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Internet–Internet Pioneer Kleinrock Sets Sights on DSL Service

Leonard Kleinrock, credited as being one of the founders of the Internet, is now on a mission to bring high-speed Internet access to hotel rooms and apartments. Westlake Village-based Nomadix Inc., of which Kleinrock is founder and chairman, is still at least 18 months away from profitability, and it has at least two worthy competitors. But Nomadix has a key asset that its competitors don’t possess Kleinrock’s name. “A lot of doors open up to Len (Kleinrock) that Dan Toomey, CEO of Nomadix, could knock on all day,” Toomey concedes. (Kleinrock was unavailable for comment.) And Nomadix needs doors to open if it is to succeed. Specifically, it needs to cut deals with hotel owners and providers of DSL service, which gives computer users continuous high-speed Internet access over traditional copper phone lines. Nomadix last September launched its sole product, called the Universal Subscriber Gateway. It is essentially a box that enables a single DSL hookup to be routed to as many as 2,000 different users. Nomadix does not sell its boxes outright, but licenses them for $2,500 a year. Typically, when a computer user signs up for DSL service, an installer must physically go out to the customer’s home to set up the service. That procedure makes DSL unfeasible for apartment buildings and hotels, where occupants are frequently moving in and out. But by using Nomadix’s box, owners of hotels and apartment buildings can affordably provide continuous, high-speed DSL Internet access to every one of their rooms. The concept is to free up DSL users to live a more nomadic existence, hence the name Nomadix. “We want people to be able to change locations on the fly, so people are not stuck in the static and stodgy old world,” Toomey said. Rather than directly target apartment owners, Nomadix is negotiating deals with DSL service providers. Those providers, in turn, will then approach apartment building owners about signing up for DSL service and licensing a box from Nomadix or one of its competitors. One of Nomadix’s biggest partnerships so far came in December, when it teamed up with CopperMountain Networks, one of the largest servicers of DSL equipment. But that deal is not exclusive. It involves CopperMountain attempting to hook up the hotel industry to DSL service by offering the boxes of Nomadix or those of Nomadix’s two biggest competitors, Altreus Systems Corp. and Viator Networks Inc. To really place itself at the forefront of its niche, Nomadix must strike exclusive partnership deals with DSL service providers, said Dylan Brooks, analyst with Jupiter Communications. “Instead of having companies come in with DSL and say, ‘We don’t do the (box); talk to one of our vendors,’ Nomadix needs a partner that bundles it in,” Brooks said. In the early going, Nomadix clearly has been relying heavily on the name recognition of Kleinrock, but it will need to deliver more than that to stay in business. “A lot of what they’re riding on is the good name of their founder,” said Brooks. “Certainly it opens doors, but it doesn’t make them better at business.” Yet Nomadix has cut some deals. In the first three months after its product launch, the company reached agreements with 45 different DSL service providers and hotel owners, including Marriott International Inc. (Nomadix is now working with IBM to wire Marriott hotel rooms.) Nomadix has also licensed 30 of its boxes in Tokyo and more international deals are in the works, he said. The box allows travelers to plug into the hotel’s DSL line without reconfiguring their computers. The hotel has the ability to either increase the room cost and allow clients unlimited access to the DSL lines or allow users to access certain parts of the Internet free and charge for other areas. A user simply types in a credit card number for billing before entering premium areas. Analyst Brooks said the hotel market is still wide open, with no clear leaders. “It’s a young market,” Brooks said. “There are 4 million hotels in the United States. If Nomadix can capture a part of that market, they’ll have a good revenue opportunity.” The opportunity has been enticing enough for Nomadix to attract $8 million in first-round venture capital funding from five investors including BancBoston Capital and Ventures, Avalon Technology Ventures and Encore Venture Partners. Nomadix doesn’t expect to make a profit for another 18 months, but there are plans to go public later this year, Toomey said.

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