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attrition of key personnel from acquired businesses;



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unexpected costs or charges; or

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unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations.

        In the past, our acquisitions have often included assets, service offerings and financial obligations that are not compatible with our core business strategy. We have expended management attention and other resources to the divestiture of assets, modification of products and systems as well as restructuring financial obligations of acquired operations. In most acquisitions, we have been successful in renegotiating the long-term agreements that we have acquired relating to long distance and local transport of data and IP traffic.acquired. If we are unable to satisfactorily renegotiate such agreements in the future or with respect to future acquisitions, we may be exposed to large claims for payment for services and facilities we do not need.

        Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations. Because we have purchased financially distressed companies or their assets, and may continue to do so in the future, we have not had, and may not have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in corporate acquisitions. As a result, we may face unexpected contingent liabilities arising from these acquisitions. We may also issue additional equity in connection with these transactions, which would dilute our existing shareholders.

        Revenues generated by the customer contracts that we have acquired have accounted for a substantial portion of our historical non-core and off-net service revenues. However, followingFollowing an acquisition, we have experienced a decline in revenue attributable to acquired customers as these customers' contracts have expired and they have entered into standard Cogent customer contracts at generally lower rates or have chosen not to renew service with us. We anticipate that we will experience similar declines with respect to customers we may acquire in the future.

We depend upon our key employees and may be unable to attract or retain sufficient qualified personnel.

        Our future performance depends upon the continued contribution of our executive management team and other key employees, in particular, our Chairman and Chief Executive Officer, Dave Schaeffer. As founder of our company, Mr. Schaeffer's knowledge of our business and our industry combined with his deep involvement in every aspect of our operations and planning make him particularly well-suited to lead our company and difficult to replace.

Our business could suffer because telephone companies and cable companies may provide better delivery of Internet content originating on their own networks.

        Broadband connections provided by cable TV and telephone companies have become the predominant means by which consumers connect to the Internet. The providers of these broadband connections may treat Internet content delivered from different sources differently. The possibility of this has been characterized as an issue of "net neutrality." As many of our customers operate websites and services that deliver content to consumers our ability to sell our services would be negatively impacted if Internet content delivered by us was less easily received by consumers than Internet content delivered by others.

The U.S. Federal Communications Commission ("FCC") has recently adopted rules addressing net neutrality that it deems necessary to ensure continuation of an "open" Internet. We have substantial debt which we may not be ablecannot predict whether or how the FCC's new rules or subsequent additions or changes to repay when due.

        As of December 31, 2008, we have $92.0 million of face value of senior convertible notes outstanding. The holders of the notes have the right to compel us to repurchase for cash on June 15, 2014, June 15, 2017those rules will affect our business and June 15, 2022, all or some of their notes. They also have the right to be paid the principal upon default and upon certain designated events, such as certain changes of control. Weoperations.

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may not have sufficient funds to pay the principal at the time we are obligated to do so, which could result in bankruptcy, or we may only be able to raise the necessary funds on unfavorable terms.

Our operations outside of the United States expose us to economic, regulatory and other risks.

        The nature of our European, Canadian, and Canadian business involvesMexican businesses involve a number of risks, including:

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fluctuations in currency exchange rates;



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exposure to additional regulatory and legal requirements, including import restrictions and controls, exchange controls, tariffs and other trade barriers;



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difficulties in staffing and managing our foreign operations;



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changes in political and economic conditions; and



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exposure to additional and potentially adverse tax regimes.

        As we continue to expand our Europeaninto other countries, such as Japan and Canadian businesses,others, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks. Our failure to manage these risks and grow our European and Canadian operations outside the U.S. may have a material adverse effect on our business and results of operations.

Fluctuations in foreign exchange rates may adversely affect our financial position and results of operations.

        Our European and Canadian operations outside the U.S. expose us to currency fluctuations and exchange rate risk. For example, while we record revenues and the financial results fromof our European operations in Euros, these results are reflected in our consolidated financial statements in U.S. dollars. Therefore, our reported results are exposed to fluctuations in the exchange rates between the U.S. dollar and the Euro. We fund certain of our cash flow requirements of our European, Canadian and Mexican operations in U.S. dollars. Accordingly, in the event that the Euro strengthens versustheir currencies strengthen against the dollar to a greater extent than we anticipate, the cash flow requirements associated with our Europeanthese operations may be significantly greater in U.S.-dollar terms than planned.

Our business could suffer delays and problems due to the actions of network providers on whom we are partially dependent.

        Our off-net customers are connected to our network by means of communications lines that are provided as services by local telephone companies and others. We may experience problems with the installation, maintenance and pricing of these lines and other communications links, which could adversely affect our results of operations and our plans to add additional customers to our network using such services. We have historically experienced installation and maintenance delays when the network provider is devoting resources to other services, such as traditional telephony. We have also experienced pricing problems when a lack of alternatives allows a provider to charge high prices for services in an area. We attempt to reduce this problem by using many different providers so that we have alternatives for linking a customer to our network. Competition among the providers tends to improve installation, maintenance and pricing.

Our network may be the target of potential cyber attacks and other security breaches that could have significant negative consequences.

        Our business depends on our ability to limit and mitigate interruptions or degradation to our network availability. Our network, including our routers, may be vulnerable to unauthorized access, computer viruses, cyber attacks, and other security breaches. An attack on or security breach of our network could result in interruption or cessation of services, our inability to meet our service level commitments, and potentially compromise customer data transmitted over our network. We cannot guarantee that our security measures will not be circumvented, thereby resulting in network failures or interruptions that could impact our network availability and have a material adverse effect on our

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business, financial condition and operational results. We may be required to expend significant resources to protect against such threats, and may experience a reduction in revenues, litigation, and diminution in goodwill, caused by a breach. Although our customer contracts limit our liability, affected customers and third parties may seek to recover damages from us under various legal theories.

Our network could suffer serious disruption if certain locations experience serious damage.

        There are certain locations through which a large amount of our Internet traffic passes. Examples are facilities in which we exchange traffic with other carriers, the facilityfacilities through which our transatlantic traffic passes, and certain of our network hub sites. If any of these facilities were destroyed or seriously damaged a significant amount of our network traffic could be disrupted. Because of the large volume of traffic passing through these facilities our ability (and the ability of carriers with whom we exchange traffic) to quickly restore service would be challenged. There could be parts of our network or the networks of other carriers that could not be quickly restored or that would experience substantially reduced service for a significant time. If such a disruption occurs, our reputation could be negatively impacted which may cause us to lose customers and adversely affect our ability to attract new customers, resulting in an adverse effect on our business and operating results.

If the information systems that we depend on to support our customers, network operations, sales, billing and financial reporting do not perform as expected, our operations and our financial results may be adversely affected.

        We rely on complex information systems to operate our network and support our other business functions. Our ability to track sales leads, close sales opportunities, provision services, bill our customers for those services and prepare our financial statements depends upon the effective integration of our various information systems. If our information systems, individually or collectively, fail or do not perform as expected, our ability to process and provision orders, to make timely payments to vendors, to ensure that we collect revenueamounts owed to us and prepare our financial statements would be adversely affected. Such failures or delays could result in increased capital expenditures, customer and vendor dissatisfaction, loss of business or the inability to add new customers or additional services, and prepare accurate and timely financial statements all of which would adversely affect our business and results of operations.

We have historically incurred operating losses and these losses may continue for the foreseeable future.losses.

