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Business-Internet Firm Gains Clients in Deal

D.C.'s Cogent Expands in 23 Markets

By Griff Witte
Washington Post Staff Writer
Friday, December 3, 2004; Page E05

Cogent Communications Group Inc. plans to announce today the latest move in a recent buying spree, a deal the company said will give it 2,400 new business customers for its high-speed Internet service.

In its seventh acquisition of the year, District-based Cogent will buy the majority of Verio Inc.'s T-1 Internet access customers, increasing its business customer base by about 40 percent. The purchase price was not disclosed.

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Colorado-based Verio, a subsidiary of Nippon Telephone and Telegraph Communications Corp., will focus on other business lines, including Web hosting.

For Cogent, which sells Internet service to small and medium-size businesses, the deal provides new customers in 23 markets across the United States where it already has a presence. The purchase represents a continuation of Cogent's efforts to boost revenue by putting its fiber-optic network -- a 22,000-mile backbone plus 8,300 miles in metro areas -- to greater use. The company has begun to see revenue growth from last year as it adds customers through acquisitions, but Cogent lost $23 million ($1.43 a share) in the third quarter. The loss applicable to common stock was $26.5 million ($1.64).

Cogent chief executive David Schaeffer said he expects his company to become "operationally cash-flow positive" next year and that it will become profitable "probably within the next couple of years."

Today's acquisition will help move the company toward that goal, he said. Cogent uses only about 7 percent of its network capacity, so it has room to add many more customers. And it will need them. "This is an extremely competitive business," Schaeffer said. "It's a business that requires companies to have significant scale to remain competitive."

Daryl Schoolar, senior analyst at In-Stat/MDR, said Cogent has pursued an aggressive acquisition strategy in a bid to contain prices. "The more customers they have on that single backbone, the more they can spread their costs around," he said.

Already this year, Cogent has purchased the assets of Aleron Broadband Services, LambdaNet Spain, LambdaNet France, Carrier1 International, Unlimited Fiber Optics and Global Access. The growth-through-acquisition strategy isn't new to the five-year-old company. In 2002 it bought the assets of the first commercial Internet-service provider, PSINet, after that company foundered during the tech bust.

Cogent may not be done buying. Schaeffer said the company will "most likely try to find other acquisitions."

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