Scott Woolley , 12.02.08
LOS ANGELES–Imagine life without the Internet. Hard? Just ask state officials in Maine to tell you about the ugly surprise they had on Halloween.
On Oct. 30, Sprint Nextel (nyse: S – news – people ) severed its last connection to Cogent Communications (nasdaq: CCOI – news – people ), disconnecting two of the Internet’s five largest backbones. Instantly, major American and Canadian universities lost contact with each other. Officials in Maine’s state government found they couldn’t link up with many town governments. Millions of Sprint’s wireless broadband customers found themselves cut off from thousands of Web sites. Yet neither the Federal Communications Commission nor the Canadian Radio-Television and Telecommunications Commission took any action to restore global connectivity and the Web stayed broken for three days.
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Most of the time, the unregulated heart of the global Internet is a mysterious place, governed by rules laid out in those confidential contracts between private parties. This time, though, Sprint took the unusual step of a filing lawsuit in Virginia state court, alleging that Cogent breached the terms of a previously secret contract that spelled out how the two companies would trade traffic between their networks. Cogent quickly counter-sued, laying out a very different version of events.
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At 4 p.m. ET on Oct. 30, Sprint cut the last connection. In an instant, customers who relied solely on Sprint (like the U.S. federal court system) for Web access could no longer communicate with customers who relied solely of Cogent for their Web connections (like many large law firms), and vice versa. Angry calls from customers began to flood both companies, and it quickly became clear that Sprint had made a grave strategic error. In the unlikely event that Cogent caved completely, Sprint stood to gain $1.5 million or so in annual revenue, which would add .004% to the company’s $40 billion in annual revenue. The downside was…
