What changed in this filing

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Item 1A. Risk Factors

2024-02-29 compared with 2023-02-24 · 193 added, 111 removed, 290 unchanged (51% of the section changed)

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, financial condition and results of operations.

We offer our services in 51 countries, most of which were significantly impacted by the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict and which will vary by market.

Such future uncertain and unpredictable developments include the ultimate duration and scope of the pandemic, the rise and spread of new COVID-19 variants, the availability and efficacy of vaccines and therapeutic treatments and the willingness of the public to accept such vaccines and treatments, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and global economic conditions during and after the pandemic.

Approximately 57.1% of our revenue for the year ended December 31, 2022 was from our corporate customers.

Corporate customers are located in MTOBs, almost exclusively in the United States and Canada.

Authorities in many of these markets implemented numerous measures in response to the pandemic, such as travel bans and restrictions, quarantines, curfews, shelter-in-place and stay-at-home orders and business shutdowns and closures, and also implemented multi-step polices with the goal of re-opening these markets.

While many of these measures have been lifted, the business shutdowns and closures due to the COVID-19 pandemic and the accompanying shift to remote or hybrid work schedules continues to have an impact on business activity in the central business districts in which many of our MTOBs are located.

This lingering impact and the impact of any new mandates, restrictions, laws or regulations could have a material adverse impact on our operations and the operations of our customers or others with whom we do business.

In addition, a significant number of our corporate customers have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions.

A significant number of our corporate and enterprise customers in the United States have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions.

We believe the rapid spread of the Delta and Omicron variants during 2021 influenced corporate customers to delay or rescind their plans to end their remote work policies.

In addition, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services.

As a result, through much of 2022, we saw corporate customers continue to take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices.

In 2023 more corporate customers increased their in-office requirements, nevertheless, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services.

As a result, through much of the year ended December 31, 2023, we saw corporate customers continue to take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices.

Since the beginning of the pandemic, we have experienced a deteriorating real estate market in the buildings we serve.

Vacancy rates for many of our MTOBs have risen as a result of many tenants terminating leases and exiting buildings and as a result

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of lower new leasing activity.

The impact of this greater level of vacancy rates was more pronounced in Northern cities and in the California market and less impactful in our Southern markets.

In addition, the shift of our office workers working remotely at certain times during the past few years has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.

Vacancy rates for many of our MTOBs have risen as a result of many tenants terminating leases and exiting buildings and as a result of lower new leasing activity.

The impact of this greater level of vacancy rates was more pronounced in certain cities, particularly in California and the Pacific Northwest and less impactful elsewhere.

In addition, the shift of our own employees to working remotely at certain times during the past few years has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.

Any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.

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As other countries relaxed their COVID regulations, our employees in those countries returned to the office as well.

Except for a brief period at the beginning of 2022 when we temporarily shifted a portion of our workforce to remote work, by the end of the spring of 2022, the overwhelming majority of all employees were working full-time in our offices.

Except for a brief period at the beginning of 2022 when we temporarily shifted a portion of our workforce to remote work, we have maintained our requirement that all employees work in our offices.

In August 2021, we also notified employees in the United States that they would be required to attest that they were fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

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employees receive a COVID-19 booster vaccine no later than six weeks after first becoming eligible for such vaccine.

We required that the employees of the Sprint Business in the United States attest and provide proof that they are fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

Our employees have largely complied with our vaccine mandate in the United States.

However, we experienced an increase in employee departures, particularly within our sales department, beginning in the second half of 2021 and continuing into 2022.

We believe that this rise in departures was attributable, in part, to the unwillingness of some employees to work in a full-time, in-office environment.

The departure rate returned to our long-term historical rates in 2023.

We believe that the rise in departures was attributable, in part, to the unwillingness of some employees to work in a full-time, in-office environment.

In the United States, we believe the rise in departures was also attributable to the unwillingness of some employees to be vaccinated.

If we continue to require employees to work in the office on a full-time basis and/or to mandate COVID-19 vaccinations in the United States, we may find it difficult to retain existing employees or hire new employees.

Further, a resurgence of COVID-19 due to immunity-resistant variants may cause employees to be more reluctant to continue in, or make new employees more reluctant to accept, a full-time, in-office position due to concerns about COVID-19.

If this occurs, this may impact our revenue growth and profitability.

We will require also that the employees of the Wireline Business also attest that they are fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

Certain of these employees are not vaccinated against the COVID-19 virus and as a result, may elect not to join our organization.

We are experiencing delays in the delivery of networking equipment and other services from certain of our vendors.

During the pandemic we experienced a slowdown in the delivery of network equipment and delays in the projected delivery time of network equipment orders, and those delays have continued to the present.

In addition, we have experienced delays in the delivery of services from vendors who supply us with dark fiber or lit circuits.

We believe these delays are caused by supply chain issues due to component shortages and scarcity of raw materials as well as labor shortages, and that these supply chain issues have their origin in the responses to the COVID-19 pandemic.

While we believe that we can adequately manage the operation, maintenance, upgrading and growth of our network, a worsening or prolonged slowdown of the delivery of network equipment, dark fiber and lit circuits may impact our ability to expand and augment our network and service offerings.

