Cogent Slashes Bandwidth Prices

Cogent Communications (CCOI) has slashed its already low prices for Internet bandwidth, hoping that lower pricing will accelerate the shift of video programming from cable TV to the Internet. Cogent says it expects the new pricing will help gain market share from its rivals, primarily Level 3 (LVLT) and Global Crossing.

Cogent bandwidth is available in 325 data centers, which represent half of the company's business. Its basic rate of $10 a megabit is well below its competitors, and the company has begun offering even deeper discounts for customers with multi-year, high-volume contracts. Last month Cogent lowered its base rate for a three-year contract to $7, with rates as low as $4 per megabit for customers who commit to a 10-gigabit Ethernet connection. To protect itself, Cogent has stipulated that existing customers only get the lower rate if it results in a larger monthly spend with Cogent - meaning they will probably need to buy more capacity.

"In order to accelerate the adoption of these business models, we felt more aggressive pricing for large volume applications made a lot of sense," said Cogent CEO Dave Schaeffer. "We're in an environment where Internet traffic growth is slowing, and while we believe this is temporary, we want to stimulate Internet growth."

Cogent said the offer received a very strong response when it was tested in May, creating a "quantum jump" in sales. The company increased its share of global Internet traffic from 15 to 17 percent this year, and believes its new pricing will bring additional gains in market share. "We believe we can stimulate market growth and at the same time increase our market share," said Schaeffer.

Cogent is currently using just 21 percent of its lit network capacity, according to Schaeffer, who said other providers have not attempted to match Cogent's $10 pricing.

Will the new pricing convince Internet video companies to shift their business to Cogent as they scale up? Or will it lead to more peering disputes involving Cogent, which has previously had high-profile peering spats with Telia, Limelight Networks (LLNW) and Level 3? Stay tuned.