        SinceFor much of our history since we initiated operations in 2000, we have generated operating losses and these losses may continue for the foreseeable future. In 2006 we had anlosses. Continued operating loss of $46.6 million, in 2007 we had an operating loss of $29.9 million and in 2008 we had an operating loss of $22.2 million. As of December 31, 2008, we had an accumulated deficit of $269.2 million. Continued losses may prevent us from pursuing our strategies for growth or may require us to seek unplanned additional capital and could cause us to be unable to meet our debt service obligations, capital expenditure requirements or working capital needs.

The utilization of certain of our net operating loss carryforwards are limited and depending upon the amount of our taxable income we may be subject to paying income taxes earlier than planned.

        Due to the uncertainty surrounding the realization of our net deferred tax asset, we have recorded a valuation allowance for the substantial majority of our net deferred tax asset. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. We have performed an analysis of our Section 382 ownership changes and have determined that the utilization of certain of our net operating loss carryforwards in the United States is limited.

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We may have difficulty intercepting communications as required by the U.S. Communications Assistance for Law Enforcement Act and similar laws of other countries.

        The U.S. Communications Assistance for Law Enforcement Act and the laws of other countries require that we be able to intercept communications when required to do so by law enforcement agencies. We may experience difficulties and incur significant costs in complying with these laws. If we are unable to comply with the laws we could be subject to fines in the United States of up to $1.0 million per event and equal or greater fines in other countries.

Our business could suffer from an interruption of service from our fiber providers.

        The carriers from whom we have obtained our inter-city and intra-city dark fiber maintain that dark fiber. We are contractually obligated under the agreements with these carriers to pay maintenance fees, and if we are unable to continue to pay such fees we would be in default under these agreements. If these carriers fail to maintain the fiber or disrupt our fiber connections due to our default or for other reasons, such as business disputes with us and governmental takings, our ability to provide service in the affected markets or parts of markets would be impaired.impaired unless we have or can obtain alternative fiber routes. The companies that maintain our inter-city dark fiber and many of the companies that maintain our intra-city dark fiber are also competitors of ours. Consequently, they may have incentives to act in ways unfavorable to us. While we have successfully mitigated the effects of prior service interruptions and business disputes in the past, we may incur significant delays and costs in restoring service to our customers in connection with future service interruptions, and as a result we may lose customers if delays are substantial.customers.

Our business depends on agreements with colocationcarrier neutral data center operators, which we could fail to obtain or maintain.

        Our business depends upon access to customers in carrier neutral colocationdata centers, which are facilities in which many large users of the Internet house the computer servers that deliver content and applications to users by means of the Internet and provide access to multiple Internet access networks. Most colocationcarrier neutral data centers allow any carrier to operate within the facility (for a standard fee). We expect to enter into additional colocation agreements with carrier neutral data center operators as part of our growth plan. Current government

regulations do not require colocationcarrier neutral data center operators to allow all carriers access on terms that are reasonable or nondiscriminatory. We have been successful in obtaining agreements with these operators in the past and have generally found that the operators want to have us located in their colocation facilities because we offer low-cost, high capacityhigh-capacity Internet service to their other customers. Any deterioration in our existing relationships with these colocation center operators could harm our sales and marketing efforts and could substantially reduce our potential customer base. Increasing concentration in this industry, such as the mergers between Switch & Data Facilities Company, Inc. and Equinix, Inc., and Verizon Communications, Inc. and Terremark Worldwide, Inc. could negatively impact us if any such combined entities decide to discontinue operation of their facilities in a carrier neutral fashion.

Our businessability to serve customers in multi-tenant office buildings depends on license agreements with building owners and managers, which we could fail to obtain or maintain.

        Our on-net business depends upon our in-building networks. Our in-building networks depend on access agreements with building owners or managers allowing us to install our in-building networks and provide our services in these buildings. These agreements typically have terms of five to ten years, with one or more renewal options. Any deterioration in our existing relationships with building owners or managers could harm our sales and marketing efforts and could substantially reduce our potential customer base. We expect to enter into additional access agreements as part of our growth plan. Current federal and state regulations do not require building owners to make space available to us or

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to do so on terms that are reasonable or nondiscriminatory. While the FCC has adopted regulations that prohibit common carriers under its jurisdiction from entering into exclusive arrangements with owners of multi-tenant commercial office buildings, these regulations do not require building owners to offer us access to their buildings. Building owners or managers may decide not to permit us to install our networks in their buildings or they may elect not to renew or amend our access agreements. The initial term of most of our access agreements will conclude in the next several years. Most of these agreements have one or more automatic renewal periods and others may be renewed at the option of the landlord. While we have historically been successful in renewing these agreements and no single building access agreement is material to our success, the failure to obtain or maintain a number of these agreements would reduce our revenue, and we might not recover our costs of procuring building access and installing our in-building networks.networks in those locations.

We may not be able to obtain or construct additional building laterals to connect new buildings to our network.

        In order to connect a new building to our network we need to obtain or construct a lateral from our metropolitan network to the building. We may not be able to obtain fiber in an existing lateral at an attractive price from a provider and may not be able to construct our own lateral due to the cost of construction or municipal regulatory restrictions. Failure to obtain fiber in an existing lateral or to construct a new lateral could keep us from adding new buildings to our network and from increasingnegatively impact our revenues.growth opportunities.

Impairment of our intellectual property rights and our alleged infringement on other companies' intellectual property rights could harm our business.

        We are aware of several other companies in our and other industries that use the word "Cogent" in their corporate names. One company has informed us that it believes our use of the name "Cogent" infringes on their intellectual property rights in that name. If such a challenge is successful, we could be required to change our name and lose the goodwill associated with the Cogent name in our markets.

        Furthermore, we cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. We also are subject to the risk of litigation alleging infringement of third party intellectual property rights. Any such claims could require us to spend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement.

The sector in which we operate is highly competitive, and we may not be able to compete effectively.

        We face significant competition from incumbent carriers, Internet service providers and facilities-based network operators. Relative to us, many of these providers have significantly greater financial resources, more well-established brand names, larger customer bases, and more diverse strategic plans and service offerings.

        Intense competition from these traditional and new communications companies has led to declining prices and margins for many communications services, and we expect this trend to continue as competition intensifies in the future. Decreasing prices for high-speed Internet services have somewhat diminished the competitive advantage that we have enjoyed as a result of our service pricing.

        Our competitors may also introduce new technologytechnologies or services that could make our services less attractive to potential customers. For example, some providers are introducing a new version

Table of the Internet protocol (Ipv6) that we do not plan to introduce at this time. If this becomes important to Internet users our ability to compete may be lessened or we may have to incur additional costs in order to accommodate this technology.Contents

We issue projected results and estimates for future periods from time to time, and such projections and estimates are subject to inherent uncertainties and may prove to be inaccurate.

        Financial information, results of operations and other projections that we may issue from time to time are based upon our assumptions and estimates. While we believe these assumptions and estimates to be reasonable when they are developed, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. You should understand that certain unpredictable factors could cause our actual results to differ from our expectations and those differences may be material. No independent expert participates in the preparation of these estimates. These estimates should not be regarded as a representation by us as to our results of operations during such periods as there can be no assurance that any of these estimates will be realized. In light of the foregoing, we caution you not to place undue reliance on these estimates. These estimates constitute forward-looking statements.

The utilization of our certain of net operating loss carryforwards are limited and depending upon the amount of our taxable income we may be subject to paying income taxes earlier than planned.