Further, a resurgence of COVID-19 due to

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immunity-resistant variants may cause employees to be more reluctant to continue in, or make new employees more reluctant to accept, a full-time, in-office position due to concerns about COVID-19.

If this occurs, this may impact our revenue growth and profitability.

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An economic downturn could impact the Internet business more significantly than other businesses that are less dependent on new applications and growth in the use of those applications and less susceptible to increases in office vacancy rates resulting from the retrenchment by consumers and businesses that typically occurs in an economic downturn.

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Our historical reductions in our prices are expected to continue in an inflationary economy even as our costs may increase.

Many of the regions in which we operate are experiencing an increase in inflation rates.

Many of the regions in which we operate continue to experience an increase in inflation rates.

Due to the nature of our product offerings and the industry in which we operate, which is deflationary, we may be unable to raise our prices.

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In particular, the cost of electricity has increased greatly in all countries where we purchase power.

While we have negotiated contracts that cap price increases due to inflation or that have fixed the price of electricity, we may experience increases in the costs of electricity and other services that we cannot pass on to our customers or may only be able to pass on partially to our customers.

While we have negotiated contracts that cap price increases due to inflation or that have fixed the price of electricity, we have experienced and may continue to experience increases in the costs of electricity and other services that we cannot pass on to our customers or may only be able to pass on partially to our customers.

If these price increases continue, this may impact our profitability.

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Examples are facilities in which we exchange traffic with other carriers, the facilities through which our transoceanic traffic passes, and certain of our network hub sites.

We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks and vulnerable to pandemics.

If these or any other of our key facilities were destroyed or seriously damaged, a significant amount of our network traffic could be disrupted.

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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.

Risks Relating to Our Proposed Acquisition of the Wireline Business of Sprint Communications

Regulatory approvals necessary for our acquisition of the Wireline Business of Sprint Communications may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following closing of the Transaction.

In September 2022, we announced our acquisition of the Wireline Business of Sprint Communications.

Subject to the satisfaction of the required closing conditions, we expect the Transaction to close in 2023.

Any failure to close or an extended delay in closing the Transaction may have an adverse effect on us.

Our acquisition of the Wireline Business of Sprint Communications requires us to obtain certain regulatory approvals, waivers or consents.

Regulators may impose conditions on these approvals.

Such conditions could have the effect of delaying or preventing the completion of the Transaction, causing us to incur additional costs or limiting the competitive position of the combined company following the Transaction.

Any of these conditions may have an adverse effect on the combined company following the Transaction.

Additionally, any delay in closing the Transaction may adversely affect our business, the business of Sprint Communications or the business of the combined company, including an adverse effect on Sprint Communications’ ability to retain key employees during the transition period or on Sprint Communications’ relationship with its customers or vendors if such parties attempt to terminate, or negotiate changes in, their existing business relationships, consider entering into business relationships with competitors of Sprint Communications or otherwise delay or defer decisions concerning their business with Sprint Communications.

We may not realize the anticipated benefits of the acquisition of the Wireline Business of Sprint Communications, and the integration of the Wireline Business of Sprint Communications may disrupt our business and management.

The success of our acquisition of the Wireline Business of Sprint Communications, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine our business and the Wireline Business.

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integration may be more difficult, costly or time consuming than expected.

Risks Relating to Our Acquisition of the Sprint Business

We may not realize the anticipated benefits of the acquisition of the Sprint Business, and the integration of the Sprint Business may disrupt our business and management.

The success of our acquisition of the Sprint Business, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine our business and the Sprint Business.

The integration may be more difficult, costly or time consuming than expected.

The integration process involves numerous risks.

These risks include:

● inability to achieve the financial and strategic goals for the Wireline Business and the combined businesses;

● inability to achieve the projected cost savings for the Wireline Business and the combined businesses and the resulting impact on profitability;

● difficulty in, and the cost of, effectively integrating the operations, technologies, products or services, and personnel of the Wireline Business;

● inability to achieve the financial and strategic goals for the Sprint Business and the combined businesses;

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● inability to achieve the projected cost savings for the Sprint Business and the combined businesses and the resulting impact on profitability;

● difficulty in, and the cost of, effectively integrating the operations, technologies, products or services, and personnel of the Sprint Business;

● entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;

● disruption of our ongoing business and distraction of our management and other employees from other opportunities and challenges;

● inability to retain personnel of the Wireline Business;

● inability to retain key customers, vendors and other business partners of the Wireline Business or to migrate customers from legacy services;

● any non-occurrence of anticipated tax benefits;

● inability to retain key personnel of the Sprint Business;

● inability to retain key customers, vendors and other business partners of the Sprint Business or to migrate customers from legacy the Sprint Business services;

● any non-occurrence of anticipated tax benefits or potential for adverse tax consequences;

● the effects of complex accounting requirements on our reported results;

● incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

● elevated delinquency or bad debt write-offs related to receivables of the Wireline Business we assume;

● elevated delinquency or bad debt write-offs related to receivables of the Sprint Business;

● difficulty in maintaining internal controls, procedures and policies during the transition and integration;

● impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;

● failure of our due diligence processes to identify significant problems, liabilities or other challenges of the Wireline Business or technology;

● failure of our due diligence processes to identify significant problems, liabilities or other challenges of the Sprint Business or technology;

● exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, the Transaction, such as claims from terminated employees, customers, or other third parties;

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● delay in customer purchasing decisions due to uncertainty about the direction of our product and service offerings;

● increased accounts receivables collection times and working capital requirements associated with business models of the Wireline Business;

● Transition Services (as defined below) costs for longer than anticipated;

● increased accounts receivables collection times and working capital requirements associated with business models of the Sprint Business;

● incompatibility of business cultures.

