→ Wholesale Cost: Buy now, get paid later in cash and returns
Schaeffer said investors shouldn’t expect price stability, arguing that the price per bitcoin has fallen about 23% year-to-date, which he said has kept the overall market “flat in dollar terms.” He said price compression is likely to continue “indefinitely” due to competition in both end-user and backbone.
Cogent’s lasting advantage, he said, is its network architecture designed to deliver the lowest cost of production, which he calls “interface routed bit miles.” He pointed to long-term improvements in wavelength division multiplexing and optically interfaced routers as key technologies that allowed costs to drop. Schaefer said Cogent captures these improvements more efficiently than legacy providers, enabling it to keep some of the profits as a profit while passing some on to customers.
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He added that Cogent typically rates at a 50% discount to the market average, which he says has helped it become the largest carrier of Internet traffic in the world.
Shaffer said Internet services represent more than 85% of Cogent’s revenue. In the end-user market, he said Cogent has nearly 1.1 billion square feet of multi-tenant office space online and offers an installed service that is “nine times faster” than competitors, with “three times” better reliability and “30-60 times” more cost-effectiveness. He said it has a 35% market share of 11% of office space in North America.
However, he sees much of the rest of the office market as economically unviable due to fiber extension costs, customer acquisition costs, and economies of scale in buildings. Cogent maintains a non-pure business relying on others for last-mile fiber, but Schaeffer said the company’s competitive advantage there is low.
In its wholesale, or “net-centric” business, Schaefer said Cogent connects through its network to 1,902 data centers in 307 markets in 57 countries. He pointed to a long distance of 93,000 route miles over land and about 33,000 route miles of metro fiber. He also said the competitive landscape has shrunk significantly, estimating that the number of “legitimate international carriers” has fallen from around 25 a decade ago to six or seven today, and suggested the market could eventually stabilize with fewer than five players.
Schaeffer distinguished Internet connectivity — from wavelength services across multiple networks — that he said customers value for security, large packet transmissions and predictable latency along fixed routes. He said Cogent did not enter the multiplexing business of the Violent division until 2023, and framed the Sprint transaction as two overlapping acquisitions: the customer operations business and the long-distance discrete network assets.
He said the customer business acquired from Sprint was “burning about $1 million in cash a day” and that Cogent was in talks with T-Mobile to buy the business while receiving a $700 million payment stream. He said Cogent cut costs, eliminated products, reduced its customer base, and made it “less profitable.”
He described the primary strategic rationale for acquiring the defunct Sprint long-distance voice network for $1 and reconfiguring it to sell wavelengths. Cogent has spent more than two years connecting its network of 1,096 data centers across North America and says it can provide wavelengths between each of those facilities in 30 days or less.
Schaefer estimates the total market for wavelengths worldwide at about $7 billion, including $3.5 billion in North America. He said Cogent is focusing on the $2 billion “inner city data center to data center” segment rather than the $1.5 billion local market. Wavelength currently represents about 4% of Cogent’s revenue and has grown 100% year over year, but that the company’s market share is about 2% today, he said.
He outlined a “five-tier value proposition” to win the share: more data centers, faster provisioning, dedicated routes, higher reliability, and lower cost. Unlike these Internet businesses, he said, wavelength is traditionally priced by path distance.
Schaefer said investors are focused on three areas: top-line growth, margin expansion and cash flow, and balance sheet discipline. He acknowledged that after the Sprint customer acquisition, Cogent posted nine quarters of negative top-line growth, contrasting with Sprint’s 18-year pre-public company average of 10.2% organic growth. He said Cogent has now “returned to full-line growth” and called the company a growth business.
Looking ahead, Shaffer said Cogent expects to:
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Top-line growth of 6% – 8% per year In a multi-year way
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EBITDA margin expansion Driven by a mix shift toward net traffic, at least 200 basis points per year
He said online products have “90%+ incremental EBITDA” contribution margins, and pointed to fourth-quarter 2025 results in which 80% of sales were online. He also described the wave as a potentially disproportionate contributor to online growth, given the low current penetration of business compared to other sectors.
Regarding capital allocation, Schaeffer said Cogent’s model is capital efficiency, estimating long-term average annual capital costs of approximately $100 million and principal payments on capital leases of approximately $40 million. He said the company has about $2 billion in gross debt and intends to accelerate leverage in the near term by using free cash flow and asset divestitures. Cogent previously cut its dividend after profitability rose above its comfort zone, and Schaeffer said management is committed to returning to 4x net profit before accelerating shareholder returns.
He also weighed in on near-term M&A, saying it’s unlikely in the current environment, while citing ongoing geographic expansion — particularly after nearly a decade of licensing efforts in India — and saying Thailand will come online in about 60 days. He said Cogent typically adds about 120 carrier-neutral data centers a year to its footprint and recently expanded from Tokyo to Osaka in Japan.
In an update on plans to monetize parts of the acquired real estate portfolio, Schaefer said Cogent has acquired 482 buildings totaling 1.9 million square feet with 20,200 miles of dark fiber with 230 megawatts of indoor power as part of Sprint’s assets. After reassessing the value of internal electricity, Cogent began a $100 million one-year retrofit program in June 2024 covering 125 buildings, and decided to shut down 24 large facilities that it believed were beyond replenishment capacity. He said that the reconstruction project was completed by the end of June 2025.
Shaffer described an initial sale of two buildings that reached a price agreement but ultimately closed after the counterparty requested seller financing; Cogent retreated. He said the company later signed a new, non-binding letter of intent for 10 data centers valued at “significantly higher” than the $144 million quoted in the previous deal, and Cogent plans to pursue additional transactions for the remaining facilities.
Finally, Schaeffer detailed a refinancing plan for the unsecured notes due in 2027. He said Cogent is restructuring assets and liabilities among subsidiaries, including transferring finance leases from the original borrower group and committing proceeds from the sale of the first 10 facilities to the borrower group. He said Cogent expects to issue $750 million of secured debt — most likely with a term of seven years — to repay $750 million of unsecured debt, extending the maturity so the approximate maturity will be about six years. The transferred capital leases will have an average remaining life of approximately 21 years, he said.
In closing remarks, Schaeffer described Cogent as a stable business that has been public for 21 years, said it has returned to high-level growth after a Sprint-related decline, and argued that the company has plenty of balance sheet levers to support liquidity and potentially a faster return on investment over several years.
Cogent Communications (NASDAQ:CCOI) is a multinational Internet service provider specializing in high-speed Internet access and data transport services. The company operates one of the largest Tier 1 IP networks in the world, providing reliable, low-latency connectivity to wholesale and enterprise customers. Cogent’s core services include dedicated Internet access, Ethernet transport, wavelength services, and MPLS-based IP virtual private networks, all delivered over a privately owned, fiber-optic backbone.
In addition to network connectivity, Cogent provides datacentering and managed services designed to support businesses with bandwidth and redundancy needs.
The article “Cogent Communications CEO: AI could regenerate Internet traffic as rate compression continues” was originally published by Marketbeat.