        Due to the uncertainty surrounding the realization of our net deferred tax asset, we have recorded a valuation allowance for the full amount of our net deferred tax asset. As of December 31, 2008, we have combined net operating loss carry-forwards of approximately $989 million. This amount includes federal and state net operating loss carry-forwards in the United States of approximately $379 million and net operating loss carry-forwards related to our European operations of approximately $611 million. Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur. We have performed an analysis of our Section 382 ownership changes and have determined that the utilization of certain of our net operating loss carryforwards may be limited. This restricted amount includes the limitation on annual utilization related to the remaining $183 million of federal and state net operating loss carry-forwards of Allied Riser Communications Corporation that were acquired by us via a 2002 merger. The net operating loss carryforwards in the United States will expire, if unused, between 2022 and 2027. The net operating loss carry-forwards related to our European operations include $493 million that do not expire and $115 million that expire beginning in 2016.

Network failure or delays and errors in transmissions expose us to potential liability.

        Our network is part of the Internet which is a network of networks. Our network uses a collection of communications equipment, software, operating protocols and proprietary applications for the high-speed transportation of large quantities of data among multiple locations. Given the complexity of our network, it is possible that data will be lost or distorted. Delays in data delivery may cause significant losses to one or more customers using our network. Our network may also contain undetected design faults and software bugs that, despite our testing, may not be discovered in time to prevent harm to our network or to the data transmitted over it. The failure of any equipment or facility on theour network could result in the interruption of customer service until we effectaffect the necessary repairs or install replacement equipment. Network failures, delays and errors could also

result from natural disasters, power losses, security breaches, computer viruses, denial of service attacks and other natural or man-made events. Our off-net services are dependent on the networksnetwork facilities of other providers or on local telephone companies. Network failures, faults or errors could cause delays or service interruptions, expose us to customer liability or require expensive modifications that could have a material adverse effect on our business.

As an Internet access provider, we may incur liabilityliabilities for information disseminated through our network.

        The law relating to the liabilityliabilities of Internet access providers and on-line services companies for information carried on or disseminated through their networks is unsettled. As the law in this area develops and as we expand our international operations, the potential imposition of liabilityliabilities upon us for information carried on and disseminated through our network could require us to implement measures to reduce our exposure to such liability,liabilities, which may require the expenditure of substantial resources or the discontinuation of certain products or service offerings. Any costs that are incurred as a result of such measures or the imposition of liabilityliabilities could harm our business.

The holders of our senior convertible notes have the right to convert their notes to common stock.

        The holders of our senior convertible notes are under certain circumstances able to convert their notes into common stock at a conversion price of $49.18 per share of common stock and to obtain additional shares of common stock. If our share price exceeds $49.18 and the conversion right isrights are exercised by the holders of the convertible notes the number of our shares of common stock outstanding will increase which could reduce further appreciation in our stock price and impact our per share earnings. Rather than issue the stock we are permitted to pay the cash equivalent in value to the stock to be issued. We might not have sufficient funds to do this or doing so might have other detrimental impacts on us.

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LegislationChanges in laws, rules, and government regulationenforcement could adversely affect us.

        As an Internet service provider, we are not subject to substantial regulation by the FCC or the state public utilities commissions in the United States. However, the FCC has recently promulgated limited rules applicable to Internet service providers and proposed changes to the contribution mechanism for the U.S. universal service fund that might require contributions from Internet service providers. Internet service is also subject to minimal regulation in Western Europe and in Canada. In Eastern Europe and Mexico the regulation is greater, though not as extensive as the regulation for providers of voice services. If we decide to offer traditional voice services or otherwise expand our service offerings to include services that would cause us to be deemed a common carrier, we will become subject to additional regulation. Additionally, if we offer voice service using IP (voice over IP) or offer certain other types of data services using IP we may become subject to additional regulation. This regulation could impact our business because of the costs and time required to obtain necessary authorizations, the additional taxes thanthat we may become subject to or may have to collect from our customers, and the additional administrative costs of providing voicethese services, and other costs. Even if we do not decide to offer additional services, governmental authorities may decide to impose additional regulation and taxes upon providers of Internet service. All of these could inhibit our ability to remain a low costlow-cost carrier and could have a material adverse effect on our business, financial condition or results of operations.

        Much of the law related to the liability of Internet service providers remains unsettled. For example, manySome jurisdictions have adopted laws, relatedregulations, or court decisions that impose obligations upon Internet access providers to unsolicited commercial email or "spam" in the last several years.restrict access to certain content. Other legal issues, such as the sharing of copyrighted information, transborder data flow, unsolicited commercial email ("spam"), universal service, and liability for software viruses could become subjects of additional legislation and legal development.development and changes in enforcement policies. We cannot predict the impact of these changes on us. Regulatory changesThey could have a material adverse effect on our business, financial condition or results of operations.

Terrorist activity throughout the world, military action to counter terrorism and natural disasters could adversely impact our business.

        The September 11, 2001 terrorist attacks in the United States and the continued threat of terrorist activity and other acts of war or hostility have had, and may continue to have, an adverse effect on business, financial and general economic conditions internationally. Effects from these events and any future terrorist activity, including cyber terrorism, may, in turn, increase our costs due to the need to provide enhanced security, which would adversely affect our business and results of operations. These circumstances may also damage or destroy the Internet infrastructure and may adversely affect our ability to attract and retain customers, our ability to raise capital and the operation and maintenance of our network access points. We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks. We are also susceptible to other catastrophic events such as major natural disasters, extreme weather, fire or similar events that could effectaffect our headquarters, other offices, our network, infrastructure or equipment, which could adversely affect our business.

If we do not comply with laws regarding corruption and bribery, we may become subject to monetary or criminal penalties.

        The U.S. Foreign Corrupt Practices Act generally prohibits companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business. Other countries have similar laws to which we are subject. We currently take precautions to comply with these laws. However, these precautions may not protect us against liability, particularly as a result of actions that may be taken in the future by agents and other intermediaries through whom we have exposure under

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these laws even though we may have limited or no ability to control such persons. Our competitors include foreign entities that are not subject to the U.S. Foreign Corrupt Practices Act or laws of similar stringency, and hence we may be at a competitive disadvantage.

Risk Factors Related to Our Indebtedness

We have substantial debt which we may not be able to repay when due.

        Our total indebtedness, net of discount, at December 31, 2011 was $386.3 million. As of December 31, 2011, we have $92.0 million of face value of senior convertible notes outstanding. The holders of the convertible notes have the right to compel us to repurchase for cash on June 15, 2014, June 15, 2017 and June 15, 2022, all or some of their convertible notes. They also have the right to be paid the principal upon default and upon certain designated events, such as certain changes of control. In January 2011 we issued $175.0 million in senior secured notes due that are due in 2018. We may not have sufficient funds to pay the principal of these obligations at the time we are obligated to do so, which could result in bankruptcy, or we may only be able to raise the necessary funds on unfavorable terms.

        Our total indebtedness at December 31, 2011 includes $134.7 million of capital lease obligations for dark fiber primarily under 15 - 20 year IRUs. The amount of our IRU capital lease obligations may be impacted due to our expansion activities and fluctuations in foreign currency rates.

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our notes and our other indebtedness.

        We have substantial indebtedness. Our substantial debt may have important consequences. For instance, it could:

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make it more difficult for us to satisfy our financial obligations, including those relating to our debt;



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require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including the growth of our operations, capital expenditures and acquisitions;



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place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources; and



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limit our ability to obtain additional financing required to fund working capital and capital expenditures, for strategic acquisitions and for other general corporate purposes.

        Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategy.

Despite our leverage we may still be able to incur more debt. This could further exacerbate the risks that we and our subsidiaries face.