If we experience difficulties during the integration process and are unable to integrate the Wireline Business successfully or in a timely manner, we may not realize the benefits of the Transaction to the extent anticipated.

If we experience difficulties during the integration process and are unable to integrate the Sprint Business successfully or in a timely manner, we may not realize the benefits of the Transaction to the extent anticipated.

These integration matters could have an adverse effect on us during the transition period and on the combined company for an undetermined period after completion of the Transaction.

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Further, as some of our customers grow larger, they may decide to build their own Internet backbone networks or enter into direct connection agreements with telephone and cable companies that provide Internet service to consumers.

A migration of a few very large Internet users to their own networks, or to special networks that may be offered by major telephone and cable providers of last mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could impair our growth, cash flow and profitability.

The customers of the Wireline Business include a number of large enterprise customers, a type of customer that we have not traditionally served.

We may encounter difficulties retaining such customers or in converting such customers from their legacy services to newer technologies.

Our inability to retain such customers or are unable to convert them to our services, could impair our growth, cash flow and profitability.

A migration of a few very large Internet users to their own networks, or to closed networks that may be offered by major telephone and cable providers of last mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could impair our growth, cash flow and profitability.

We have customers who depend on the U.S.

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As a result, we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth.

If, after the end of the COVID-19 pandemic, a significant number of our corporate customers or potential customers decide to retain remote work policies, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities.

If a significant number of our corporate customers or potential customers decide to retain remote work policies, we may experience increased customer turnover, fewer upgrades of existing customer configurations and fewer new tenant opportunities.

These trends may negatively impact our revenue growth, cash flows and profitability.

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During the pandemic, we saw increasing vacancy rates in many of our buildings due to higher lease terminations and lower leasing activity.

This reduction in tenancy levels was particularly challenging in our Northern and Californian markets.

As a result, our level of activity in our corporate business has been adversely affected.

In order to see a growing level of corporate activity, we believe there will need to be an improvement in the tenancy levels of our buildings through a reduction in tenant exits and increased leasing activity.

Throughout the year concluding on December 31, 2023, we observed a gradual reduction in vacancy rates and an upward trend in office occupancy rates but elevated vacancy rates remain in a number of markets, predominantly in California and the Pacific Northwest.

Concurrently, there were encouraging developments in our corporate business.

Despite these positive indicators, the precise timing and trajectory of these trends remain uncertain.

The lingering effects of the COVID-19 pandemic introduce an element of unpredictability, and we may continue to see increased corporate customer turnover, fewer upgrades of existing corporate customer configurations and fewer new tenant opportunities, which would negatively affect our corporate revenue growth.

Our business and operations are growing rapidly, and we may not be able to efficiently manage our growth.

We have grown our Company rapidly through network expansion and by obtaining new customers through our sales efforts.

We have grown our Company rapidly through network expansion, by obtaining new customers through our sales efforts and by our acquisition of the Sprint Business.

Our expansion places significant strains on our management, operational and financial infrastructure.

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● maintain the quality of our operations and our service offerings;

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● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our financial and regulatory reporting requirements;

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● expand our accounting and operational information systems in order to support our growth.

If we fail to implement these measures successfully, our ability to manage our growth will be impaired.

We may be unable to retain existing enterprise customers, maintain the level of services provided to enterprise customers or attract new enterprise customers.

In connection with the acquisition of the Sprint Business, we acquired an enterprise customer base, a type of customer that we have not traditionally served.

We have established an enterprise sales team within our sales force to focus on retaining these customers and attracting new enterprise customers.

Enterprise customers differ from our existing corporate and net-centric customers in that they have larger, more geographically diverse operations that require a greater percentage of off-net services from us.

In addition, enterprise customers are more likely to require customized solutions and processes and to look for a single provider to meet their connectivity needs.

We may encounter difficulties retaining such customers, in converting such customers from their legacy services to newer technologies or in attracting new enterprise customers.

Our inability to retain or attract such customers or to convert them to our services, could impair our growth, cash flow and profitability.

Demand from certain employees to work remotely may reduce the attractiveness of our business as an employer versus some competitors who are allowing employees to work remotely.

In the fall of 2021, we began to implement an in-office work policy designed to return the vast majority of our employees to an in-office work environment.

Except for a brief return to remote work at the beginning of 2022 for a portion of our workforce, we have maintained our requirement that all employees work in our offices wherever possible.

Except for a brief return to remote work at the beginning of 2022 for a portion of our workforce, we have, with the exception of a limited number of employees who become eligible for hybrid work on a quarterly basis, maintained our requirement that all employees work in our offices wherever possible.

