Cogent Communications, a major broadband service provider, has embarked on an ambitious project to repurpose assets acquired from T-Mobile’s former Sprint network into state-of-the-art data centers. This transformation journey began after T-Mobile sold its Wireline business to Cogent for $1 in September 2022. The acquisition included Sprint’s legacy long-haul fiber network and numerous technical buildings and switch sites.
Conversion of Sprint Sites
Extensive Overhaul Processes
Cogent’s primary focus has been on converting the largest 48 sites into colocation data centers. This extensive overhaul involved comprehensive processes, such as removing outdated equipment and racks, installing or upgrading heating, ventilation, and air conditioning (HVAC) systems, and integrating uninterruptible power supplies (UPS) along with backup generators. Furthermore, modern fire suppression systems were implemented to ensure the safety and functionality of the converted sites. These upgrades were necessary to bring the facilities up to the operational standards required for contemporary data centers.
The transformation process was meticulous, highlighting Cogent’s commitment to providing state-of-the-art facilities for its clientele. Each site underwent rigorous evaluation and construction phases to ensure that they met industry standards. The improvement of the HVAC systems and the implementation of robust power supply systems were key aspects of this transformation, enabling the sites to handle the high energy demands of modern data centers. The initiative also included retrofitting advanced fire suppression mechanisms, ensuring that the remodeled data centers could provide uninterrupted and secure services to their clients.
Expansion and Edge Data Centers
In its Q4 2024 earnings report, Cogent revealed significant progress in its repurposing program, initially converting 52 Sprint sites before expanding further by adding 55 Edge data centers to its portfolio. These new Edge centers, derived from smaller Sprint locations, collectively offer 20MW of power over an area of 108,800 square feet and typically support around 40 racks each, with an approximate power capacity of 350kW per site. This extension of Edge data centers enhances Cogent’s existing network infrastructure, meeting the growing demand for extensive and efficient data services.
The newly introduced Edge sites have enriched Cogent’s existing network, raising the total count to 159 data center sites. With the added capacity provided by these centers, companies can leverage the dispersed sites for enhanced connectivity and low-latency services. Edge centers are strategically positioned to optimize coverage across the United States and Europe, thus providing Cogent with a competitive advantage in the market. Integrating the smaller Sprint locations into Cogent’s network has broadened their reach, allowing for improved service delivery to a larger client base and strengthening Cogent’s market position.
Market Strategies and Leasing Opportunities
Evolving Market Approach
Cogent’s strategy for these converted sites has evolved over time, transitioning initially from offering colocation space to now planning to offer 23 of the 52 converted Sprint sites on a wholesale basis. This approach includes exploring both sales of facilities with future leasing arrangements for Cogent or leasing the sites outright. Currently, three facilities have completed conversion, with 20 more underway and expected to be ready by the second quarter’s end. This strategic pivot highlights Cogent’s adaptability to market needs and its continuous efforts to maximize the utility and profitability of the acquired assets.
Cogent’s decision to focus on wholesale leasing allows the company to secure long-term commitments from larger clients, potentially generating substantial revenue streams. This shift indicates a strategic move to capitalize on market dynamics, positioning themselves as key players in the high-demand data center industry. Wholesale leasing arrangements provide financial stability and predictability, allowing Cogent to plan long-term capital expenditures and operational improvements, thus ensuring the sustainability of their enterprise.
Active Leasing Discussions
Cogent is actively engaged in discussions with various interested parties about multiple sites, exhibiting a preference for leasing over sales. Some facilities, particularly in states such as Florida, Texas, Maryland, Ohio, Missouri, and Georgia, are publicly up for sale. These facilities vary in size between 38,650 and 110,740 square feet and offer capacities ranging from 5MW to 14MW. Dave Schaeffer, Cogent’s CEO, explained that the company initially planned for non-Edge Sprint locations to occupy around 10,000 square feet with 1MW capacity, but has been cautious about filling retail tenant spaces to avoid potential obstacles for larger client occupancies.
Cogent is strategically calculating the best use for each facility. Discussions around letters of intent (LOI) received suggest a strong market interest. However, the company favors leasing agreements with a 60:40 ratio, leasing being the preferred option. This cautious yet optimistic approach reflects Cogent’s long-term plans to ensure the sustained demand while avoiding over-saturation with smaller, possibly less stable retail tenants. Leasing allows Cogent to maintain control over the facilities’ utilization, ensuring that they can meet the needs of larger clients who require substantial space and power.
Impact and Future Prospects
Occupancy Rates and Market Demand
The introduction of new Edge sites has temporarily affected the occupancy rate of Cogent’s retail colocation business. Current colonization rates for these new spaces are low, with expectations to reach a 30 percent occupancy rate over the next couple of years. Despite this, there is optimism that the dispersed presence of its footprint, coupled with AI-driven inferences, will eventually drive demand. The deployment of AI technologies promises to optimize data center operations and attract clients relying on such advanced solutions for their business processes.
The occupancy rates are anticipated to improve as Cogent’s comprehensive marketing strategies and collaborations with AI technology firms appeal to clients in need of advanced data processing capabilities. The enhancement in AI utilization within data centers is expected to create business opportunities and attract a technologically driven clientele. Though current colonization rates are modest, the future appears promising as the deployment of efficient AI and machine learning solutions within data centers fosters increased interest and demand.
Financial Performance and Investments
Cogent Communications, a significant player in the broadband service sector, has initiated an ambitious project to repurpose the assets obtained from T-Mobile’s former Sprint network into cutting-edge data centers. This transformative journey was set into motion when T-Mobile sold its Wireline business to Cogent for the nominal amount of $1 in September 2022. This acquisition included Sprint’s extensive legacy long-haul fiber network, along with numerous technical buildings and switch sites. These inherited Sprint assets are being revamped to enhance and expand Cogent’s infrastructure, enabling the company to provide top-tier broadband services and remain competitive in the ever-evolving technology landscape. By converting these old Sprint sites into advanced data centers, Cogent is not only optimizing its resources but also positioning itself to meet the growing demand for robust and reliable broadband connectivity. This strategic move underscores Cogent’s commitment to innovation and excellence in the broadband industry.