Cogent at MoffettNathanson: Navigating AI and Fiber Demand

On Wednesday, 14 May 2025, Cogent Communications (NASDAQ:CCOI) participated in the MoffettNathanson Media, Internet and Communications Conference, where CEO Dave Schafer highlighted the company's strategic focus on leveraging existing infrastructure amid growing AI-driven demand. The discussion covered both opportunities and challenges, including the influence of hyperscalers and the shift from lit to dark fiber services.

Key Takeaways

• Cogent and Unity Group discussed AI's impact on commercial fiber demand and market strategies.
• Cogent focuses on existing infrastructure, while Unity targets tier-two and tier-three markets.
• Shift observed from lit services to dark fiber for long-term, high-capacity needs.
• Both companies foresee continued growth in the wave market, influenced by network quality and unique routes.

Financial Results

• Unity Group reported a record year in bookings, with non-wireless segments leading growth.
• Wireless carriers contribute less than 20% of Unity's revenue, expected to drop below 10% post-Windstream merger.
• Unity aims for initial cash flow yields of 5% to 10% on new fiber builds, increasing to nearly 30% with additional leases.
• Capital intensity for Unity has decreased from over 50% to between 20% and 25%.

Operational Updates

• Unity noted a shift in hyperscaler demand from waves to dark fiber, with strand counts increasing to 800+.
• Cogent expanded in India by purchasing dark fiber, avoiding new builds.
• Cogent increased Sprint's data center connections from 23 to 883 in North America for wavelength provisioning.
• Unity is constructing long-haul routes and a second empty conduit for future demand.

Future Outlook

• Unity anticipates growth in fiber to the home and hyperscaler segments.
• Large enterprises are expected to procure significant capacity, especially during AI's inference phase.
• Cogent predicts fiber ubiquity in developed regions, shifting focus to cost management.
• Unity plans to continue Windstream's Kinetic strategy, building fiber in less competitive, smaller markets.

Q&A Highlights

• Discussions on AI's impact on commercial fiber and the viability of entering tier-one markets.
• Inquiry into future product attributes, pricing, and common capacities.
• Consideration of the wave business's importance in coming years.
• Risks associated with Cogent not adopting novel services.

For further insights, readers are encouraged to refer to the full transcript.

Full transcript - MoffettNathanson Media, Internet and Communications Conference:

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Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: One. Thanks for joining us. For those of you who don't know me, I'm Nick Del Deo. I come with Digital Infrastructure at MoffettNathanson, and I'm thrilled to be kicking off our twenty twenty five media Internet and communications conference. It's our it's our twelfth one of these over the years.

Joining us. This is our commercial fiber panel, and I'm thrilled to have two phenomenal speakers with us. To my left is Dave Schafer, the founder, chairman, and CEO of Cogent Communications. And to his left is Kenny Gunderman, president and CEO of Unity Group. This is the first year that Kenny's with us.

So thank you, Kenny, for joining us.

Kenny Gunderman, President and CEO, Unity Group: Pleasure to be here, Nick.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Dave has been kind enough to join us for all 12 of our conferences. So special thanks to Dave. So with that, let's, let's get started. You know, there's obviously a lot going on in the commercial fiber space today. We've only got forty minutes.

So I thought we would focus on four particular topics, Demand, strategy, network expansion evolution, and the competitive landscape. You know, with an emphasis on the parts of your business that overlap or are adjacent. So let's start with demand. Right? AI driven demand has really changed people's expectations, and perceptions of this space over the past year or so, especially in light of some of the big dark fiber that have been announced.

Now, Kenny, you've shared about 15 to 20% of your bookings come from hyperscalers. I think you've said that two of your top 10 customers are hyperscaler. You said on your earnings call last week that demand remains strong in those customers. Can you dig in a little bit and maybe talk about the level of urgency in the discussions and the magnitude, the capacity that these customers are seeking?

Kenny Gunderman, President and CEO, Unity Group: Sure. Well, Nick, again, thanks for having us here and it's always a pleasure to be here with Dave Schafer, who I admire. Get lots of questions about the hyperscalers. I always try to remind folks that they're still a very small percentage of our revenue, a very small percentage of our business. And one of the things that we love about Wholesale Fiber is that we're diversified across all customer bases and all fiber use cases.

