On the right track for global growth and profits

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As captive markets go, the one Nomad Digital has spotted looks ripe for picking.

Each year, around 27bn passenger journeys are made on the world’s trains. Millions of these passengers are business travellers who want dependable broadband connectivity so they can use their laptops to send and receive large data packets
at speed, without losing the link when the train speeds up or enters tunnels. Millions more want consistent mobile phone reception to make calls without saying “I’m
on the train”, only to be cut off.

This potential for making travel time more productive and enjoyable has provided Nomad Digital’s founders, Graeme Lowdon and Nigel Wallbridge, with a great opportunity.

Taking as their starting point robust, low-cost fixed wireless technology, the two engineers and serial entrepreneurs with wide business experience have developed a means of data connectivity which allows continuous high-speed broadband wireless connection on trains, even when underground or moving at speeds exceeding 100 miles per hour.

Their WiMAX-based technology, for which they are currently seeking patent protection, uses a series of trackside wireless base stations with radios, located every few miles along the route. These provide a “corridor” of coverage for the train, on which a small,
low power base station, called a pico-cell, is installed. Instead of the passenger’s laptop or mobile connecting to big phone masts near the railway, calls are routed through Nomad Digital’s IP network. The pico-cell is used automatically by the passenger’s laptop or phone and the service functions exactly the same as with
normal network coverage.

Because of its high bandwidth, this technology offers the world’s 1,400 train operating companies a range of real-time applications. While passengers can work or be entertained, Nomad’s networks can also provide updated journey information. There is also enough bandwidth for remote video surveillance of trains. Additionally, operational issues, such as delays and equipment failures, can be immediately identified.

The technology’s application can extend beyond rail transport; in a recent pilot deal with Capgemini Sweden, Intel, MobileCity, Pilotfish and Solutrea for public transport authority Storstockholms Lokaltrafik, Nomad’s broadband internet connection is being provided on the 676 commuter bus route from Stockholm to Norrtalje.

Information from the buses can be directly monitored by Nomad. From the company’s headquarters in Newcastle,
it is possible, as Lowdon demonstrated, to follow, on an on-screen map, the progress through Stockholm’s suburbs of a 676 bus with a slightly under-inflated rear left tyre.

Lowdon and Wallbridge, who is now based in Canada, began developing this technology in 2002. They met when Wallbridge,who had started his own telecommunications companies, sold one of them, Wide Area Markets, to J2C, the quoted business-to-business internet trading company which grew and shrank in the height of the dotcom era. Lowdon, J2C’s co-founder, was operations director, but left amid boardroom strife. His experience at J2C, which he later bought back and sold at a profit, was choppy, but brought him experience. “Business isn’t that complicated; it’s just shrouded in mystery,” he says.

Since Nomad Digital gained first-mover advantage by being selected in 2004 to roll out its technology, in partnership with T-Mobile, on Southern Railways Brighton to London line, subsequent deals have supported its claim to be the world leader in its field. Its technology is in use on the Heathrow Express,Virgin’s West Coast Mainline services and the Netherlands’ state-owned trains. Nomad is involved in trials and projects in eight countries worldwide.

Initially funded by its founders, in mid-2006 it received £8m venture capital funding, of which £5m has so far been drawn down, from Amadeus Capital Partners, with support from T-Mobile Venture Fund. Last year it acquired QinetiQ Rail, with QinetiQ getting shares for a £1.5m investment in Nomad. Nomad’s management and employees own a 55.3 per cent stake in their company.

Valued in March 2007 at £45m, Nomad is poised for rapid growth, from £1m turnover in the year to June 2008, to a projected £5.7m in 2008/9, rising to £18.4m in 2009/10. After two years in which earnings were ploughed into R&D, it is expected to return to profitability in 2008/9. For 2009/10, Lowdon forecasts £7.4m earnings before interest, tax, depreciation and amortisation.

Inquiries have exploded, from four a year to five a week, from China, the US, the Middle East and Europe. “There are 400,000 trains in the world,” says Lowdon. “So far, we’ve equipped 56.”

The challenge is, as he puts it, “the drinking from the fire hose problem”. How should Nomad, a 30-employee company with a 12-24 month technology headstart, cope with this volume of global demand?

“I don’t necessarily think building an empire is the way to go about it,” says Lowdon. Technology partnering risks “giving away the crown jewels”, but building and managing a global sales force is complex. However, the founders’ present objective for Nomad is growth, not immediate sale.

Lowdon says the business can cope with the present level of inquiries, but the challenge is clear. He is not complaining. “We are in business to create value. You can’t create value unless you’re solving problems.”

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