A small minority of our workforce declined to return to full-time in-office employment and left our employment.

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As part of our growth strategy, we may pursue selected acquisitions and strategic alliances.

To date, we have completed 13 significant acquisitions, not including our pending acquisition of the Wireline Business.

However, we are very selective with respect to such acquisitions and alliances and, prior to the acquisition of the Wireline Business, we had not undertaken either for more than 17 years.

To date, we have completed 14 significant acquisitions, including our recent acquisition of the Sprint Business.

However, we are very selective with respect to such acquisitions and alliances and, prior to the acquisition of the Sprint Business, we had not undertaken either for more than 17 years.

We compete with other companies for acquisition opportunities and we cannot assure you that we will be able to execute future acquisitions or strategic alliances on commercially reasonable terms, or at all.

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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.

● unforeseen difficulties or costs associated with the repurposing of the Sprint Network and buildings acquired with the Sprint Business.

In the past, our acquisitions have often included assets, service offerings and financial obligations that are not compatible with our core business strategy.

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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.

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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 typically 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 acquisitions.

Because we have typically purchased financially distressed companies or their assets, and may continue to do so in the future, we have largely not had, and may not in the future have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in acquisitions.

As a result, we may face unexpected contingent liabilities arising from these acquisitions.

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We anticipate that we would experience similar revenue declines with respect to customers we may acquire in the future.

Our data center expansions could involve significant risks to our business.

To sustain our growth in various existing and emerging markets, we may need to expand an existing data center, lease a new facility, or acquire suitable land, with or without existing structures.

Undertaking such projects exposes us to numerous risks that could adversely impact our financial condition and operational results.

The prevailing global supply chain challenges and inflation have further heightened these risks, introducing additional uncertainties into our business.

The selection of suitable sites is a critical factor in our expansion plans.

It is possible that there may be a lack of available properties in our target markets with the required combination of high-power capacity and fiber connectivity, or the options may be limited.

Anticipating ongoing challenges in power availability and grid constraints in various markets, coupled with shortages of associated equipment due to heightened demand and the finite nature of these resources, we may encounter difficulties in site selection, leading to construction delays, increased costs, lower interconnection revenue, reduced margins, and potential negative implications for customer retention over time.

Currently, we are dealing with escalating construction costs attributed to the rising expenses of labor and raw materials, logistical challenges in the supply chain, and heightened demand in our sector.

Despite having invested in building up a reserve of materials to address supply chain issues and inflation, there exists the possibility that it may not be sufficient.

Persistent delays, difficulties in finding replacement products, and continued high inflation could potentially affect our business and growth, significantly affecting our overall business standing.

Any unforeseen disruptions to our supply chain or inflationary pressures might substantially impact the costs associated with our planned expansion projects, potentially hindering our ability to fulfill commitments to customers who have contracted for space in new data centers under construction.

Construction projects are dependent on receiving permits from public agencies and utility companies.

Any delay in receiving permits could delay our construction projects and affect our growth.

While we do not currently anticipate any material long-term negative impact to our business because of construction delays, these types of delays and stoppages related to receiving permits from public agencies and utility companies could worsen and have an adverse effect on our bookings, revenue or growth.

Furthermore, construction related projects require us to carefully select and rely on the experience of one or more designers, general contractors, and associated subcontractors during the design and construction process.

Should a designer, general contractor, significant subcontractor or key supplier experience financial problems or other problems during the design or construction process, we could experience significant delays, increased costs to complete the project and/or other negative impacts to our expected returns.

Our commitments and disclosures regarding environmental, social, and governance (ESG) matters expose us to potential reputational and legal risks.

The perception of our ESG profile as less attractive to customers or employees may impact our brand and reputation.

Our level of commitment to ESG initiatives could influence our ability to attract or retain customers and employees.

The timing, scope, or nature of these initiatives, goals, or commitments, as well as any revisions, may lead to criticism.

Scrutiny regarding the accuracy, adequacy, or completeness of ESG disclosures may arise.

Any perceived failure to achieve our ESG-related initiatives, goals, commitments, or mandates could adversely affect our reputation and materially harm our business.

The growing emphasis on ESG matters has prompted the adoption of legal and regulatory requirements to address climate change effects and necessitate additional disclosures.

If new laws or regulations surpass current requirements, we may face heightened compliance burdens and increased costs.

Our selection of voluntary disclosure frameworks and standards, as well as their

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interpretation or application, may change and might not align with investor or stakeholder expectations.

Achieving our ESG commitments is contingent on numerous external factors beyond our control, including evolving and potentially inconsistent regulatory requirements, supplier availability meeting our standards, and the recruitment, development, and retention of diverse talent.

Competitive Risks

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The terms and conditions of our settlement-free peering relationships may also be subject to adverse changes, which we may not be able to control.

If we are not able to maintain or increase our settlement-free peering relationships in all of our markets on favorable terms or to upgrade the capacity of our existing settlement-free peering relationships, we may not be able to provide our customers with high performance, affordable or reliable services, which could cause us to lose existing and potential customers, damage our reputation and have a material adverse effect on our business.