        We and our subsidiaries may incur additional indebtedness, including additional secured indebtedness, in the future. The terms of our debt indentures restrict, but do not completely prohibit, us from doing so. In addition, the indentures allow us to issue additional notes and other indebtedness secured by the collateral under certain circumstances. Moreover, we are not prevented from incurring other liabilities that do not constitute indebtedness, including additional capital lease obligations in the form of IRUs. These liabilities may represent claims that are effectively prior to the claims of our note

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holders. If new debt or other liabilities are added to our debt levels the related risks that we and our subsidiaries now face could intensify.

The agreements governing our various debt obligations impose restrictions on our business and could adversely affect our ability to undertake certain corporate actions.

        The agreements governing our various debt obligations, include covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

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incur additional debt;



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create liens;



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make certain investments;



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enter into certain transactions with affiliates;



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declare or pay dividends, redeem stock or make other distributions to stockholders; and



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consolidate, merge or transfer or sell all or substantially all of our assets.

        Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities. The breach of any of these covenants or restrictions could result in a default under the agreements governing our debt obligations.

To service our indebtedness, we will require a significant amount of cash. However, our ability to generate cash depends on many factors beyond our control.

        Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future, which, in turn, is subject to general economic, financial, competitive, regulatory and other factors, many of which are beyond our control.

        Our business may not generate sufficient cash flow from operations and we may not have available to us future borrowings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. Without this financing, we could be forced to sell assets or secure additional financing to make up for any shortfall in our payment obligations under unfavorable circumstances. However, we may not be able to secure additional financing on terms favorable to us or at all and, in addition, the terms of the indentures governing our notes limit our ability to sell assets and also restrict the use of proceeds from such a sale. We may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations, including our obligations under our notes.

ITEM 2.    DESCRIPTION OF PROPERTIES

        We lease and own space for offices, data centers, colocation facilities, and points-of-presence.

        Our headquarters facility consists of approximately 15,37015,350 square feet located in Washington, D.C. The lease for our headquarters is with an entity controlled by our Chief Executive Officer. The lease expires on August 31, 2012.2013.

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        We also lease a total of approximately 462,000540,000 square feet of space in 72 locations to housefor our colocation facilities, corporate headquarters, regional offices and operations centers. The remaining term of these leases ranges from 34 months to 10 years with, in many cases, options to renew.

        We believe that these facilities are generally in good condition and suitable for our operations.

ITEM 3.    LEGAL PROCEEDINGS

        On September 2, 2008, Sprint Communications L. P. (a subsidiary of Sprint-Nextel Corporation) filed suit against us in the Circuit court of Fairfax County, Virginia seeking payment for services allegedly provided by Sprint related to the exchange of Internet traffic by Sprint and the Company. Sprint sought $1.9 million and additional amounts. The lawsuit has been dismissed.

        We are involved in legal proceedings in the normal course of our business that we do not expect to have a material adverse affect on our business, financial condition or results of operations. For a discussion of the significant proceedings in which we are involved, see Note 6 to our consolidated financial statements.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.MINE SAFETY DISCLOSURES

        No matters were submitted to a vote of our security holders during the quarter ended December 31, 2008.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our sole class of common equity is our common stock, par value $0.001, which is currently traded on the NASDAQ Global Select Market under the symbol "CCOI"."CCOI." Prior to March 6, 2006, our common stock traded on the American Stock Exchange under the symbol "COI"."COI." Prior to February 5, 2002, no established public trading market for our common stock existed.

        As of February 1, 2009,2, 2012, there were approximately 160195 holders of record of shares of our common stock holding 44,341,89845,936,476 shares of our common stock.

        The table below shows, for the quarters indicated, the reported high and low trading prices of our common stock.

        We have not paid any dividends on our common stock since our inception and do not anticipate paying any dividends in the foreseeable future.inception. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors deems relevant. We currently have no preferred stock outstanding.

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Performance Graph

        The Company, inIn connection with itsour merger with Allied Riser Communications Corporation, in February 2002 we began trading shares of itsour common stock on the American Stock Exchange in February 2002.Exchange. On March 6, 2006, the Company'sour shares of Common Stockcommon stock began trading on the NASDAQ National Market. The Company'sOur common stock currently trades on the NASDAQ Global Select Market. The chart below compares the relative changes in the cumulative total return of the Company's Common Stockour common stock for the period December 31, 2003 - 2006—December 31, 2008,2011, against the cumulative total return for the same period of the (1) The Standard & Poor's 500 (S&P 500) Index and (2) an industry peer group consisting of Savvis Communications Corporation (NASDAQ: SVVS); Internap Network Services Corporation (NASDAQ: INAP); and TW Telecom Inc. (NASDAQ: TWTC). The comparison assumes $100 was invested on December 31, 20032006 in the Company'sour common stock, the S&P 500 Index and the industry peer group, with dividends, if any, reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG COGENT COMMUNICATIONS GROUP, INC. THEAmong Cogent Communications Group, the S&P 500 INDEXIndex, and a Peer Group
AND A PEER GROUP

Value of $100 Invested on December 31, 2003.

*

$100 invested on 12/31/0306 in stock or index-includingindex, including reinvestment of dividends.
Fiscal year ending December 31.

        Copyright © 2009,Please note Time Warner Telecom Inc. changed its name to TW Telecom Inc.

Copyright© 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

*

$100 invested on 12/31/06 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

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Unregistered SalesIssuer Purchases of Equity Securities and Use of Proceeds.

        On August 14, 2007, the CompanyIn February 2011, we announced that itsour Board of Directors had authorized a plan to permit the repurchase of up to $50.0 million of the Company'sour common stock in negotiated and open market transactions. In June 2008, the Company announced that its Board of Directors had authorized an additional repurchase of up to $50.0 million of the Company's common stock in negotiated and open market transactions through December 31, 2009. As of December 31, 2008, the Company2011, we had purchased 4,818,860232,356 shares of itsour common stock pursuant to these authorizations for an aggregate of $69.2$3.0 million; approximately $30.8$47.0 million remained available for such negotiated and open market transactions concerning our common stock. The CompanyWe may purchase shares and itsour convertible notes from time to time depending on market, economic, and other factors. The authorization was extended by our board and will continue through December 31, 2009.February 2013.

        The following table summarizes the Company'sour common stock repurchases during the fourth quarter of 20082011 made pursuant to this authorization. During the quarter, the Companywe did not purchase shares outside of this program, and all purchases were made by us or on our behalf of the Company and not by any "affiliated purchaser" (as defined by Rule 10b-18 of the Securities Exchange Act of 1934).

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

        The annual financial information set forth below has been derived from our audited consolidated financial statements. The information should be read in connection with, and is qualified in its entirety

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by reference to, Management's Discussion and Analysis, the consolidated financial statements and notes included elsewhere in this report and in our SEC filings.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis together with "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included in this report. The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in "Risk Factors," as well as those discussed elsewhere. You should read "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include, but are not limited to:

Future economic instability in the global economy, which could affect spending on Internet services; the impact of changing foreign exchange rates (in particular the Euro to USD and Canadian to USD exchange rates) on the translation of our non-USD denominated revenues, expenses, assets and liabilities; legal and operational difficulties in new markets; the imposition of a requirement that we contribute to the U.S. Universal Service Fund and similar funds in other countries; changes in government policy and/or regulation, including net neutrality rules by the United States Federal Communications Commission and in the area of data protection; increasing competition leading to lower prices for our services; our ability to attract new customers and to increase and maintain the volume of traffic on our network; our ability to maintain our Internet peering arrangements on favorable terms; our reliance on an equipment vendor, Cisco Systems Inc., and the potential for hardware or software problems associated with such equipment; the dependence of our network on the quality and dependability of third-party fiber providers; our ability to retain certain customers that comprise a significant portion of our revenue base; the management of network failures and/or disruptions; and outcomes in litigation as well as other risks discussed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, this annual report on Form 10-K for the fiscal year ended December 31, 2011.

