How Cogent digested PSINet

Cogent CEO Dave Schaeffer talks about the integration with PSINet and how the company plans to grow

While many communications providers that sprang up in the late 1990s have been filing for bankruptcy, ISP Cogent Communications has made news by acquiring the assets of its cash-strapped counterparts. In early 2002, the company, which offers high-speed Internet service to customers in buildings attached to Cogent’s fiber network, purchased Allied Riser and once-powerful PSINet to expand Cogent’s footprint. CEO Dave Schaeffer recently sat down with Network World Senior Writer Michael Martin to discuss how Cogent has handled the integration of PSINet and how the company plans to grow.

How is the integration of PSINet going?

It’s basically complete. There are three buckets in that integration. The first is the integration of the network, the second is the integration of systems, and the third is the integration of the customers.

In terms of the physical network, we started out with a belief that the architecture we deployed, which is a Layer 3 protected network, was the most scalable and cost-effective. PSINet operated a fairly unique network architecture in being predominantly a frame network. So what they did was they aggregated traffic at the edge through frame switches, brought that traffic into their IP routers and carried the IP traffic onto a frame backbone.

We felt a pure IP over [dense wavelength division multiplexing] network made a lot more sense. We divided the PSINet network into segments. We then took each segment and diverted the traffic onto the Cogent network. We then dismantled that portion of the PSINet network, taking all of the equipment and repatriating it into a central warehouse. We then took that gear and redeployed it to expand our network footprint.

What did you have to do for the systems?

In terms of systems, there are four main categories – network monitoring and surveillance systems; customer-facing systems like the contact database and billing systems; the asset and inventory systems; and the accounting and back-office systems. We compared those with what we had and used the best.

And the customers?

For customers, we put in place an outreach program that included e-mail notifications and outbound calls to customers to let them know what was happening with their network and letting them know we were committed to continuing their service and maintaining a high quality. That culminates in entering into new contracts with the customers when their contracts terminate.

Many existing contracts were multiyear deals at prices that were significantly out of market, based on today’s market environment. So we contacted those customers and negotiated new contracts.

Have most of the customers stayed with you?

Yes. We expected some attrition, and we have had some. But the majority of the customers have stayed with us.

Do they still buy the same services they got from PSINet?

There are a few modifications. Because our pricing structure is much lower, we migrated customers who were on-net to Cogent to our 100M bit/sec Ethernet product from T-1 services. For other customers we lowered prices and have seen them increase their bandwidth purchases. Within the data centers our emphasis has been on pure collocation, instead of a spectrum of managed services. We’ve encouraged customers to move from managed hosting to pure collocation, reducing their costs and picking up additional management responsibilities.

What did you do with the customers who were getting frame connections from PSINet?

We have converted them to Layer 3 VPNs. We don’t support Layer 2 frame.

People weren’t upset they were being switched from frame to IP?

Not really. We tried to make this as transparent as possible for the customer. That, coupled with the fact that we usually lowered their cost, made it go over well.

How is the Ethernet access business growing?

We continue to grow that business in a difficult environment. We continue to add on-net buildings at about 1.5 buildings per day. We have over 600 buildings on-net now.

How are you doing financially?

Our public data shows we’re still burning cash. The majority of that cash burn though is earmarked for the expansion of the network. If we stopped growing, we’d be about cash-flow neutral.

Why are you still growing when other companies are standing still or cutting back?

A big part of the reason is, we did a lot of work before we began building on how we would reach our addressable market. We wanted to understand where end-user demand was. We have about 7,400 miles of metro fiber comprising 138 rings. We have about 3,000 buildings that meet all of our criteria. Our architecture gives us a low cost, and if we get to customers in those buildings we’ll continue to get market share.