If we are not able to maintain or increase our settlement-free peering relationships in all of our markets on favorable terms or to upgrade the capacity of our existing settlement-free peering relationships, customers may not upgrade their connections with us or we may not be able to provide our customers with high performance, affordable or reliable services, which could cause us to lose existing and potential customers, damage our reputation and have a material adverse effect on our business.

Additionally, certain of our current customers may seek to become settlement-free peers with us.

We cannot assure you that we will be able to continue to establish and maintain relationships with other ISPs, favorably resolve disputes with such providers, or increase the capacity of our interconnections with such providers.

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

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Our competitors may also upgrade their existing services or introduce new technologies or services, such as satellite-based Internet or 5G services that could make our services less attractive to potential customers.

Moreover, the continuous evolution of technology may empower our competitors to upgrade their existing services or introduce new, more advanced offerings that could potentially diminish our sales of VPN and colocation services.

As a consequence, we may face challenges in acquiring and retaining customers.

Our business could suffer because telephone companies and cable companies may provide better delivery of certain Internet content, including content originating on their own networks, than content on the public Internet.

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The providers of these broadband connections may treat Internet content or other broadband 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 possibility of this has been characterized as an issue of “net

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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 FCC had promulgated rules that would have banned practices such as blocking and throttling of Internet traffic, but those rules were rescinded by the FCC in December 2017.

In October 2023 the FCC voted to move ahead with a plan that would restore net neutrality rules and common-carrier regulation of Internet service providers.

The proposal would reclassify broadband as a telecommunications service, a designation that allows the FCC to regulate ISPs under the common-carrier provisions in Title II of the Communications Act.

Some US states have either issued or are considering their own net neutrality rules.

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We also do not know the extent to which the providers of broadband Internet access to consumers may favor certain content or providers in ways that may disadvantage us.

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Operational Risks

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

We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business (collectively, “IT Systems”).

We own and manage some of these IT Systems but also rely on third parties for a range of IT Systems and related products and services, including but not limited to cloud computing services.

Our business depends on our ability to limit and mitigate interruptions to or degradation of the security of our network.

We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems, as well as trade secrets, intellectual property, personal information or other Company confidential information (collectively “Confidential Information”).

We are considered a critical infrastructure provider and therefore may be more likely to be the target of cyber-attacks.

Our network, systems, applications, and routers may be vulnerable to unauthorized access, computer viruses, cyber-attacks, distributed denial of service (“DDOS”), and other security breaches.

We experience such cyber-attacks and other security incidents of varying degrees from time to time, though none which individually or in the aggregate has led to costs or consequences which have materially impacted our operations or business.

An attack on or security breach of our network could result in theft of trade secrets, intellectual property, or other company confidential information, the interruption, degradation, or cessation of services, an inability to meet our service level commitments or our financial reporting obligations, and potentially compromise customer data stored on or transmitted over our network.

We have experienced cyber-attacks of increasing sophistication which suggest an increase in cyber-attacks that may be state-sponsored or conducted by other well-financed organizations.

Our IT Systems are subject and vulnerable to unauthorized access, social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware, computer viruses, cyber-attacks, distributed denial of service (“DDOS”), and other cybersecurity risks.

We and our employees are the target of phishing attempts and compromised links, and our IT Systems are the target of attempts at unauthorized access, a small number of which have been successful in accessing non-critical areas of our IT Systems.

Our customer-facing network firewall regularly suppresses cyber-attacks and our network routinely manages DDOS attacks.

Although none of the incidents, individually or in the aggregate, have materially impacted our operations or business, we cannot guarantee material incidents will not occur in the future.

An attack on or security breach of our network could result in theft Confidential Information, the interruption, degradation, or cessation of services, an inability to meet our service level commitments or our financial reporting obligations, and potentially compromise customer data stored on or transmitted over our network.

Cyber-attacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools – including artificial intelligence – that circumvent security controls, evade detection and remove forensic evidence.

As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or avoid a material adverse impact to our IT Systems, Confidential Information or business.

Moreover, as cyber warfare becomes a tool in asymmetric conflicts between the United States and other nations, we, as a US provider, may be targeted with increasing frequency.

We cannot guarantee that our security measures will not be circumvented, thereby resulting in security events, network failures or interruptions that could impact our network security or availability and have a material adverse effect on our business, our ability to meet our financial reporting obligations, 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 a diminution in goodwill, caused by a compromise of our cybersecurity.

We may be required to expend significant resources to protect against such threats, and may experience a reduction in revenues, litigation (including class action lawsuits), and a diminution in goodwill, caused by a compromise of our cybersecurity.

Although our customer contracts limit our liability, affected customers and third parties may seek to recover damages from us under various legal theories.

We cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.

In response to past attacks, we have implemented further controls and taken and planned for other preventative actions to further strengthen our systems against future attacks.

However, we cannot assure you that such measures will provide absolute security, that we will be able to react in a timely manner, or that our remediation efforts following any past or future attacks will be successful.

There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information.

Any adverse impact to the availability, integrity or confidentiality of our IT Systems or Confidential Information can result in legal claims or proceedings (such as class actions), regulatory investigations and enforcement actions, fines and penalties, negative reputational

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impacts that cause us to lose existing or future customers, and/or significant incident response, system restoration or remediation and future compliance costs.