And therefore, we pointed out that last year was a really big year for us with the hyperscalers, but still they were just two of our top 20 customers. And so, very small part of our business, but growing dramatically. And so, a couple of years ago, a few years ago, I would say the percentage of bookings from hyperscalers was virtually zero and the percentage of hyperscalers in our funnel was virtually zero. And the TAM for fiber businesses with hyperscalers was also very small. But recently, we estimated for the market our view that the TAM for hyperscalers today is probably $15,000,000,000 and that's up, we think, dramatically.

And we think it's going to grow to probably 40,000,000,000 to $50,000,000,000 over the next number of years. And of course, we want to capture our fair share of that and I think we have been so far. And all that to say, Nick, I don't I wouldn't characterize it as urgency because that kind of sounds a little bit undisciplined for hyperscalers, but there's absolutely a sense of purpose, I would say, towards building out the infrastructure that I think is enabling AI. And, you know, we get questioned all the time about the quarter to quarter performance, but the reality is I think they're playing the long game. I think they're making long term investments.

They say to us and to the market that if they don't use those investments for AI, they're going to use it for other things because I think it's critically important for their business to have high speed broadband proliferate. So for us, we're seeing dramatic increases in strand count. So a few years ago, we were selling 12 to 24 strands. Now we're selling 30 to 40 times that amount of capacity. And so whereas before we were probably selling more lit capacity, we're now selling a lot more dark fiber and a lot more conduit.

So all the things that customers do to enable for a substantial amount of capacity is what we're seeing from their behavior.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay, okay, that's great. You know, Dave, as you work to build your your wavelength business, over the coming years, how important are AI driven use cases going to be to that? And do you expect that to help your transit business as well?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Yeah. So, you know, the underlying network infrastructure continues to be repurposed for new use cases. Much of the infrastructure that's being used for AI was actually originally constructed to carry voice traffic and then was adapted to carry internet traffic, private data, and is now being used for AI applications. So there are really two very different use cases for transport in AI. The first of those is to link large data sets to the locations where training is occurring.

And oftentimes, the power and facilities exist in different locations, and fiber is the best way to do that, whether it's lit services or dark fiber that is then lit by those providers. And because approximately 50% of the cost of a training facility is in the GPUs, you want to make sure that GPU capacity is being used very efficiently. You know, the 99.99% efficiency twenty four hours a day, seven days a week. And a fixed connection is the best way to do that. So AI has become a large incremental driver of transport needs.

And those transport needs could be met either through the purchase of dark fiber, as Kenny had indicated, or wavelengths, or a combination of both. The second use case for AI is just now emerging, which is really the inference phase. And that is using much smaller data sets, taking the large language model outputs, the neural networks, and then applying them to a specific question and generating an dedicated dark fiber or wavelengths. But in both cases, this is increasing total bit traffic demand and that is good both for the Internet, which still dominates the total volume of traffic transmitted. The Internet is the cheapest, easiest to use, most ubiquitous way to move bits.

But it does not provide a defined path with specific latency. And for that reason, there's this incremental use case. And it's a very large one for dark fiber or wavelengths.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Kenny, you noted a bit of a shift from lit services to dark fiber. Dave, you noted some fungibility between waves and dark fiber. When do you see customers opting for one versus the other?

Kenny Gunderman, President and CEO, Unity Group: Well, it varies, think, and and it's hard to generalize customers. They all have different buying patterns and those buying patterns change over time depending on their access to capital, depending on their network needs. But general and Unity sells a substantial amount of dark fiber. That's our really our core business today. We have a growing waves business and we expect to continue to grow that business.

But dark fiber is really our bread and butter. And what we find is when customers are making longer term network commitments that are that require substantial amounts of capacity that they can foresee that capacity over a longer period of time, they're going buy dark fiber. Because they're making a commitment to light that fiber for themselves and therefore making a commitment to CapEx, OpEx and ultimately helping manage that network. There's a lot of requirements there that aren't there if they're lighting that fiber themselves. And so when I apply that back to the hyperscalers, again, you know, twenty four, thirty six months ago, we were selling waves to hyperscalers or we were selling small amounts of DART fiber and we were selling more metro fiber versus today today's point, we're selling largely long haul routes, we're selling some greenfield builds for the first time in a long time, building long haul routes, connecting those data centers, those large language model data centers.

