debt that they’ve got to figure out how to service. Cogent’s sitting here with $27 million in debt. There’s a huge difference. And they’ve still got to pay for that equipment that we own clear and free."

Aleron was formerly owned by PowerNet Global. It was purchased last week by a group of investors led by Columbia Ventures and simultaneously sold to Cogent, with the investors adding $18 million in cash to the property to help Cogent integrate the assets and expand the business. That acquisition closed Oct. 21.

Columbia had no previous relationship with Cogent, Schaeffer said, but some of the companies in Columbia’s investment portfolio are Cogent customers.

Details of the deal will be released in public filings in mid-November, Schaeffer said.

Aleron was formerly Aegis Internet, one of the first six companies to help privatize the Internet, of which Cogent has now purchased three: Aegis, PSINet and NetRail.