General Overview

        We are a leading facilities-based provider of low-cost, high-speed Internet access and IP communications services. Our network is specifically designed and optimized to transmit data using IP. IP networks are significantly less expensive to operate and are able to achieve higher performance levels than the traditional circuit-switched networks used by many of our competitors when providing Internet access services, thus, we believe, giving us cost and performance advantages. We deliver our services to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations through approximately 17,800 customer connections in North America and Europe.

        Our primary on-net service isconsists of high-speed Internet access at a speed ofand IP connectivity ranging from 100 Megabits per second or greater, much faster than typicalto 10 Gigabits per second of bandwidth. We offer our on-net services to customers located in buildings that are physically connected to our network. We provide on-net Internet access currently offered to businesses. We offer this on-netnet-centric and corporate customers. Our net-centric customers include certain bandwidth-intensive users such as universities, other Internet service exclusively throughproviders, telephone companies, cable television companies and commercial content providers. These customers generally receive service in colocation facilities and in our own facilities, which run all the waydata centers. Our corporate customers are located in multi-tenant office buildings and typically include law firms, financial services firms, advertising and marketing firms and other professional services businesses.

        Our off-net services are sold to businesses that are connected to our customers' premises.network primarily by means of "last mile" access service lines obtained from other carriers, primarily in the form of point-to-point TDM, POS, SDH and/or Carrier Ethernet circuits. Our non-core services, which consist primarily of legacy services of companies whose assets or businesses we have acquired, primarily include voice

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services (only provided in Toronto, Canada). We do not actively market these non-core services and expect the service revenue associated with them to continue to decline.

        Our network is comprised of in-building riser facilities, metropolitan optical fiber networks, metropolitan traffic aggregation points and inter-city transport facilities. TheOur network is physically connected entirely through our facilities to over 1,3001,740 buildings in which we provide our on-net services, including over 9501,230 multi-tenant office buildings. We also provide on-net services in carrier-neutral colocation facilities, Cogent controlled data centers and single-tenant office buildings. Because of our integrated network architecture, we are not dependent on local telephone companies to serve our on-net customers. We emphasize the sale of our on-net services because we believe we have a competitive advantage in providing these services and our sales of these services generate higher gross profit margins that are greater than the gross profit margins on our off-net and non-core services.

        We also provide Internet connectivity to customers that are not located in buildings directly connected to our network. We serve these off-net customers using other carriers' facilities to provide the last mile portion of the link from our customers' premises to our network. We also provide certain non-core services which are legacy services which we acquired and continue to support but do not actively sell.

        We believe our key growth opportunity is provided by our high-capacity network, which provides us with the ability to add a significant number of customers to our network with minimal direct incremental costs. Our focus is to add customers to our network in a way that maximizes its use and at the same time provides us with a profitable customer mix that produces profit margins.mix. We are responding to this opportunity by increasing our sales and marketing efforts including increasing our number of sales representatives. In addition, we may add customers to our network through strategic acquisitions.

We are expanding our network to locations that we believe can be economically integrated and represent significant concentrations of Internet traffic. One of our keys to developing a profitable business will be to carefully match the expensecost of extending our network to reach new customers with the revenue expected to be generated by those customers.

Table of Contents In addition, we may add customers to our network through strategic acquisitions.

        We believe two of the most important trends in our industry are the continued long-term growth in Internet traffic and a decline in Internet access prices.prices within carrier neutral data centers. As Internet traffic continues to grow and prices per unit of traffic continue to decline, we believe our ability to load our network and gain market share from less efficient network operators will continue to expand. However, continued erosion in Internet access prices will likely have a negative impact on the rate at which we can increase our revenues and our profitability. In June 2008,Our revenue may also be negatively affected if we introduced additional volume and term based discountsare unable to certain of our customers in an effort to continue to gain market share and grow our on-net revenues.

        Our on-net service consistsInternet traffic or if the rate of high-speedgrowth of Internet access and IP connectivity ranging from 0.5 Megabitstraffic does not offset the expected decline in per second to 10 Gigabits per second of bandwidth. We offer our on-net services to customers located in buildings that are physically connected to our network. Off-net services are sold to businesses that are connected to our network primarily by means of "last mile" access service lines obtained from other carriers, primarily in the form of point-to-point TDM, POS, SDH and/or Carrier Ethernet circuits. Our non-core services, which consist of legacy services of companies whose assets or businesses we have acquired, include managed modem services, voice services (only provided in Toronto, Canada) and point to point private line services.unit pricing. We do not actively market these non-coreknow if Internet traffic will increase or decrease, or the rate at which it will grow or decrease. Changes in Internet traffic will be a function of the number of users, the applications for which the Internet is used, the pricing of Internet services, and expect the net service revenue associated with them to continue to decline.other factors.

        The growth in Internet traffic has a more significant impact on our net-centric customers who represent the majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their connections. Net-centric customers tend to purchase their service on a price per megabit basis. Our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections.connections and tend to purchase their service on a per connection basis.

        Due to our strategic acquisitions of network assets and equipment, we believe we are well positioned to grow our revenue base. We continue to purchase and deploy network equipment to parts of our network to maximize the utilization of our assets and to expand our network. Our future capital expenditures will be based primarily on our plannedthe expansion of our network, the addition of on-net buildings and the concentration and growth of our customer base. We plan to continue to expand our network and to increase ourthe number of on-net buildings by approximately 100we serve. Many factors can affect our ability to add buildings by December 31, 2009 from 1,326 buildings at December 31, 2008. We expect our 2009 capital expenditures to be similar to our 2008 capital expenditure rate.

        Historically, our operating expenses have exceeded our net service revenue resulting in operating lossesnetwork. These factors include the willingness of $46.6 million, $29.9 million and $22.2 million in 2006, 2007 and 2008, respectively. In eachbuilding owners to grant us access rights, the availability of these periods, our operating expenses consisted primarily of the following:

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Network operations expenses, which consist primarily of the cost of leased circuits, sites and facilities; telecommunications license agreements, maintenance expenses, and salaries of, and expenses relatedoptical fiber networks to employees who are directly involved with maintenance and operation of our network.



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Selling, general and administrative expenses, which consist primarily of salaries, commissions and related benefits paid to our employees and other selling and administrative costs including professional fees and bad debt expenses.



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Depreciation and amortization expenses, which result from the depreciation of our propertyserve those buildings, and equipment including the assets associated with our network.



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Equity-based compensation expenses that result from the grants of stock options and restricted stock.

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Results of Operations

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2011

        Our management reviews and analyzes several key performance indicatorsfinancial measures in order to manage our business and assess the quality of and potential variability of our net service revenues and cash flows. These key performance indicators include:

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net service revenues, which are an indicator of our overall business growth and the success of our sales and marketing efforts;



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growth in our on-net customer base and revenues, which is an indicator of the success of our primarily on-net focused sales efforts;



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growth in our on-net buildings; and



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cash flows.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2008

The following summary table presents a comparison of our results of operations for the yearyears ended December 31, 20072010 and 20082011 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

        Net        Service Revenue.    Our net service revenue increased 16.1%16.0% from $185.7$263.4 million for the year ended December 31, 20072010 to $215.5$305.5 million for 2011. Exchange rates positively impacted the year ended December 31, 2008. The impact ofincrease in service revenues by approximately $3.9 million. All foreign currency comparisons herein reflect results for 2011 translated at the average foreign currency exchange rates resulted in approximately $3.2 million of the $29.8 million increase in revenues.for 2010. For the years ended December 31, 20072010 and 2008,2011, on-net, off-net and non-core revenues represented 79.0%77.8%, 17.3%21.0% and 3.7%1.2% and 81.7%76.3%, 16.1%22.8% and 2.2%0.9% of our net service revenues, respectively. Our largest customer accounted for 5.5% of our 2011 revenues. In January 2012, our largest (net-centric) customer was indicted by the U.S. government and as a result our on-net service to this customer and the associated revenue terminated in January 2012. The loss of this on-net net-centric customer will negatively impact our revenue growth rate in 2012.