And rather than buying WAVs right now, they're buying dark fiber, 400 plus strand count, 800 plus strand count, and even in some cases, a second empty conduit next to it. So that just implies a substantial amount of capacity needed. And we often get the question, you know, does that mean that they're buying for the next five years or the next ten years? And in some cases, when customers buy dark fiber, they are. They're planning for that long out into the future.

And I think in some cases, maybe some of the hyperscalers actually are, but what we have found in only the last twelve months is that we're now having hyperscalers come back to us and buy another 400 strand count on top of what they just bought, you know, twelve months ago. So, that suggests to us that they're using the capacity that they're putting in the ground now and they certainly foresee the need for more of it in the future.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Great. Well, let's let's pivot to non AI demand, which is the bulk of the demand you guys are saying. You know, Dave Probably

Kenny Gunderman, President and CEO, Unity Group: eight minutes in and we're all moving off AI. That's

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: a one. Lot to talk about. Yes. So Dave, you entered into the Sprint transaction and built the business plan for Wavelengths before AI became the thing it is today. So how is that portion of the demand funnel, related to the pre AI business case materialized, relative to your expectations?

And what are some observations you can share about the composition of that demand?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Yeah. So when we evaluated the Sprint gMG network and eventually acquired it from T Mobile, that acquisition actually was two concurrent acquisitions. The first was an operating telecom business selling to legacy enterprise customers that was in decline and burning cash. And we were compensated for that by T Mobile to cover those burns and try to correct some of the deficiencies in that business. The second thing that we acquired was the physical network of Sprint.

It was built between 1982 and 1991 at a capital cost of $20,500,000,000 And it was comprised of 19,000 route miles of owned dark fiber and four eighty two buildings along the way. All of that infrastructure had one purpose when it was deployed, long distance voice. Sprint shut down that long distance voice network in 2015. And for all intents and purposes, the network was fallow. It was empty.

It carried a little bit of de minimis traffic and we acquired that asset for a dollar. But there were challenges. The asset went to the wrong locations, and it needed to be repurposed. We focus on wavelengths as the highest and best use of that network. We do have dark fiber, and we'll sell some of that dark fiber on a route by route basis.

But the three primary customers that we were initially targeting were either regional networks who needed to link islands of traffic together and had been long term buyers of wavelengths. Two, international carriers looking to extend their network. And then three, content companies that needed to distribute content not over the internet, but rather doing it through a dedicated network. And that's particularly applicable to live events that are very gender sensitive. And with the transition of sports from pure broadcast to now being streamed in real time, that is an incremental use case that has grown wavelength demand.

The AI and hyperscaler demand is yet additive to that. And for Cogent, we needed to look at the total addressable market and be able to serve it. Sprint was connected to 23 data centers initially. Ultimately extended that and we're at eight eighty three North American data centers where we can provision a wave. And the network that we architected because we had the advantage of having a clean sheet of paper looks very different than our competitors.

Most companies that sell wavelengths and even sell dark fiber started with a network that was selling a variety of heterogeneous products. We were able to optimize that network for wavelength deployment giving us shorter provisioning, broader footprint, and the ability to lower prices. So the market is dominated by a couple of large players. We do occasionally bump in to Kenny in a region of the country, but it's pretty regionalized. And conversely, we're a customer of Kenny's where we buy dark fiber to supplement our footprint.

So this is definitely a industry where companies both compete and cooperate.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Yep. Kenny, how would you characterize the non AI demand that you're seeing today? You know, wireless, fiber to the home, and so on.

Kenny Gunderman, President and CEO, Unity Group: I I would say it's been very, very solid and has been for the past number of years. And it's one of the reasons why we always we love to talk about generative AI and hyperscalers, but I always like to remind folks that that's just a portion of the demand. And as Dave said earlier, it's an incremental TAM that really revealed itself over the past twelve or twenty four months. So, you know, you step back and you think about all the different use cases for fiber. There's you you don't have mobile broadband without fiber.