Any or all of the foregoing could materially adversely affect our business, operating results, and financial condition.

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.

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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 the inability to prepare accurate and timely financial statements all of which would adversely affect our business and results of operations.

Our insurance coverage may be insufficient to fully protect against potential risks.

We maintain various insurance policies, including liability, property, and others, to safeguard our company against insurable risks.

Our choice of insurance types, coverage limits, and deductibles is determined by our unique risk profile, the balance between insurance costs and perceived benefits, and prevailing industry norms.

There is a possibility that any of the insurance limits we secure, whether for flood or other risks, might be insufficient.

Such inadequacy could significantly and negatively affect our business, financial health, and operational outcomes.

Cogent has not signed a Legacy Registration Services Agreement with the American Registry for Internet Numbers (“ARIN”) or any other regional Internet registry (“RIR”) with respect to a substantial portion of our IPv4 addresses.

Many of the IPv4 addresses we own were originally allocated prior to the creation of ARIN and the other RIRs.

As such, ARIN requires us (and any other legacy resource holder) to enter into a Legacy Registration Services Agreement to obtain access to the full range of ARIN services, including, its Resource Public Key Infrastructure (“RPKI”) and Internet Routing Registry (“IRR”).

We have elected not to enter into a Legacy Registration Services Agreement with ARIN.

As a result, while the IPv4 addresses appear in the ARIN database as under our ownership and control and we have access to a limited set of ARIN services, the Company cannot implement RPKI on these IPv4 addresses.

RPKI is a framework that enables network operators to secure routing infrastructure by associating IPv4 address ranges with autonomous system numbers.

By doing so, RPKI greatly reduces the possibility of route hijacking and leaks when using Border Gateway Protocol (“BGP”) on the Internet.

Our inability to obtain access to RPKI services and authentication may cause some customers to prefer to lease IPv4 addresses from companies that offer RPKI, leading to a loss of revenue for us.

In addition, without RPKI, we are unable to monitor its network proactively with respect to these IPv4 addresses and these IPv4 addresses are at a greater risk for route hijacking.

Moreover, since these IPv4 addresses do not have RPKI certification, the process for reclaiming a hijacked route is prolonged and requires the assistance of other network operators.

This increased potential for route hijacking and longer recovery time may also result in some customers opting to lease IPv4 addresses from our competitors.

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Network Augmentation and Maintenance Risks

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(iii) intra-city dark optical fiber;

and (iv) the buildings that we serve and the associated optical fiber connecting those buildings.

We lease our optical fiber and obtain access to the buildings on our network, both CNDCs and MTOBs, from a number of vendors.

(iv) right-of+-way agreements;

and (v) the buildings that we serve and the associated optical fiber connecting those buildings.

We both own and lease portions of our optical fiber and obtain access to the buildings on our network, both CNDCs and MTOBs, from a number of vendors.

A number of our leases, both for fiber and building access, are up for renewal in any given year.

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While we believe that this fiber will remain usable beyond the projected end date, we face the risk that portions of our network may need to be replaced in the future.

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We expect to enter additional agreements with carriers and operators to obtain additional facilities, whether optical fiber or buildings, for our network in order to add capacity to our network and to expand our addressable market.

We expect to enter additional agreements with carriers and operators to obtain additional facilities, whether optical fiber, leased transoceanic capacity or buildings, for our network in order to add capacity to our network and to expand our addressable market.

However, we cannot assure you that we will be able to enter into such agreements in the future, be able to do so on economically attractive terms or find an adequate substitute if we are unable to reach an agreement.

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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.

Substantially all of our network infrastructure equipment is manufactured or provided by a single network infrastructure vendor.

We purchase from Cisco Systems, Inc.

(“Cisco”) the routers and transmission equipment used in our network.

We have recently experienced delays in obtaining certain network equipment from Cisco due to supply chain issues.

If Cisco fails to provide equipment on a timely basis or fails to meet our performance expectations, including in the event that Cisco fails to enhance, maintain, upgrade or improve its products, hardware or software we purchase from them when and how we need them, we may be delayed or unable to provide services as and when requested by our customers.

With the Sprint Business acquisition, our reliance on agreements with landowners has increased.

Since the acquisition of the Sprint Business, our reliance on rights-of-way, license agreements, franchises, and authorizations from governmental bodies, railway companies, utilities, carriers, and other third parties has increased.

These permissions allow us to place a portion of our network equipment on, over, or under their respective properties.

However, a significant challenge is that some of these authorizations have set expiration dates within the next five to ten years, and renewing or extending them is essential.

The potential adverse impact on our operations looms if any of these authorizations are canceled, terminated, or allowed to lapse, or if landowners request price increases.

The uncertainty lies in our ability to successfully extend these arrangements upon expiration or establish new agreements necessary for executing our network expansion initiatives.

We cannot guarantee our success in these endeavors, raising concerns about the continuity of our operations and our ability to capitalize on network expansion opportunities.

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Effects of climate change may impose risk of damage to our infrastructure, and our ability to provide services.

