Masergy Scores $45M More

Masergy Communications Inc. CEO Barry Nalls says his company will reach cash flow breakeven by the end of this year and that the carrier has boosted revenues at a rate of at least 17 percent a quarter for the "past dozen quarters."

Nalls made these revelations in a discussion with Light Reading on Wednesday, just after his company's announcement that it had raised a $45 million funding round. The new round is Masergy's third overall, for a total of about $140 million since the company was founded in 2000 (see Masergy Raises $45M).

Masergy also announced yesterday that the former chairman and chief executive officer of Allegiance Telecom Inc., Royce Holland, has joined its board of directors. (Allegiance was acquired by XO Communications Inc. (OTC: XOXO) in February 2004 -- see XO Buys Allegiance ).

The funding round was led by a new investor, West Asset Management. Comerica Bank chipped in for $15 million, and other investors included Centennial Ventures and Meritage Private Equity Funds. The 95-person company hasn't taken a dime from equipment vendors, other carriers, or other strategic investors.

Masergy's financial success shouldn't come as a surprise. The company provides secure virtual private networks (VPNs); IP transport; and wholesale and retail IP voice services to businesses in all sorts of industries. It won accolades last year for its Ethernet services, which are sold with multiple quality of service (QOS) levels and a Web-based management tool, the Service Control Center, that puts users in control of the network (see Leading Lights Awards Finalists).

Its Ethernet services portfolio is key to its revenue growth. Last year, about 60 percent of professionals who work for carriers providing Ethernet services told Heavy Reading that they expect their company's Ethernet revenue to grow by 10 percent or more in 2005 (see HR Sees Ethernet Services Explosion).

With its new funding, Nalls says Masergy can roll out new services that will give it even more of an edge. "One of the things we're doing is offering customers detailed-level forensics on their network traffic," says Nalls. He says the forthcoming software-based product will allow enterprises to see, at any time, "which IP addresses in their networks are causing the most traffic on that network" so they can adjust resources accordingly.

Masergy doesn't discuss pricing, other than to say its Ethernet services cost significantly less than what traditional carriers charge for legacy Frame Relay and ATM services. The carrier leases its network capacity from other carriers and thus claims that it can deliver services almost anywhere in the world. It says it has "major hubs" in London, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Syndey, Los Angeles, San Francisco, Denver, Dallas, Chicago, Toronto, New York, Philadelphia, Miami, Atlanta, and Washington, DC., and "access aggregation hubs" in about a dozen other U.S. cities.

All the same, Masergy faces some heavyweight competition that's likely to grow as the year wears on. AT&T Corp. (NYSE: T), which is combining with SBC Communications Inc. (NYSE: SBC), has the largest Ethernet service portfolio in North America. BellSouth Corp. (NYSE: BLS) is among the most experienced Ethernet service providers and it has a massive fiber network to leverage. Finally, Verizon Communications Inc. (NYSE: VZ) "has experienced strong year-over-year growth for its flagship Ethernet service and is gearing up for more growth in 2005, with a number of new Ethernet features in the works," writes Heavy Reading analyst Stan Hubbard, in his November 2004 report, "Carrier Ethernet Services: Who's Doing What."

— Phil Harvey, News Editor, Light Reading