You don't have fixed wireless without fiber. You don't have satellite without fiber. You don't have certainly don't have fiber to the home or waves or fiber into the enterprise buildings without it. It's essentially the connective tissue for all broadband. I know that sounds like a buzz phrase that we use a lot, but it's true.

And so as a result, when you think about the industry, it's growing at somewhere between 5% to 10% over a longer period of time and probably for the foreseeable future because there is no technology out there that's going to replace that underlying fiber, especially in the core backbone. So when we look at our customer segments, there are years when some are up and others are down. So for example, we get asked about wireless carriers all the time and they are big customers of ours, but on a when you look at it on an aggregate basis, the wireless carriers are probably less than 20% of our revenue. And when we combine with Windstream, it will be less than 10%. And so last year, wireless spending was down, and it was down the year before.

We think this year it might be up a little bit, but last year was a record year in bookings for us because other segments were up. This year, we expect fiber to the home carriers to be our biggest segment of wholesale customers again this year like it was last year. So all this money that's being spent to build fiber to the home, those customers have to buy backhaul to connect those markets back to the core. So terrific customer segment the past couple of years, and I think that those that customer segment is going to continue to grow. We think the hyperscalers are going to continue to grow.

And we think large enterprises are going to begin procuring large amounts of capacity as well, especially as we get into the inference phase around AI. So I think just the tailwinds in the industry are strong. And if we're smart about which customer segments we're exposed to, we're going to do well regardless of whether one segment is up or down. And I think we're well diversified. We don't have any we don't have any specific customer segment that represents more than 20% of our revenue.

So we're we're well diversified.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Great. Well, let's turn to to strategy. I think a lot of observers tend to lump fiber providers together. You know, when in reality there are a host of different business models involved and very varied strategies to try to capture value.

In fact, you guys both have very distinct strategies that you pursue. So when I think about the biggest players in the market, almost by default, they've embraced what I'd call like a classic telecom strategy. You have as big a network as possible, you try to drive as much revenue over it as possible. You guys have both rejected that approach. So Dave, what do you see as the primary flaws with that kind of classic strategy and why you opted to to pursue the strategy that Cogent embraces?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Yeah. So a common thought for telecom executives is, I gotta move up the value chain. I gotta sell higher level applications, which is really another way to saying I can't make money at the network layer. We realized that bandwidth is a commodity. It is subject to very rapid price deflation.

And you needed to focus on the fastest growing segment of the market, you needed to be able to capture advances in technology more effectively than legacy networks. And you needed to be very disciplined about where you deploy capital as endpoints because you are overbuilding legacy technologies, whether it's copper, coax, wireless. In each case, the internet can overlay those applications. And remember, for the vast majority of the market, virtually all consumers and all businesses, the internet has now become synonymous with data. So we realized that purposing the fiber for the internet was the correct strategy.

And what the internet was effective in doing is decoupling the application from the network. So traditionally, a carrier built a network in order to deliver a single application, whether it be linear television or two way voice communication or closed data communication. And the internet changed that. The internet was application agnostic. It was cheaper on a per bit basis, and it allowed new business models to be developed.

So virtually all of the traffic that is being carried today was not even available twenty years ago for legacy carriers. So the legacy carriers have been struggling as their core revenue streams get migrated to over the top on the internet. And at the same time, they see their capital intensity going up as their antiquated distribution networks are not effective. We focus on two endpoints, really big office buildings in the central business districts of major cities. Reason there is we thought there was enough end user demand per facility to generate an adequate return on capital.

But you needed the discipline to pass, buy, and not serve all of those smaller locations because your revenue acquisition cost was too high in that very diffuse market. The second thing we connected to were data centers. Think of them as supermarkets for bandwidth. And they have continued to proliferate. The use cases have changed.

