VPN Player Collects Cash

Influential venture capital firm Apax Partners has backed a startup touting one of the most radical propositions in the telecom sector today -- the ability to provision IP VPNs with quality-of-service guarantees across multiple carrier networks (see Nexagent Gets £15M Second Round).

That startup is Nexagent, founded by the young telecom toff Charlie Muirhead, best known (so far) for starting OSS player Orchestream Holdings, now part of MetaSolv Software Inc. (Nasdaq: MSLV).

Nexagent is addressing the biggest issues facing the VPN market -- network interconnection, customer choice and flexibility, and lower costs. Its plan is to operate peering points and a service operations center that will allow integrators and carriers to stitch together VPNs from multiple carriers. Nexagent will not be a VPN service provider itself.

Muirhead says this can be achieved using his company's proprietary technology that sits at the peering points, and which stitches together the multiple VPNs and enforces the service level agreements (SLAs) of each constituent carrier. The key to the solution is Nexagent's home-grown operations support system (OSS) that has been designed specifically for this purpose. To get more detail on Nexagent's approach, read this story: Nexagent Promises VPN Nirvana.

The market for international data services to the world's multinational firms is enormous -- AT&T Corp. (NYSE: T) reckons it's a $16 billion-a-year market -- yet these corporate users cannot get the service they desperately want. If Nexagent's technology lives up to its hype, VPN users will save money, have more service provider choices, and get better service-level agreements (SLAs) with metrics that can be met. Form an orderly queue, please. No shoving.

Muirhead is so excited by his new cash pile and Nexagent's progress that he almost bursts a blood vessel while spilling the details. "Now we're fully funded, and backers don't come bigger than Apax. This gives us massive credibility, and now we have the fuel to roll out globally," he says.

So far Nexagent has rolled out service in London and Frankfurt -- the only locations where it has installed its own points of presence (POPs), the necessary hardware and software at network collocation points (see Nexagent Opens for Business). "This service (it's not a pilot -- this is a live service) will clearly demonstrate that [VPN interconnection] can be done. And it's as good in terms of performance as anything out there, and better than most," boasts the boy wonder.

Apax is on board with Muirhead's optimism. Literally. In addition to the funding, the firm is putting one of its directors, telecom industry veteran Mike Grabiner -- formerly with BT Group Plc (NYSE: BTY; London: BTA) and Energis plc (OTC: ENGSY) -- on its board.

"We're very interested in IP VPNs. They're taking over from ATM and Frame Relay, and large enterprises want international IP VPNs, but they find it very difficult to get what they want," says Grabiner.

Grabiner claims there'll be no problem getting carriers to use Nexagent to help provide international IP VPNs to their customer bases. "The vast majority of carriers will benefit from this. It's going to make it easier to provide end-to-end services, and it'll help to fill their networks."

Not all carriers will be jumping for joy if Nexagent's technology allows integrators and Tier 2 players to win new international VPN business. Its success will eat away at the growing VPN business currently being captured by the likes of Equant (NYSE: ENT; Paris: EQU) and Infonet Services Corp. (NYSE: IN).

Muirhead says there are plenty of significant international players, those that currently don't offer service in hundreds of countries, that are showing great interest in Nexagent's proposition, and he expects to be working with one or two of these carriers in the coming months.

But there's plenty of work to be done before further announcements are made. The next obvious places to set up POPs are New York, Stockholm, and the major Asia/Pacific locations, says Muirhead, who claims a POP can be set up for business in just one week.

And there's some technical tinkering to be done, too. Nexagent's technology is optimized to work with Cisco Systems Inc. (Nasdaq: CSCO) equipment, which would make it harder to persuade the likes of VPN service provider Savvis Communications Corp. (Nasdaq: SVVS) to use Nexagent's service: Savvis uses Nortel Networks Corp. (NYSE/Toronto: NT) kit to provision its customers.

Muirhead says Nexagent's technology would still work with any vendor's IP equipment, but there is some development work still to be done to enable full functionality with non-Cisco gear. And now that he's got all the money he needs to take Nexagent to profitability, Muirhead's got time to tinker.

— Ray Le Maistre, International Editor, Boardwatch

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