Long-term climate change may give rise to extreme weather events, posing a direct threat to network facilities and impeding our ability to construct and maintain segments of our network.

Such events could also disrupt suppliers, impacting their ability to deliver products and services essential for ensuring reliable network coverage.

Any resulting disruptions have the potential to postpone our network deployment plans, interrupt customer services, escalate our operational costs, and adversely affect our overall operating results.

The physical consequences of climate change, including heightened frequency and severity of storms, floods, fires, freezing conditions, and sea-level rise, could negatively impact our operations, infrastructure, and financial performance.

Operational setbacks arising from these physical effects, such as damage to our network infrastructure, might lead to increased costs and revenue losses.

To address these challenges, we may need to invest significantly in enhancing the climate resilience of our infrastructure and undertaking preparations, responses, and mitigation measures for the physical impacts of climate change.

Despite these considerations, accurately predicting the materiality of potential losses or costs associated with these effects remains challenging.

We are responsible for maintenance and repair of our owned fiber network.

With the acquisition of the Sprint Business, our operations now include the ownership of a substantial fiber network.

With this ownership, we assume the critical responsibility for the maintenance and repair of the entire fiber infrastructure.

This introduces inherent risks that could impact our operational continuity.

As we did not own a fiber network historically, the new responsibility necessitates an adjustment in our operational approach and poses challenges affecting the efficiency of maintenance activities.

If we are unable to maintain our fiber or adequately and efficiently manage disruptions to our fiber network, our ability to provide services in the affected markets or parts of markets would be impaired unless we have or can obtain alternative fiber routes.

In addition, we may incur unexpected and significant costs, delays or other difficulties in maintaining or repairing our fiber infrastructure, resulting in increased disruption in services to our customers.

We may, as a result, lose revenue or customers.

Substantially all of our network infrastructure equipment is manufactured or provided by a limited number of network infrastructure vendors.

We purchase our network infrastructure equipment from a small circle of vendors.

Historically, we purchased from Cisco Systems, Inc.

(“Cisco”) all of the routers and transmission equipment used in our network.

We have added a new provider for certain types of IP transport equipment but Cisco remains our primary vendor for IP transport equipment.

With the acquisition of the Sprint Business in 2023, we entered into an agreement to purchase routers and transmission from Ciena Corporation (“Ciena”).

We use Ciena equipment for optical wave transport services.

If Cisco or Ciena fails to provide equipment on a timely basis or fails to meet our performance expectations, including in the event that either vendor fails to enhance, maintain, upgrade or improve the hardware or software products we purchase from them when and how we need them, we may be delayed or unable to provide services as and when requested by our customers.

We also may be unable to upgrade our network and face greater difficulty maintaining and expanding our network.

Transitioning from Cisco to another vendor would be disruptive because of the time and expense required to learn to install, maintain and operate the new vendor’s equipment and to operate a multi-vendor network.

Transitioning from Cisco or Ciena to another vendor for the types of equipment each provides would be disruptive because of the time and expense required to learn to install, maintain and operate the new vendor’s equipment and to operate a multi-vendor network.

Any such disruption could increase our costs, decrease our operating efficiencies and have an adverse effect on our business, results of operations and financial condition.

Cisco may also be subject to litigation with respect to the technology on which we depend, including litigation involving claims of patent infringement.

Cisco or Ciena may also be subject to litigation with respect to the technology on which we depend, including litigation involving claims of patent infringement.

Such claims have been growing rapidly in the communications industry.

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There can be no assurance that such non-infringing technology or licenses will be available on acceptable terms and conditions, if at all.

In 2023, we entered into an agreement to purchase routers and transmission equipment used in our network from Ciena Corporation that will begin to diversify the suppliers of our network equipment.

The Wireline Business also includes additional equipment vendors.

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International Operations Risks

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If we are not successful in developing our market presence in these regions, our operating results and revenue growth could be adversely impacted.

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Our international operations involve a number of risks, including:

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● exposure to additional regulatory and legal requirements, including laws that may make it difficult or costly to enforce our contracts, import restrictions and controls, exchange controls, tariffs and other trade barriers and privacy and data protection regulations;

● compliance with laws regarding corruption and bribery, including the United States Foreign Corrupt Practices Act;

● compliance with laws regarding privacy, trade restrictions, economic sanctions, and corruption and bribery, including the United States Foreign Corrupt Practices Act;

● difficulties in staffing and managing our foreign operations;

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Any costs that are incurred as a result of such measures or the imposition of liabilities could have a material adverse effect on our business.

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Regulatory Risks

Existing and proposed privacy regulations may impact our business.

Many countries, including the United States, are considering adopting, or have already adopted, privacy regulations or laws that would govern the way an Internet user’s data is used.

The primary impact of these rules are on businesses that collect personal information about consumer users of their services.

We do not provide services to individual consumers and do not collect such personal information.

However, we transmit data across the Internet, which data may include personal information collected by our customers.

Many countries in which we operate, including the United States, are considering adopting, or have already adopted, privacy regulations, laws, rules or industry standards that that apply generally to the handling of information about individuals.

The primary impact of these rules is on businesses that collect personal information about consumer users of their services.