And that narrow strategy has allowed us to grow organically and generate free cash where virtually everyone else in the enterprise business has seen those legacy businesses shrink.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Yeah. Kenny, when I think about Unity's strategy, you know, I think primarily infrastructure in second tier markets. Right? So so so the supposition is that, you know, maybe you trade off some revenue opportunities but for a lower level of competitive intensity. I guess is that characterization right or wrong or incomplete?

And what do you look at internally to kind of confirm to yourself that not moving into kind of Tier one markets is the right approach?

Kenny Gunderman, President and CEO, Unity Group: Yeah. You nailed it, Nick. It's not complicated. We like to stay as close to the infrastructure as we possibly can, and we like to go where there's less competition, which tends to be Tier two and three markets and long haul routes that are less trafficked. Dave knows there are many routes out there that are built and overbuilt and overbuilt, and then there are other regional routes that are more unique.

And we greatly appreciate Dave being a customer of ours on many of those routes. But it's not more complicated than that for us. And I think Dave nailed it. I think a lot of companies in our space try to get as big as they possibly can because scale does matter in telecom and there are synergies for being bigger. And they also try to add as many products as possible on top of their offering.

And our view is that you don't have to be super big in certain areas and you certainly don't need complicated products. And when we look at product set, we always ask ourselves, is it scalable, is it simple, and is it something that we can make money at? And oftentimes, the answer is no. So we try to stay as close to the infrastructure as possible and try to compete on the quality of the infrastructure as opposed to technology and price, which tends to be the case with complicated products. But building in areas where there's not fiber or less fiber, we believe you're right, Nick, that if you look at it statically, the growth potential in Mobile, Alabama may be less than New York City.

But in New York City, there's 12 or 14 fiber providers. And and once you're a fiber provider and you're in a city, you're going to try to cannibalize other providers' business. I mean, that's just what you do. You've got salespeople on the ground selling. But if you get into a Mobile or a Birmingham or a Pensacola or a Shreveport, Louisiana early, you dissuade other fiber providers from coming in generally.

And we have a second fiber provider in less than 15% of our markets in Uniti Fiber. That's terrific, which means that, yeah, maybe the pie is smaller, but we get a bigger slice of it and our growth potential is essentially assured as long as we're smart about which customers we target. And that's ultimately true on long haul routes as well. I think the industry at a time was overbuilding and we were not very disciplined about building, you know, back in the late '90s, early 2000s. They picked up a lot of those networks for cheap when they went bankrupt.

But now there's a lot more rational spending, and so if you've built a long haul route, that doesn't mean you won't get overbuilt, but it's less likely, substantially less likely than it was before. And so when you take that strategy and you apply it to our combination with Windstream, that's essentially what we're going to be doing with Kinetic, is building fiber into these smaller markets that and we're going be the first fiber provider or certainly an early provider going into those markets. So it's really simple. Back to your point, you nailed it, Infrastructure, tier two, tier three markets. That's really our strategy.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Well, you know, that's a great pivot point to talk about, you know, network expansion and evolution. You guys have very different philosophies when it comes to the appeal of building new fiber. Right? So Dave, you know, you noted, your network was either primarily built out of dark fiber historically or you picked up Sprint for a dollar.

So good price for that. You know, Kenny, obviously laying fiber is an important part of your business. So it's kind of interesting that you have two very savvy veteran executives who view the appeal of building fiber so differently. Yes. I guess, Dave, what do you think you see with respect to new fiber construction that others don't?

Or are there risks that you worry about that others may not?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: So Cochrane's core business was delivering internet services globally. We have amassed a network of a little over a hundred thousand inner city route miles of dark fiber and another 34,000 route miles of metropolitan fiber in two sixty seven markets across 57 countries. All of that was by buying fiber from others, three twenty five different suppliers and then using that fiber as efficiently as possible to sell the most commoditized service, Internet services. And when we got started, there were 200 global backbones, nearly 1,400 metropolitan competitive carriers broadly defined. And virtually all of those companies have disappeared.

And we found that the only construction that made sense for us were very limited extensions from manholes in the street into a building or up the riser to serve those buildings. And we chose not to build to small cells, not to build new long haul routes, but rather to go out and buy. And that model still is a great model for Cogent. We continue to expand our network through that model. We're doing an expansion right now in India.

