Cogent sees spike in corporate bandwidth demand due to WFH

Cogent Communications CEO Dave Schaeffer said his company has seen an uptick in the demand for corporate bandwidth from customers due to COVID-19. With millions of organizations' employees made the move to work-from-home in March, Schaeffer said his company saw a surge of corporate customers upgrading from 100 Mbps internet speeds to 1-Gig.

During Thursday mornings' first quarter earnings call, Schaffer said that while it might sound counterintuitive that work-from-home (WFH) measures led to an increase in corporate bandwidth demand, those customers needed more bandwidth at their offices as they added more VPNs for their WFH employees.

"In order to make sure that employees can get adequate access to information and not experience bottlenecks, many of our customers have looked to increase those actions from 100 megabit, which is our most prevalent corporate product, to a gigabit, which has become our most prevalent new sale, and we have had to upgrade a number of customers," Schaffer said. "As stay at home orders are being lifted around the country, our field technicians are continuing to be able to get access to buildings, and we expect kind of a rebound to more traditional levels of corporate growth."

Schaffer said there were about two weeks or more in March where Cogent wasn't able to do some installs, particularly in the New York City area, due to the coronavirus pandemic.

Cogent divides its customers into two buckets. The "corporate" bucket includes small businesses all the way up to Fortune 100 companies while "NetCentric" is comprised of carriers and service providers as well as application and content providers whose businesses rely primarily on internet access.

"In the last two weeks of March, we saw a positive impact in our NetCentric revenue growth, but a slight downtick for our ability to install new corporate customers," Schaffer said. "We also saw during these two weeks, a material increase in traffic on our network. However, the ultimate impact of the pandemic on Cogent is unknown at this time, as a significant amount of uncertainty and volatility remains.

"Our corporate business represents 69% of our total revenues. Our corporate business grew 7.5% from the first quarter of 2019. Our NetCentric business, which has underperformed compared to historical averages was flat compared to the first quarter of 2019."

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Overall, Cogent posted revenues of $140.9 million for the quarter that ended in March 2020, missing Credit Suisse and the Street's projections of $143 million, but beating year-ago revenues of $134.14 million.

Cogent's network consists of more than 36,000 metro fiber miles and over 58,000 intercity route miles of fiber. Cogent claims its network is the most interconnected in the world, and it directly connects to over 7,040 networks. Of these networks, less than 30 are settlement-free peers. The remaining networks that it connects to are Cogent customers. All of which gives Cogent plenty of capacity headroom going forward, according to Schaffer.

"We are currently utilizing approximately 35% of the lit capacity in our network. We routinely augment capacity on parts of our network as we see increases in traffic to maintain these low utilization rates," he said. "For the quarter, we achieved sequential traffic growth of 12% and year-over-year traffic growth of 36%. We operate 54 Cogent-controlled data centers with over 606,000 feet of space and those facilities are operating at approximately 33% capacity."

Schaffer said he expected network traffic growth to be up by more than 34% year over year, driven almost entirely by NetCentric. On the fiber front, Cogent added almost 400 miles of metro fiber and close to 400 miles of long-haul fiber in the first quarter.

"We did some major expansions in Turkey and Brazil, a little bit here domestically, but our network actually grew substantially to over 94,000 miles, and most of that was prepaid," Schaffer said.