        Revenues from our corporate and net-centric customers represented 49.4% and 50.6% of our service revenue, respectively, for 2010, and represented 48.9% and 51.1% of our service revenue, respectively, for 2011. Revenues from corporate customers increased 14.9% from $130.1 million for 2010 to $149.4 million for 2011. Revenues from our net-centric customers increased 17.0% from $133.3 million for 2010 to $156.1 million for 2011.

        Our on-net revenues increased 20.1%13.7% from $146.6$205.0 million for the year ended December 31, 20072010 to $176.0$233.0 million for the year ended December 31, 2008.2011. Our on-net revenues increased as we

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increased the number of our on-net customer connections by 26.4%22.3% from approximately 11,20020,900 at December 31, 20072010 to approximately 14,10025,500 at December 31, 2008.2011. On-net customer connections increased at a greater rate than on-net revenues due to a decline in the

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average revenue per on-net customer connection.connection—primarily resulting from the pricing per connection related to our net-centric customers. This decline in the average revenue per on-net customer connection is partly attributed to a shift in the customer connection mix and due to volume and term based pricing discounts. Due to the increase in the size of our sales force, we are now able to focus not only on customers who purchase high-bandwidth connections, as we have done historically, but also on customers who purchase lower-bandwidth connections. We expect to continue to focus our sales efforts on a broad mix of customers. In June 2008, we introduced additional volume and term based discounts to certain of our customers in an effort to continue to gain market share and grow our on-net revenues. Additionally, on-net customers who cancel or renew their service from our installed base of customers, in general, have greater average revenue per connectionconnections than new or renewed customers. These trends resulted in a reduction to our average revenue per on-net connection.

        Our off-net revenues increased 7.7%25.9% from $32.1$55.3 million for the year ended December 31, 20072010 to $34.6$69.6 million for the year ended December 31, 2008.2011. Our off-net customer connections increased 1.8%11.0% from approximately 2,9903,500 at December 31, 20072010 to approximately 3,0403,900 at December 31, 2008.2011. Off-net revenues increased at a greater rate than off-net customer connections due to an increase in the average revenue per off-net customer connection. Off-net customers who cancel their service, in general, have a loweran average revenue per connection and per connection bandwidth speed that is less than the average revenue per connection for new off-net customers who generally purchase higher-bandwidth connections.

        Our non-core revenues decreased 30.1%8.7% from $6.9$3.1 million for the year ended December 31, 20072010 to $4.9$2.8 million for the year ended December 31, 2008.2011. The number of our non-core customer connections declined 23.9%decreased 12.8% from approximately 800650 at December 31, 20072010 to approximately 610560 at December 31, 2008.2011. We do not actively market these acquired non-core services and expect that the net service revenue associated with them will continue to decline.

        Network Operations Expenses.    Network operations expenses include costs associated with service delivery, network management, and customer support. This includes the costs of personnel and related operating expenses associated with these activities, network facilities costs, fiber and equipment maintenance fees, leased circuit costs, and access and facilities fees paid to building owners. Our network operations expenses, excluding equity-based compensation expense, increased 5.9%11.0% from $87.5$118.7 million for the year ended December 31, 20072010 to $92.7$131.7 million for the year ended December 31, 2008.2011. The impact of exchange rates resulted in an increase of network operations expenses for 2011 of approximately $1.5 million. The increase in network operations expenses is primarily attributable to an increase in costs related to our network and facilities expansion activities including personnel and related operating expenses and an increase in utilities charges partly offset byour off-net revenues. When we provide off-net revenues we also assume the decline in network operations expensescost of the associated with the decline in our non-core revenues. The impact of exchange rates resulted in approximately $1.4 million of this $5.2 million increase in network operations expenses.tail-circuits.

        Selling, General, and Administrative Expenses ("SG&A").    Our SG&A expenses, excluding equity-based compensation expense, increased 21.0%6.1% from $52.0$65.8 million for the year ended December 31, 20072010 to $62.9$69.8 million for the year ended December 31, 2008.2011. SG&A expenses increased primarily from the increase in salaries and related costs required to support our expandingexpansion efforts including an increase in our sales and marketing efforts and a $2.6 million increase in bad debt expense.efforts. The impact of exchange rates resulted in an increase of approximately $1.2$0.9 million of this $10.9 million increase in SG&A expenses.

        Equity-based Compensation Expense.    Equity-based compensation expense is related to restricted stock and stock options. The totalOur equity-based compensation expense increased 72.1%15.9% from $10.4$6.6 million for the year ended December 31, 20072010 to $17.9$7.7 million for 2011. The increase is primarily due to the year ending December 31, 2008. In April 2007 and January 2008, we issued approximately 1.0 million and 0.6 million shares, respectively,impact of grants of restricted stockshares to our employees resultingthat were granted in 2010. In the second quarter of 2010, we granted approximately 0.9 million restricted shares to certain of our employees that will vest over a three year period. These restricted shares were valued at approximately $9.6 million and will be recognized as equity-based compensation expense on a straight line basis over the three year service period. In April 2010, we also granted an additional 0.1 million restricted shares that are subject to certain performance conditions based upon our operating metrics for 2010 and 2011. We recorded approximately $0.2 million of equity-based compensation expense related to the performance conditions for 2010 in the increase infourth quarter of 2010 since the performance conditions for 2010 were met. These restricted shares were valued at approximately $0.5 million and were recognized as equity-based compensation expense. As of December 31, 2008 there wasexpense on a straight line basis over the requisite service period through April 15, 2011. In 2011, we recorded approximately $19.4$1.1 million of total unrecognizedequity-based compensation costexpense related to non-vested equity-basedthe shares subject to performance conditions for 2010 and 2011 since the performance conditions for 2010 and 2011 were met. The total

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equity based compensation awards. That costexpense for the performance shares related to 2011 is expected to beapproximately $0.9 million and is recognized over a weighted averagethe requisite service period of approximately twenty-eight months.one year through February 2012.

        Asset Impairment.    In 2010, we recorded an impairment charge of $0.6 million related to certain property and equipment that were no longer in use. There were no such charges in 2011.

        Depreciation and Amortization Expenses.    Our depreciation and amortization expense decreased 4.6%increased 5.9% from $65.6$56.5 million for the year ended December 31, 20072010 to $62.6$59.9 million for the year ended

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December 31, 20062009 and 20072010 with respect to certain key financial measures. The comparisons illustrated in the table are discussed in greater detail below.