And I couldn't even tell you how complicated it would be if we tried to build in India. It's complicated enough to just be able to purchase dark fiber in that market. But then, you know, when we acquired Sprint, we acquired a fallow asset. And again, we chose not to build. And in the places that Sprint was deficient, we bought dark fiber to supplement it for a different use case, wavelengths.

But we have not been able to justify an adequate ROIC. Kenny and others have different core competencies, different market focuses, and can generate that return because of the large number of customers that they sell that fiber to. Whereas if we built it, we would be the primary user and there's generally just not enough return to just justify the construction cost.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Would you agree with that characterization?

Kenny Gunderman, President and CEO, Unity Group: Yeah. I think everything Dave said is right, of course. And I think, first of all, there's room for different business models in the industry. We're a wholesale fiber provider, so we want people who use our fiber to be successful. Dave's a customer.

He's obviously very successful. We want our other customers who theoretically are using off net fiber for their businesses. We want them to be successful. We want the hyperscalers to to be successful. And I think that, at the end of the day, Dave's also right that there are many parts of the country that do have multiple networks, do have multiple fiber providers, and being a fiber owner in those markets is not appealing to us.

We want to be where there's not another fiber provider or where there are fewer other fiber providers as a result. And so, you know, back in 2017, '20 '18, we went on a very large build we entered into a very large build phase. We built into about 10 different metros, largely in the Southeast, that we identified as great areas to build network where there were no other fiber providers and had good competitive dynamics with really large carriers. And we used some of the things that Dave mentioned, like fiber to the tower or small cell deals or building for a large E Rate school, building for a couple of large healthcare campuses. We used those as anchor customers.

And the thesis was we're going to build that network in a range of a 5% to 10% initial yield, which is not particularly exciting, but we had the thesis that we could build with that initial cash flow yield. So, every dollar that went into the ground, there was an immediate 5% to 10% cash flow generating customer that was locked in for a ten or twenty year contract. And then we would come back later and sell that network to other customers, the second, the third, the fifth tenant, very analogous to the tower model in that regard. And we track ourselves with that every quarter and we tell investors, going back to that build phase, those initial 5% to 10% yields are now yielding close to 30% cash flow because we've leased them up effectively. And our capital intensity, while back during that period of time was over 50%, it's now down to 20% to 25%, which is a comfortable area for us to be in.

So that shows that if you're smart about picking the right markets, picking the right demographics, the right competitive demographic and the right anchor customers and by the way, all those anchor customers are still on those networks and in some cases buying more capacity over time, again, those are customers who are using someone else's fiber, but they're successful in those markets and we're successful in those markets. So it's just a strategy difference versus others who've built fiber in larger markets and and more traffic routes. But for us, that strategy works and and we're gonna continue that on a go forward basis.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Great. You know, Dave, some of your larger peers are spending a lot of time and effort trying to modernize their networks to offer novel services, automate provisioning, be able to offer services on a consumption based model to have a flat flat price model, and so on. Do you think that sort of approach has merit? I think it's likely to appeal to customers or, you know, any risks if if you don't follow suit?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Yeah. So I often hear the term network as a service. I'll be honest, I have no idea what that means. Every network I

Kenny Gunderman, President and CEO, Unity Group: was wondering you would tell me because I don't know you Every

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: network is a service. I also hear the concept of variable bandwidth or bandwidth on demand. And the Internet provides that. You get a connection and you use it when you want to use it and when you don't. You're still paying for it, but it's available.

The real cost is in the physical layer connectivity to the customer. And that's what Kenny said about constructing and getting an adequate return on fiber. But then the services you run on that network fall into two primary categories. Internet, which is now then available for every application you can imagine, or a dedicated transport network, I. E.

Wavelengths or dark fiber. Those are the two primary customer use cases. And in delivering either of those, we as operators benefit from the advances in technology. And there are two basic technologies that drive innovation. The first being improvement in wave division multiplexing, I.

E. Getting more bits, move more miles for a lower cost. And there, we're very far away from hitting the limits of material science or the capabilities of fiber. So, you know, the first system that Sprint deployed as a telephone system carried five sixty five megabits, I. A half a gigabit, on a single pair of fibers with a repeater every 12 miles.

