Cogent’s CEO: Multilocation SD-WAN services will replace MPLS

cogent service map (Cogent)
“The result for Cogent is an expansion of our addressable market,” said Cogent CEO Dave Schaeffer at Global TMT West. (Cogent)

Cogent may not have made a full-blown entrance into the SD-WAN game yet, but the service provider says it is encouraged by how the vendor community is improving their product sets.

Dave Schaeffer, Cogent
Dave Schaeffer

Dave Schaeffer, CEO of Cogent, told investors during the during the 2018 Global TMT West Conference that SD-WAN vendors are incorporating new features that enable the solution to support higher speeds.

“As the equipment vendors have improved the efficiency of their processors, allowing encryption to occur in a multipath format through the processor instead of serially we’re seeing that efficiency go from like 40 or 50% to the 80%,” Schaeffer said. “As that occurs, SD-WAN will become the dominant platform for location-to-location private networking and will replace MPLS.”  

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What that means for Cogent, which has a sizable enterprise services business delivering Ethernet-based DIA and VPLS services, is that the service provider will have a larger market it can address.

“The result for Cogent is an expansion of our addressable market,” Schaeffer said. “As we think about our business footprint in the U.S. and Canada, it is a $9 billion dedicated internet access market of which 10% of the market is on-net for Cogent and 90% off-net.”

Schaeffer added that “out of the 90% off-net, roughly 40% of the market is addressable through circuits we can buy from one of 90 off-net fiber providers.”

However, the service provider will continue to be selective about what markets it will address with its fiber-based services. Since it does not have any desire to use copper, HFC or fixed wireless, there’s a large portion it won’t be able to address.

“Fifty percent of the locations still don’t have fiber to them today and are out of Cogent’s addressable market because we have made a conscious decision not to support fixed wireless, coax or twisted pair as a last mile connection due to low reliability, long provisioning times and low throughput,” Schaeffer said. “What SD-WAN does is expands the market by allowing customers to bring their own bandwidth from locations that we are unwilling to purchase those sub optimal tail circuits.”

At the same time, Cogent forecasts that the annual $45 billion MPLS market in the U.S. will collapse to a $3 billion market.

“We benefit two ways: our addressable market got a third bigger and we got a second reason for a customer to buy services from Cogent,” Schaeffer said. “That’s why we feel so confident about our corporate business continuing to perform even though our footprint expansion has continued to slow down.”