Cogent Communications has found success selling low-cost Ethernet-based internet access services to businesses and content providers like Netflix. That's why the company is not concerned about the outcome of the FCC’s business data services (BDS, formerly special access) review, its top executive says.
While Cogent serves the majority of its Ethernet customers over dark fiber it leases, the service provider purchases over $50 million in special access and related circuits for 7,900 customers.
Dave Schaeffer, CEO and founder of Cogent, told investors during the Deutsche Bank 24th Annual Leveraged Finance Conference that while it purchases off-net circuits, it sees BDS as less relevant to its business model.
“We kind of view the business data services review report and order as an interesting sideline, but it’s not directly impactful,” Schaeffer said. “I think for most companies, they are continuing to see the incumbent providers continuing to extract tolls, particularly where there’s no competition.”
Schaeffer added that from a broader industry trend perspective, the growth of over the top services in the consumer and business market will eventually shrink the BDS market, one that has been a cash cow for ILECs.
“Our belief is that the $45 billion North American business data services market will shrink to about $5 billion,” Schaeffer said. “That is extremely problematic for a lot of legacy providers who count on that very expensive legacy revenue-per-bit traffic.”
In April, the FCC voted 3-2 along party lines to approve an order prohibiting ILECs such as Verizon and AT&T from charging early termination fees to wireless and wireline customers like Level 3, T-Mobile, Sprint, or other major users of special access services.
The order also bars "demand lock-up contracts" that prevent customers from seeking alternative sources for such connectivity, and calls for the creation of a "new technology-neutral framework" that would extend regulations in markets deemed uncompetitive.
Regardless of the outcome of the FCC’s review, Schaeffer said that the growth of internet-based services will continue to grow regardless of the regulatory environment.
“The internet is deflationary to this entire ecosystem,” Schaeffer said. “For that reason, the FCC at the margin will adjust these rates, but market forces are far more important than FCC regulations.”
- listen to the webcast (reg. req.)
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