And that was revolutionary compared to a microwave system that actually could carry only half of that traffic, and it was then scalable. Today, that same fiber, the exact same physical fiber can carry a 60 wavelengths with roughly 40 terabits of capacity per wavelength by modulating more effectively using more colors. And there are still further advances. And the cost of moving that bit is coming down at about 80% a year, faster than Moore's law. The second advance is in routing.

That's more specialized technology, fewer vendors, and only about a 40% per year price performance improvement. But in running a network and selling services, it ultimately comes down to what is your cost of manufacturing the underlying service you're selling? And if it's a network, can I move more channels? You know, I remember in the early days of cable going from, you know, a half a dozen linear channels to, you know, Geraldine saying that we're gonna have a world in John Malone of 500 channels and people believing that was impossible. Now we're in a world where there's tens of millions of channels.

And it's that innovation that you've got to be able to adapt to.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Great. Well, in the couple minutes we have left, I thought I'd ask a wavelength question for both of you because that's an important part of your strategies going forward, Sprint for you, Dave. And Kenny with the Windstream acquisition accelerating your plans there. I I guess, you know, as as insurgents you guys have nothing to lose.

Incumbent providers have everything to lose. So it raises some interesting questions regarding pricing and the manners in which the incumbent providers might respond to your to your attacks. So if we, you if we look out a few years, how do you guys anticipate the market changing in terms of whether it's product attributes, pricing, common capacities, and so on?

Kenny Gunderman, President and CEO, Unity Group: I'll comment really quickly. I'd love to hear Dave comment Dave's comments on this point because Dave's a bigger waves provider than than we are. But I I think the waves market is gonna continue to grow. I think it's gonna grow in capacity, it's gonna grow in in dollar size. I think there's going to continue to be three or four or five waves large waves provider.

As you said, Dave and I are both insurgents, we're share takers, whereas the other three or four have embedded bases of lit transport, really, in some cases, not modern technology, lit transport. It's older technologies that have to be transitioned and therefore that creates opportunities for people like Unity and certainly for Dave to take share. And I think we're going to continue to compete on the same characteristics going forward that we're competing on today, which is network quality, uptime, provisioning intervals and price. And there are other things, of course, but those things tend to be important when we and I didn't mention probably the most important one to Uniti, which is unique routes. And so I think we compete on we try to compete on those terms, and I think that's really roughly the order.

A lot of people worry about price compression and price pressure, but I think those first three or four characteristics are super important to customers and I think they're going to continue to be important. So, I don't see a race to the bottom on price. I think there's definitely competition. There's certainly competition on certain routes. But if you've got more unique routes and you've got network quality, you've got good customer relationships and you can turn up waves in timely fashion, I think you're going be able to compete.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Dave?

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Well, I got a flash of early light but I'll try to go quickly. You know, I think eventually in the developed world, there will be fiber ubiquity everywhere. We're not there yet, but we are getting there quickly. Then it comes down to the use cases, internet being the largest of those, private networks, wavelengths, dark fiber being the second. And then the advances in technology are going to continue to drive down price per bit mile.

And carriers have to look at other parts of their cost structure, their cost of revenue acquisition, their billing systems, their provisioning systems, their customer care systems. And all of the legacy providers struggle with rigid fixed cost structures that have not been able to flex to this lower revenue per bit model. And the dirty little secret that people don't want to talk about is, yes, the unit volume is growing, but the actual dollar spent for services is still a shrinking buy. That doesn't mean there's not insurgent niche opportunities. But if you're a legacy provider that has a very rigid cost structure and your total addressable market for the services you sell are shrinking, You need to be able to flex your costs faster than your revenues are declining.

And that has not happened well for the legacy providers.

Nick Del Deo, Host, Digital Infrastructure Analyst, MoffettNathanson: Okay. Well, great. Well, Dave, Kenny, thank you so much for joining us. That was terrific.

Dave Schafer, Founder, Chairman, and CEO, Cogent Communications: Hey. Thank you, Jeff, for hosting. Thank you.

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