        Net        Service Revenue.    Our net service revenue increased 24.5%11.7% from $149.1$235.8 million for the year ended December 31, 20062009 to $185.7$263.4 million for 2010. Exchange rates negatively impacted the year ended December 31, 2007. The impact ofincrease in service revenues by approximately $1.2 million. All foreign currency comparisons herein reflect results for 2010 translated at the average foreign currency exchange rates resulted in approximately $4.2 million of the $36.6 million increase in revenues.for 2009. For the years ended December 31, 20062009 and 2007,2010, on-net, off-net and non-core revenues represented 70.6%79.9%, 23.1%18.4% and 6.3%1.7% and 79.0%77.8%, 17.3%21.0% and 3.7%1.2% of our net service revenues, respectively.

        Revenues from our corporate and net-centric customers represented 47.3% and 52.7% of our service revenue, respectively, for 2009 and represented 49.4% and 50.6% of our service revenue, respectively, for 2010. Revenues from corporate customers increased 16.5% from $111.6 million for 2009 to $130.1 million for 2010. Revenues from our net-centric customers increased 7.4% from $124.2 million for 2009 to $133.3 million for 2010. The difference in the increase percentages in net-centric revenues as compared to the increase in corporate revenues is primarily attributed to a decline in the average revenue per net-centric customer connection from discounting and from the impact of exchange rates (almost all of our European revenues are from net-centric customers).

Our on-net revenues increased 39.3%8.8% from $105.3$188.5 million for the year ended December 31, 20062009 to $146.6$205.0 million for the year ended December 31, 2007.2010. Our on-net revenues increased as we increased the number of our on-net customer connections by 43.9%21.4% from approximately 7,80017,200 at December 31, 20062009 to approximately 11,20020,900 at December 31, 2007.2010. On-net customer connections increased at a greater rate than on-net revenues due to a decline in the average revenue per on-net customer connection.connection—primarily from our net-centric customers. This decline is partly attributed to a shift in the customer connection mix. Duemix and due to the increase in the size of our sales force, we are now able to focus not only on customers who purchase high-bandwidth connections, as we have done historically, but also on customers who purchase lower-bandwidth connections. We expect to continue to focus our sales efforts on a broad mix of customers.volume and term based pricing discounts. Additionally, on-net customers who cancel their service from our installed base of customers, in general, have greater average revenue per connection than new customers. These trends and to a lesser extent, an increase in customers receiving a discount for purchasing longer term contracts,the impact of foreign exchange rates resulted in a reduction to our average revenue per on-net connection.

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        Our off-net revenues decreased 6.7%increased 27.6% from $34.4$43.3 million for the year ended December 31, 20062009 to $32.1$55.3 million for the year ended December 31, 2007.2010. Our off-net customer connections declined 15.4%increased 9.0% from approximately 3,200 at December 31, 2009 to approximately 3,500 at December 31, 2006 to approximately 3,000 at December 31, 2007.2010. Off-net customer connections decreasedrevenues increased at a greater rate than the decline in off-net revenuescustomer connections due to an increase in the average revenue per off-net customer connection. Off-net customers who cancel their service, in general, have an average revenue per connection and per connection bandwidth speed that is less than the average revenue per connection for new off-net customers who generally purchase higher-bandwidth connections. Additionally, a significant amount of our off-net revenues were acquired revenues with a revenue per connection that is less than new off- net customers. Acquired revenues have historically churned at a greater rate than new off net customers.

        Our non-core revenues decreased 26.1%22.0% from $9.4$4.0 million for the year ended December 31, 20062009 to $6.9$3.1 million for the year ended December 31, 2007.2010. The number of our non-core customer connections declined 20.3%decreased 29.9% from approximately 1,000900 at December 31, 20062009 to approximately 800650 at December 31, 2007.2010. We do not actively market these acquired non-core services and expect that the net service revenue associated with them will continue to decline.

        Network Operations Expenses.    Network operations expenses include costs associated with service delivery, network management, and customer support. This includes the costs of personnel and related operating expenses associated with these activities, network facilities costs, fiber and equipment maintenance fees, leased circuit costs, and access and facilities fees paid to building owners. Our network operations expenses, excluding equity-based compensation expense, increased 9.3%15.6% from $80.1$102.6 million for the year ended December 31, 20062009 to $87.5$118.7 million for the year ended December 31, 2007.2010. The impact of exchange rates resulted in a reduction of network operations expenses for 2010 of approximately $0.9 million. The increase in network operations expenses is primarily attributable to an increase in costs related to our network and facilities expansion activities partly offset by the decline in network operationsincluding personnel and related operating expenses associated with the declineand an increase in our off-net and non-core revenues. The impactWhen we provide off-net revenues we also assume the cost of exchange rates resulted in approximately $1.8 million of this $7.4 million increase in network operations expenses.the associated tail-circuits.

        Selling, General, and Administrative Expenses ("SG&A").    Our SG&A expenses, excluding equity-based compensation expense, increased 11.6%decreased 3.9% from $46.6$68.5 million for the year ended December 31, 20062009 to $52.0$65.8 million for the year ended December 31, 2007.2010. SG&A expenses increaseddecreased primarily from the increasea reduction in salariesSG&A personnel costs, a reduction in bad debt expense and a reduction in certain non-income taxes related costs required to support our expanding sales and marketing efforts.

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Our allowance for unfulfilled contractual customer purchase obligations is designed to account for the possible non-payment of amounts under agreements that we have with certain of our customers that place minimum purchase obligations on them. Although we vigorously seek payments due pursuant to these purchase obligations, we have historically collected only a small portion of these billed obligations. In order to allow for this, we reduce our gross service revenue by the amount that has been invoiced to these customers. We reduce this allowance and recognize the related service revenue only upon the receipt of cash payments in respect of these invoices. This allowance is determined by the amount of unfulfilled contractual purchase obligations invoiced to our customers and with respect to which we are continuing to seek payment.

Valuation Allowances for Doubtful Accounts Receivable and Deferred Tax Assets

        We have established allowances associated with uncollectible accounts receivable and our deferred tax assets.

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Our valuation allowance for uncollectible accounts receivable is designed to account for the expense associated with accounts receivable that we estimate will not be collected. We assess the adequacy of this allowance by evaluating general factors, such as the length of time individual receivables are past due, historical collection experience, and changes in the credit-worthiness of our customers. We also assess the ability of specific customers to meet their financial obligations to us and establish specific allowances based on the amount we expect to collect from these customers. If circumstances relating to specific customers change or economic conditions change such that our past collections experience and assessment of the economic environment are no longer appropriate, our estimate of the recoverability of our trade receivables could be impacted.



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Our valuation allowance for our net deferred tax asset reflects the uncertainty surrounding the realization of our net operating loss carry-forwards and our other deferred tax assets. To reflect for the uncertainty of future taxable income we have recorded a valuation allowance for the full amountsignificant majority of our net deferred tax asset.

Convertible Senior Notes

At each balance sheet date, we assess the likelihood that we will be able to realize our deferred tax assets. We evaluatedconsider all available positive and negative evidence in assessing the embedded conversion option of our Notes in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," EITF Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's Own Stock" and EITF Issue No. 01-6 "The Meaning of Indexed to a Company's Own Stock." We concluded that the embedded conversion option contained within the Notes should not be accounted for separately because the conversion option is indexed to our common stock and would be classified within stockholders' equity, if issued on a standalone basis.

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        We evaluated the terms of the Notesneed for a beneficial conversion feature in accordance with EITF No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and EITF No. 00-27, "Application of Issue 98-5 to Certain Convertible Instruments." We concluded that there was no beneficial conversion feature at the commitment date based on the conversion rate of the Notes relative to the commitment date stock price.