While we do not provide services to individual consumers, we receive, store, handle, transmit, use and otherwise process business information and information related to our employees, representatives of our business customers and service providers.

This collection of business information and the personal information of our employees subjects us to a number of privacy regulations, including the General Data Protection Regulation (“GDPR”) in the European Union.

These regulations, among other things, require us to make certain disclosures about our privacy policies, limit our ability to process, retain and transfer such information and provide employees with certain rights in relation to the information we collect about them.

We also transmit data across the Internet, which data may include personal information collected by our customers.

As the applicability of privacy regulations to the types of services we provide remains unsettled, we may be required to adopt additional measures in the future.

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Privacy regulations, such as the General Data Protection Regulation (“GDPR”) in the European Union and the California Consumer Privacy Act (“CCPA”) in California vary in scope and in the obligations they impose on us.

As new laws are implemented or existing structures are declared insufficient, such as the Privacy Shield program in place between the US and EU, we may find it difficult to comply with such regulations or find it costly to do so.

Privacy regulations, such as the General Data Protection Regulation in the European Union and the California Consumer Privacy Act in California vary in scope and in the obligations they impose on us.

As new laws are implemented or existing structures are declared insufficient, we may find it difficult to comply with such regulations or find it costly to do so.

Moreover, for our customers who collect personal information, increased regulation of the collection, processing and use of personal data may impact their business and their use of services in unknown ways.

Any failure or perceived failure by us to comply with data privacy laws, rules, regulations, industry standards and other requirements could result in proceedings or actions against us by individuals, consumer rights groups, government agencies, or others.

If any of these events were to occur, our business, results of operations, and financial condition could be materially adversely affected.

Changes in laws, rules, and enforcement could adversely affect us.

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However, governmental authorities may decide to impose additional regulation and taxes upon providers of Internet access and private network services.

In addition, the recent acquisition of the Sprint Business has made us subject to additional or duplicate regulatory obligations, particularly in the countries where the Sprint Business has subsidiaries and related to the Sprint Business.

All of these matters could inhibit our ability to remain a low-cost carrier and could have a material adverse effect on our business, financial condition and our results of operations.

As with the privacy laws described earlier, much of the laws related to the liability of Internet service providers for content on the network and the behavior of our customers and their end users remains unsettled.

As with the privacy laws described earlier, much of the law related to the liability of Internet service providers for content on the network and the behavior of our customers and their end users remains unsettled.

Some jurisdictions have laws, regulations, or court decisions that impose obligations upon ISPs to restrict access to certain content.

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It is difficult to limit access to websites by blocking a fixed set of Internet addresses when the website operators engage in practices that make it difficult to block them.

Should any government require us to perform these types of blocking procedures we could experience difficulties ranging from incurring additional expenses to ceasing to provide service in that country.

Should any government require us to perform these types of blocking procedures we could experience

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difficulties ranging from incurring additional expenses to ceasing to provide service in that country.

We could also be subject to penalties if we fail to implement the censorship.

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Finally, the cumulative effect of these taxes levied on Internet services could discourage potential customers from using Internet services to replace traditional telecommunication services and negatively impact our ability to grow our business.

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Our private network services, such as our VPN services, are subject to taxes and fees in various jurisdictions including the Universal Service Contribution tax in the US.

We believe we collect all required taxes, however, a jurisdiction may assert we have failed to collect certain taxes.

We believe we collect all required taxes;

however, a jurisdiction may assert we have failed to collect certain taxes.

The expense of paying any unpaid taxes could be substantial and we might not be able to collect such back taxes from our customers.

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Our total indebtedness at December 31, 2023 included $484.5 million of finance lease obligations for dark fiber primarily under 15 to 43 year IRUs.

Our total indebtedness at December 31, 2022 excludes $106.6 million of operating lease liabilities which were required to be recorded as right-to-use assets and operating lease liabilities in connection with the adoption of ASU No.

2016-02 Leases on January 1, 2019.

Our total indebtedness at December 31, 2023 excludes $398.1 million of operating lease liabilities which were required to be recorded as right-to-use assets and operating lease liabilities.

The amount of our IRU finance lease obligations may be impacted due to our expansion activities, the timing of payments and fluctuations in foreign currency rates.

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We are party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR.

The critical terms of the Swap Agreement match the terms of the 2026 Notes, including the notional amount and the optional redemption date on February 1, 2026.

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terms of the Swap Agreement match the terms of the 2026 Notes, including the notional amount and the optional redemption date on February 1, 2026.

Under the Swap Agreement, we pay the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays us a semi-annual fixed 3.50% interest payment.

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

● 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, dividends, purchases of our common stock and acquisitions;

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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, integration of the Sprint Business, capital expenditures, dividends, purchases of our common stock and acquisitions;

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

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

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

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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.

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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.

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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.

UNRESOLVED STAFF COMMENTS

We maintain our cash and cash equivalents at financial institutions in amounts in excess of insured limits.

The Company maintains the majority of its cash and cash equivalents in accounts with U.S.

and multi-national financial institutions, and our deposits at certain of these institutions, including the counterparty to our Swap Agreement, exceed insured limits.

Market conditions can affect the viability of these institutions.

In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all.

Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors