Cogent Communications (CCOI) NSR/BCG Global Connectivity Leaders Conference - New York summary

Industry transformation and AI impact

• AI is seen as a transformational force, comparable to the internet, but current AI outputs are not yet economically profitable as input costs remain high, though these are falling rapidly.

• Most value from past connectivity and cloud revolutions accrued to end users and new business models, not legacy service providers.

• AI's evolution will shift internet traffic patterns, requiring more data uploads and distributed model inference, changing the traditional download-centric network.

• Power demand from AI and data centers is straining grid capacity, driving data center construction to remote areas and necessitating more efficient models or new processor technologies.

• Monetization models for AI remain unclear, with likely commoditization and lower returns for infrastructure investors, while consumers and innovative business models benefit.

Connectivity sector outlook and investment

• Increased value of raw internet data and higher storage rates will benefit core transit businesses.

• Significant fiber investment at the edge is expected, as legacy coax and mobile networks cannot meet new upload demands.

• Training facilities for AI will be built in remote locations, driving demand for long-haul and mid-haul transport services, especially Layer one connectivity like dark fiber and wavelengths.

• Existing, unused fiber routes will be repurposed, empty conduits filled, and new greenfield builds undertaken, but hyperscalers' monopsony power will keep returns low for builders.

• The internet's resilience, efficiency, and flexibility remain key advantages, but AI workloads require low-latency, high-capacity connections that differ from traditional internet traffic.

Business performance and asset monetization

• Stock price decline attributed to complexity of the Sprint acquisition, temporary negative top-line growth, and increased leverage, not underlying business deterioration.

• Core business grew 27% since Sprint acquisition, while acquired Sprint business declined 64%; margin recovery underway through cost-cutting and product optimization.

• On-net service sales have increased, improving margins and positioning for future growth; on-net mix rose from 47% to 61% post-acquisition.

• Asset monetization strategies included securitizing leased IP address space, selling surplus technical buildings, and converting power systems to optimize facility use.

• No conduit assets to monetize, but dark fiber is being used primarily for the Wavelength network, with some limited sales.