Equity-based Compensation

        Generally weWe grant options for shares of our common stock to all newcertain of our employees with a strike price equal to the market value at the grant date. We grant shares of restricted stock to our senior management team board of directors and to certain other employees. We determine the fair value of grants of restricted stock by the closing trading price of our common stock on the grant date. We determine the fair value of grants of options for shares of common stock by the closing trading price of our common stock on the grant date using the Black-Scholes method. Grants of shares of restricted stock and options for common stock generally vest over periods ranging from immediatethree to four-years. We record equity-based compensation expense related to grants of restricted stock with vesting subject to over a four-year period.performance conditions when it is considered probable that the performance conditions will be met. Compensation expense for all awards is recognized ratably over the service period.

        The accounting for stock optionequity-based compensation expense requires us to make additional estimates and judgments that affect our financial statements. These estimates include the following.

Expected Dividend Yield—We have never declared or paid dividends and have no plans to do so in the foreseeable future.

Expected Volatility—We use the historical volatility since our June 2005 public offering to estimatefor a period commensurate with the expected volatility because less than 3%term.

Table of our fully diluted shares were publicly traded before that date.Contents

Risk-Free Interest Rate—We use the zero coupon U.S. Treasury rate during the quarter having a term that most closely resembles the expected term of the option.

Expected Term of the Option—We estimate the expected life of the option term by analyzing historical stock option exercises and other relevant data.

Forfeiture Rates—We estimate the forfeiture rate based on historical data with further consideration given to the class of employees to whom the options or shares were granted.

Other Accounting Policies

        We record assets and liabilities under capital leases at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. We establish the number of renewal option periods used in determining the lease term, if any, based upon our assessment at the inception of the lease of the number of option periods that are reasonably assuredassured. Useful lives are determined based on historical usage with consideration given to technological changes and trends in accordance with SFAS No. 13Accounting for Leases.the industry that could impact the asset utilization. We estimate the fair value of leased assets primarily using marketestimated replacement cost data for similar assets.

        We capitalize the direct costs incurred prior to an asset being ready for service. These costs include costs under the related construction contract and the compensation costs of employees directly involved with construction activities. Our capitalization of these costs is based upon estimates of time for our employees involved in construction activities.

        We estimate our litigation accruals based upon our estimate of the expected outcome after consultation with legal counsel.

        We estimate our accruals for disputed leased circuit obligations based upon the nature and age of the dispute. Our network costs are impacted by the timing and amounts of disputed circuit costs. We generally record these disputed amounts when billed by the vendor and reverse these amounts when the vendor credit has been received or the dispute has otherwise been resolved.

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        We estimate the useful lives of our property and equipment based upon historical usage with consideration given to technological changes and trends in the industry that could impact the asset utilization. We establish the number of renewal option periods used in determining the lease term, if any, for amortizing leasehold improvements based upon our assessment at the inception of the lease of the number of option periods that are reasonably assured in accordance with SFAS No. 13Accounting for Leases.assured.

Recent Accounting Pronouncements

        In September 2006, the FASBRecent Accounting Pronouncements—to be Adopted

        The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" and FSP No. 157-2, "Effective Date of FASB Statement No. 157" as amendments to SFAS 157,the presentation of comprehensive income which exclude lease transactions from the scope of SFAS 157 and also defer the effective date of the adoption of SFAS 157 for non-financial assets and non-financial liabilities that are nonrecurring. The provisions of SFAS 157 arebecomes effective for interim and annual periods beginning after December 15, 2011. The amendments eliminate the fiscal year beginning January 1, 2008, except for certain non-financial assets and liabilities for which the effective date has been deferred to January 1, 2009. The adoptioncurrent reporting option of SFAS 157 and its related pronouncements did not and are not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

        In May 2008, the FASB issued FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (including partial cash settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability (debt) and equity (conversion option)displaying components of other comprehensive income within the instrumentstatement of changes in a manner that reflectsstockholders' equity. Under the issuer's nonconvertible debt borrowing rate. Upon conversion of our Convertible Senior Notes,new guidance we have the right to deliver shares of our common stock, cash or a combination of cash and shares of our common stock. As a result, our accounting for our Convertible Senior Notes will be impacted by the adoption of FSP APB 14-1. The adoption of FSP APB 14-1 will result in a significant increase to the discount on our Notes with a corresponding increase to stockholder's equity. The adoption of FSP APB 14-1 will also result in an increase to our interest expense from the amortization of the increase to the discount on our Notes. We will be required to adopt FSP APB 14-1 on January 1, 2009 and will be required to retroactively restate all prior periods since the June 2007 issuancepresent either a single continuous statement of the Notes. The incremental non-cash interest expense required to be recognized (due to an increase in debt discount) will be material. In addition, the gains recognized on debt extinguishment may change as a result of the adoption of FSP APB 14-1.

        In June 2008, the FASB issued EITF No. 07-5, "Determining whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock ("EITF 07-5"). EITF 07-5 applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative, as defined. If an instrument,comprehensive income or an embedded feature, is not considered indexed to the issuer's stock under EITF 07-5, that instrument is not eligible for equity classification and would be classified as an asset or liability and remeasured at fair value through earnings. We will be required to adopt EITF 07-5 on January 1, 2009 with the cumulative effectincome statement immediately followed by a statement of adoption adjusted to the opening balance of retained earnings.comprehensive income. We are currently evaluating which of the impact of adopting EITF 07-5.two presentation methods we will adopt.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to certain market risks. These risks, which include interest rate risk and foreign currency exchange risk, arise in the normal course of business rather than from trading activities.

Interest Rate Risk

        Our cash flow exposure due to changes in interest rates related to our debt is limited as our 1.00% $92.0 million of Convertible Notes and Senior Notes (the "Notes") have a fixed interest rate.rates. The fair value of theour Convertible Notes may increase or decrease for various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions. Based upon the quoted market price (Level 1) at December 31, 2008,2011, the fair value of our Convertible Notes was approximately $45.1$82.3 million. Based upon the bid quote (Level 2) at December 31, 2011, the fair value of our Senior Notes was approximately $178.7 million.

        Our interest income is sensitive to changes in the general level of interest rates. However, based upon the nature and current level of our investments, which are primarily money market funds included inconsist of cash and cash equivalents, we believe that there is no material interest rate exposure related to our investments.

Foreign Currency Exchange Risk

        Our European and Canadian operations outside of the U.S. expose us to potentially unfavorable adverse movements in foreign currency rate changes. We have not entered into forward exchange contracts related to our foreign currency exposure. While we record financial results and assets and liabilities from our European and Canadianinternational operations in Euros and the Canadian dollar, respectively,functional currency, which is generally the local currency, these results are reflected in our consolidated financial statements in U.S. dollars. The assets and liabilities associated with our European and Canadian operations are translated into U.S. dollars and reflected in our consolidated financial statements in U.S. dollars. Therefore, our reported results are exposed to fluctuations in the exchange rates between the U.S. dollar and the local currencies, in particular the Euro, and the Canadian dollar.dollar and Mexican Peso. In addition, we fund certain cash flow requirements of our Europeaninternational operations in U.S. dollars. Accordingly, in the event that the Euro strengthenslocal currencies strengthen versus the U.S. dollar to a greater extent than planned the revenues, expenses and cash flow requirements associated with our Europeaninternational operations may be significantly higher in U.S.-dollar terms than planned. Changes in foreign currency rates could adversely affect our operating results.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTALSUPPLEMENTARY DATA

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Cogent Communications Group, Inc.

        We have audited the accompanying consolidated balance sheets of Cogent Communications Group, Inc. and subsidiaries (the "Company") as of December 31, 20072011 and 2008,2010, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2008.2011. Our audits also included the financial statement schedule listed in the index at 15(a) 2. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.