Colocation Co

Cogent Financial Troubles Affecting Network Quality  (see also Colocation Facility Ratings for the rating and reviews of this Internet Data Center)

Cogent doesn't turn a profit: last year the company posted a loss of $46.5 million, and it expects to lose money again this year.

Troubled Debt Restructuring and Sale of Preferred Stock

Prior to July 31, 2003, Cogent was party to a $409 million credit facility with Cisco Systems Capital Corporation ("Cisco Capital"). The Cisco credit facility required compliance with certain financial and operational covenants. Cogent violated a financial debt covenant for the fourth quarter of 2002. Accordingly, Cogent was in
default and Cisco Capital was able to accelerate the loan payments and make the outstanding balance immediately due and payable.

Cogent had a plan to build large pipes and sell Internet service below their cost to attract as many customers as possible.  The pipe dream, of course, turned into a nightmare. The companies built much more capacity than customers could ever absorb, and many of the promising upstarts failed or sought protection from bankruptcy courts. A few, such as Global Crossing (Charts) and XO Communications, emerged from bankruptcy (though many stockholders were wiped out).

Cogent has tussled with a few of its competitors in the past, mostly over concerns that Cogent essentially was "dumping" traffic onto others' networks. Cogent has been "de-peered" on occasion by rival ISPs France Telecom, AOL and Level 3. Large ISPs traditionally "peer," or exchange traffic with each other for free, but a few years ago Level 3 concluded Cogent was sending way more traffic to Level 3 than Level 3 was sending to Cogent's network. Level 3 pulled the plug on Cogent traffic, causing the two companies ' customers to lose connections to considerable Internet content.

Some industry watchers believe the problem shows signs of dispute over peering agreements -- deals between Internet service providers to create a direct link to route each other's packets rather than pay a third-party network service provider for transport.

But such agreements only make sense if the amount of traffic sent to a partner's network is roughly equal to the amount of traffic sent back. When it's not, one ISP may ask for money or additional transit as compensation for the extra strain on its systems.

That may have been the case this week, one source familiar with the situation said. If correct, it wouldn't be the first time AOL was involved in a peering contract dust-up.

In January, AOL wanted to charge Cogent Communications approximately $75,000 per month to keep their peering relationship intact. A Cogent spokesman declined to discuss AOL.

At the time, Cogent said it sent to AOL three times as much traffic as it received. AOL said that meant Cogent did not have parity with AOL, and sought payment. Cogent argued that while it sent a lot of traffic through AOL it was local, whereas AOL's traffic typically travels long distances on Cogent's network, costing Cogent more.

While AOL may be the highest profile ISP to play hardball over the pacts, it certainly isn't the only one. There have been disputes involving others dating farther back.

Two years ago, Cable & Wireless dropped its peering agreement with struggling backbone provider PSINet. The cancellation left C&W users unable to access IP addresses on the PSINet network and vice versa.

A short time later, the two companies struck a deal to restore service, but the incident exposed the downside of peering agreements -- the fact that customers depend on good relations between rival network operators.

AOL wouldn't comment on a peering contract dispute as a possible cause of this week's MSN freeze. Microsoft said it made "no changes to its services or network infrastructure."

Regardless of whether the problems were peering-related, AOL subscribers in the United States and United Kingdom who were left without access to Microsoft sites for a day-and-a-half this week weren't happy.

A spokesman for AOL's high-speed Road Runner Internet service didn't have an exact number of calls to its customer service center, but conceded that "complaints were running faster" than normal.