Cogent Comm (CCOI) Falls On New Pricing Policy

Shares of Cogent Communications Group Inc. (Nasdaq: CCOI) were under heavy pressure today (-13.2%) after introducing a new pricing policy. The new pricing policy embeds volume-based discount based on the size of the Internet connections. In addition, the company now gives a 30% discount from the rack rate for 3 years of contracts or longer.

An analyst at Wachovia said the new price will effectively impact the NetCentric customers (58% of revenue).

Wachovia said, bottom line, the headline is bad but positive to average revenue per user and productivity. The firm said, "First, we think that CCOI is introducing this new price card in a such a way that there should be a minimal impact to the current customer base and the current ARPU. And second, this should move should enhance productivity trends. This should help push unit productivity higher to the target of 5 deals/month/rep vs. the lackluster 3.7 in Q1 2008. While we continue to believe CCOI's near term results may be marked by higher sales force churn and traffic issues, these price changes should help partially address the challenges."

Wachovia has an Outperform rating and $24-$26 price target on Cogent Comm. Shares of Cogent Comm. closed at $13.85 today.

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